A Peer-to-Peer Digital Economy & Supranational Reserve Currency System
A monument not to our greatness but to our existence
Abstract. The root problem with conventional fiat currency of a single nation as a global reserve currency is all the trust that’s required to make it work. The central bank of the reserve currency issuer nation must be trusted not to debase the currency, it also faces the conflict of economic interests that arises between short-term domestic and long-term international objectives known as Triffin’s Dilemma, but the history of global reserve currencies is full of breaches of that trust that have undermined global economic growth & stability. Moreover, the exorbitant privilege of a nation being the global reserve currency issuer provides access to cheap capital but comes with the exorbitant burden of running constant deficits as well as reduced domestic economic growth, loss of manufacturing & unemployment. Further, the transition from the reserve currency of one nation to another has been preceded by wars or fiscal irresponsibility or natural disasters followed by economic woes for the whole world.
We propose a solution to peacefully aid the transition to a global reserve currency that does not lead to the loss of monetary sovereignty of states. A peer-to-peer ecosystem of a world economy would allow commerce to flow without going through trusted intermediaries and financial institutions of the reserve currency sovereign state that have come to dominate the internet and extract value by facilitating transactions. Furthermore, rich countries and monopolistic corporations leverage their geopolitical and commercial dominance in the world economy via reserve currency status to depress or cheapen the prices of resources and labour in the global South. Thus, as a result, for every unit of embodied resources and labour that the global South imports from the global North they have to export many more units to pay for it, enabling the North to achieve a net appropriation through trade. This is known as the theory of unequal exchange which has led to the spread of global inequality.
Bitcoin and Layer-1 Blockchains provide a model of the solution by acting as a neutral mint & buyer of last resort, but the lack of a decentralized digital identity and absence of sovereign state participation in the ecosystem are the main issues that hinder adoption. Most benefits are lost if trusted third parties like centralized webhosting services, marketplaces, social media and centralized exchanges are required to function. We propose a model for a decentralized peer-to-peer circular economy that relies on a system where reserve currency can be earned from traditional commerce or issued for providing spare bandwidth, storage and computational resources to the network as well as spent in the same ecosystem for utilizing these computational resources ultimately transcending into an information society and ushering in the fourth industrial revolution. As a part of the model, we also propose a system of establishing social trust utilizing verified credentials. We also propose a solution for sovereign state participation in the network by a premine/grant of proposed supranational reserve currency to sovereign states on the basis of national debt & foreign reserves in exchange for participation in the network and this reserve currency may be used to restructure debts, provide a platform for issuance and use of Central Bank Digital Currencies & tokenized assets or be used for storage, processing & transmission of information.
Commerce on the Internet has come to rely almost exclusively on financial institutions and corporations serving as trusted third parties to process electronic payments, host data, websites, marketplace listings and facilitate communication. While the system worked well enough, it has started to show its drawbacks which include disintermediation of users, censorship, collection of personally identifiable information and arbitrary commission rates. Some sectors of the internet economy such as advertising and social media have been monopolized at the detriment of users. Ensuring permanence of data is not possible since institutions and corporations cannot completely avoid regulations and security risks and represent a single point of failure. The use of centralized platforms for commerce which often provide paid premium features and advertising have increased the cost of doing business and this cost has been passed onto the consumers. These additional costs can be avoided by self-hosting data and websites, but no mechanism exists to facilitate commerce on the internet without a trusted party or expensive hardware or technical know-how. The original Bitcoin code had a marketplace & messaging component to it which was deprecated due to unknown reasons by Satoshi Nakamoto. Today’s largest centralized internet corporations undermine privacy and collect user data which they sell in exchange for the free services they provide. The platforms also control who can access the data through their restrictive policies. These corporations sometimes hold more wealth than sovereign states and exert considerable influence over public opinion and public policy despite having no system of checks and balances in place. Various corporations today due their size, user adoption and accumulation of wealth and data have created a parallel unaccounted digital economic ecosystem based on rules decided arbitrarily.
A theoretical supranational reserve currency known as Bancor was proposed by Keynes at the Bretton Woods Conference, but the proposal was rejected due to its untenable interest rates on net surpluses in international trade as well as a lack of buyer of last resort. The main objective of the International Monetary was to promote global financial stability but it has failed in its objective by relying on Fiat Currencies issued by sovereign states. Bitcoin provides a model for a supranational reserve currency which can be anchored to a stable benchmark and is issued according to a clear set of rules therefore, ensuring orderly supply; second, its supply is theoretically flexible enough to allow timely adjustment according to the changing demand (consensus mechanism & hard forks); third, such adjustments & issuance are disconnected from economic conditions and sovereign interests of any single country. The current state of Bitcoin and crypto-technology ecosystem usually involves a high cost of entry. For instance, one must provide identity verification to centralized exchanges, conduct multiple asset transfers and incur fees along the way. The current state of Layer-1 Blockchains like Ethereum is no better. It involves the same pitfalls as accessing Bitcoin and involves installing browser extensions to interact with smart contracts & decentralized applications which involves hefty fees and complexity. Various Layer-2 solutions have been proposed for blockchains, but they usually involve bridging assets to the layer-2 solutions powered by their own tokens and add even more complexity in participating in the crypto-economy. Some argue that the most important part of the Bitcoin experiment is the underlying blockchain technology as a tool for distributed consensus, but we propose that model for a neutral decentralized mint & open-source nature of code running distributed systems and associated smart contracts & Dapps is arguably the most important aspect of the crypto-ecosystem. The implications of this open-source nature of software development as opposed to walled-gardens are far reaching as any improvements to a blockchain protocol or smart contract can essentially be utilized on other chains which have a superior network effect or user adoption. In our model of a web3 economy we propose two components, one is Digital Protocol which represents computational resources, and the other is Market Protocol which represents decentralized identity, marketplaces and tokenization of physical assets. The protocol is neutral to anonymity but allows willing counterparties to choose the minimum information acceptable for commerce as per laws of the sovereign nation.
2. Digital Protocol
In our model, the Digital Protocol may represent in whole or as part an application or a smart contract or an interface. The basic components of the Digital Protocol are Storage, Autonomous, Transfer, Operation, Satellite, Hashing and Interface. Blockchain protocols with these utilities already exist isolated within their ecosystems.
a. Storage: Blockchain is a distributed ledger that records transactions using a shared consensus mechanism. This functionality of merely storing transactions has been further expanded to store any form of data. The most popular iterations of this are Filecoin, Chia & Arweave. While Filecoin enables storage of data for a defined period of time, the arweave protocol provides permanent data storage beneficial for verified credentials, tokenized assets & smart contracts.
b. Autonomous: Smart Contracts that exist on the blockchain can be considered Autonomous. Even Bitcoin protocol contains various OPCODES that enable such autonomous transactions. This has been further advanced by the Ethereum Protocol via the Ethereum Virtual Machine.
c. Transfer (Double spending problem): This refers to the ability to transfer unique digital & tokenized assets and the prevention of double spending. Bitcoin was the first protocol to provide a solution to the double spending problem without a central entity. It may include interoperable CBDCs, tokenized assets, NFTs & identities (Soulbound tokens).
d. Operation (Proof of computation / Useful Proof-of-work): Useful proof-of-work blockchains such as the Ixec Blockchain & Helium Network have made it possible to reward users for distributed computing.
e. Satellite (Proof of Coverage/bandwidth): This refers to the ability to send and receive information over the internet via mesh networking. Blockchains that utilize spare bandwidth to enable mesh networking such as Helium already exist. It may also allow nodes & points of sale & commerce to monetize spare bandwidth as well as allow a greater population to access the internet by providing incentives to the general public & telecom & satellite operators.
f. Hashing: This refers to the cryptographic hash function which is a one-way hash function that maps any arbitrary data to a bit array of a fixed size (Hash value). It may also refer to the consensus mechanisms deployed to add new blocks to the blockchain.
g. Interface (Decentralized Social/Steem/Dapps): Nodes may also operate their own interfaces providing front-end services to users. Even though a node/interface may set its own rules & moderation policies regarding the content that is displayed by their interfaces. For eg. A marketplace may only allow users from certain sovereign state or credentials to display its products or a social media interface may only allow verified users or be open to all users. Popular interfaces may be able to charge a node fee or listing fees for content to be visible on their interfaces.
3. Marketplace Protocol:
This proposed protocol refers to the physical & digital intersection of commerce. Even though, real estate, stocks & identities can be tokenized they hold little value without credible oracles & reputable sovereign institutions verifying such data. We propose a single unified protocol which captures data that is shared, compiled and stored by sovereign states in one singular database by providing uniformity in how the data is captured across various government departments and agencies. This may include decentralized identities through which a citizen may prove various credentials without sharing personally identifiable information using zero knowledge proofs. It includes a global marketplace protocol to facilitate Peer-to-Peer commerce in which various kinds of credentials & associations enable consumers to make informed choices. It may also include other stake holders such as banks, financial institutions, stock exchanges and other entities that may issue verified credentials as authorized by sovereign states. This will enable commerce & capital to flow freely with the counter-party risk that is acceptable to both parties in a transaction. The basic components of this protocol are Nationality, Association, Knowledge, Assets, Marketplace, Organization, Taxation & Operation.
a. Nationality: This refers to various sovereign states & observer members of the United Nations that may issue verified credentials to individuals or entities under its control. For eg. A Social Security Number, Aaadhar number or unique identifier for a government agency that may issue verified credentials to users or organizations or a national stock exchange that may issue credentials to companies listed on the exchange. This may also enable sovereign states to issue CBDCs that are interoperable and backed by their respective central banks. Central Banks may decide access to CBDCs or capital controls or models they want to pursue to distribute CBDCs in domestic economies or only allow them to be used for international trade.
b. Association: This refers to various associations that dominate the economic landscape for example industry organizations, political parties, international organizations etc. It may also include associations by private individuals of other individuals in the absence of a well-recognized association.
c. Knowledge (Doctor / Lawyer / Accountant / Driving License/ Degrees): This refers to the verified credentials issued by educational institutions or trade bodies that may help the service economy to flourish. For eg. a decentralized version of uber may require driving licenses or a service marketplace may require plumber/electrician certification. Further, service marketplaces may flourish using these verified credentials.
d. Assets (Stocks, real estate registries, physical goods etc.): This refers to the tokenization of stocks & other physical assets. For example a stock exchange issued verified credentials by a sovereign state may further issue credentials to companies to tokenize their stocks further enabling capital inflows & foreign direct investment in a country. This may apply to land registries as well as other assets that can tokenized and verified by institutions & entities regulation such assets.
e. Marketplace: This refers to a marketplace protocol that may provide listings for physical goods. Particl Blockchain Protocol & Openbazaar have already demonstrated these capabilities. It may also include trade licenses, food licenses & other regulatory compliances needed to operate in an economy. A marketplace that is decentralized at the protocol level may be centralized at the interface level as front-ends may only include products that are approved by the node administrator or may be open to all.
f. Organization: Employer organization or other reputable organizations may issue verified credentials to its employees or members providing access to confidential data or privileged access to certain services.
g. Taxation: Smart Contracts that enable taxation by sovereign states or Taxation IDs or taxation records that may allow government agencies to view a private blockchain. For example viewkeys in the Monero Protocol. It may also enable determination of income for uncollateralized lending.
h. Oracle: This may refer to other records & data that is generated by sovereign or private entities in the economy. It may include pricing feeds, insurance records, credit scores, medical records, criminal record, traffic violations etc.
4. The Challenge & model for transition:
Apart from the humongous technical challenges of scalability, protecting privacy and developing this protocol sovereign participation is essential as trusted providers of verified credentials. We propose a global injection of liquidity in the global economy via a predefined formula to reflect current economic status of sovereign states. Sovereign States can distribute this currency to local governments and organizations that can provide verified credentials as well as distribute this currency to citizens alongwith CBDCs. For instance, a decentralized version of Uber would at the very least require verification of driving license credentials, a food delivery platform may require health authority licenses, land ownership can be verified by registrars, public universities may authenticate degrees. Users that do not have these credentials may still operate in this economy and compete if they provide a valuable service at lower prices. We propose the following formulae for allocation of the proposed currency at a fixed rate pegged to the dollar:
Public Debt Denominated in Dollars X 0.25 + GDP (PPP) X 2 + IMF Reserve Currency Reserves in Dollar rates X 3
5. Use cases
a. Decentralized web and operating system.
b. International reserve currency & global unit of account for international trade.
c. Banking the unbanked & providing a standardized global ID system.
d. Permaweb & permanent data storage & decentralized distributed computing for AI & research.
e. DeFi: This can be used for availing loans against your tokenised assets such as stocks, digital assets as collateral for flash loans or over collateralized loans.
f. Access to credit: For instance, if Alice is a member of a reputed farmer association or trade association that provides insurance against short-term loans then they may use their association verified credentials & insurance credentials to procure a short-term loan from a bank or financial institution to pay for farming inputs, seeds etc.
The Last Question by Isaac Asimov
- Bitcoin: A Peer-to-Peer Electronic Cash System https://bitcoin.org/bitcoin.pdf
- Zhou Xiaochuan: Reform the international monetary system https://www.bis.org/review/r090402c.pdf
- Archain: An Open, Irrevocable, Unforgeable and Uncensorable Archive for the Internet https://www.arweave.org/whitepaper.pdf
- Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform. https://ethereum.org/669c9e2e2027310b6b3cdce6e1c52962/Ethereum_Whitepaper_-_Buterin_2014.pdf
- Hard Problems in Cryptocurrency: Five Years Later: Hard Problems in Cryptocurrency: Five Years Later
- Decentralized Society: Finding Web3’s Soul Decentralized Society: Finding Web3's Soul by E. Glen Weyl, Puja Ohlhaver, Vitalik Buterin :: SSRN
- Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015 Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015 - ScienceDirect
- tbDEX: A Liquidity Protocol v0.1 https://tbdex.io/whitepaper.pdf
- Helium A Decentralized Wireless Network http://whitepaper.helium.com/
- Proof of Humanity Proof of Humanity - An Explainer
- Chia Business Whitepaper https://www.chia.net/assets/Chia-Business-Whitepaper-2021-02-09-v1.0.pdf
- Steem An incentivized,blockchain-based,public content platform. https://steem.com/SteemWhitePaper.pdf
- DeSo: The Decentralized Social Network DeSo: The Decentralized Social Network - DeSo
- Particl: A Decentralized Private Marketplace whitepaper/decentralized-private-marketplace-draft-0.1.pdf at master · particl/whitepaper · GitHub
- OpenBazaar Releases · OpenBazaar/openbazaar-desktop · GitHub OpenBazaar Co-Founder on Why Web 3’s eBay Folded Tents - CoinDesk
- The Last Question by Isaac Asimov https://www.physics.princeton.edu/ph115/LQ.pdf (Important for Non-technical users/readers)
TLDR: A Supranational reserve currency & platform on which CBDCs can be issued & it can be used for transfer of CBDCs, digital assets, mesh networking, storage, smart contracts, processing, ID system, marketplace & tokenization of real world assets.
The vision is a crypto-economic system based on a supranational reserve currency system in which sovereign states can participate & issue CBDCs & verified credentials & network acts as the last buyer for storage, processing & transmission of information & transfer of assets.
It is as a combination of Helium Network, UTXOs & CBDCs/Bitcoin, Ethereum/Smart contracts dapps, Ixec Blockchain/Golem Network, Arweave/Filecoin, Encryption Protocols/Zero-Knowledge Proofs & Interfaces. & Decentralised Identities & Marketplace component.