The Credit Commons: Better than Bitcoin

This is just a few notes about why the Credit Commons design is better than bitcoin. This is not an article and is written for no particular audience, but it could be!

We have to thank Tom Greco for bringing the phrase 'Credit Commons' to our attention. It reminds us that everything which was common is being enclosed, and that the abstract, misunderstood and very simple thing, credit is the most critical to bring about a fairer and more sensible society.

When I read in 2010 Greco's book, The End of Money and the Future of Civilization I was starting to give cookie-cut open source software to a handful of LETS groups. In that book he was essentially saying that the economy should be constructed from local business barter clubs, networked together into a global system. That such a system would be free from centralised control, locally appropriate, stable and it would have sufficient interest-free credit. In Greco's words I saw a way for the grassroots to start relying on each other and build another system by gradually opting out without conflict. Furthermore that an alternative money or credit system was essential to any such endeavour.

I continued installing these systems and tinkering with interoperability but then Bitcoin came along. It took a while for me and my colleagues to get our heads around Bitcoin. Would the world adopt it en masse and 'disintermediate' the banking system? Would it make the world a better place by preventing quantitative easing? Was virtual gold a proper basis for a solidarity economy? Could we enrich ourselves and empower our work by speculating on its success? It turned out the answer to all these questions was no, and gradually a fuller critique emerged.

Being modeled on gold, a finite commodity yet having no intrinsic value of its own, Bitcoin derives its value entirely from supply and demand, which meant that the price was very vulnerable to media hype, speculation, and market manipulation. The only way to stabilise bitcoin at say $10Bn market capitalisation would be for some trusted party to put that amount in trust to be available for redemption, but this would compromise other major advantages of the currency.

Also in bitcoin, which often touted as 'trustless' the notion of credit doesn't even exist. It is part of the notion of being a commodity but also the fixed money supply, that a wallet cannot go below zero like a bank account.

Bitcoin also lacks any kind of monetary policy. The release schedule was predetermined, so the currency cannot respond to what is happening in the marketplace, which means there is no knob to adjust the supply, and no political or technical process to control the absent knob! Now we see new bitcoins are issued even as the demand goes down. Its technically clever, but monetarily stupid.

This is connected to another flaw which we also see in the Euro, a single currency for multiple economies. Bitcoin is offered as a single currency and what the world needs is a diversity of currencies to support divers economies, cultures and governance processes. A network of pseudo-national coins was a step in that direction, but a step soon retracted.

Also Bitcoin allows us the possibility of anonymous transactions which is very valuable in many ways, but it makes the terrorist-hunters very nervous. So Bitcoin has been vilified as a tool for money-launderers and drug dealers which can't have helped.

The Credit Commons solves all of these problems, and, being built on a blockchain, retains many of Bitcoin's better features too.

So instead of having units which are created in some quantity, for some reason, by some schedule, all units in the credit commons are half of a promise, where a good or service which has changed hands is the other half. Instead of paying with a coin which is worth nothing and circulates forever, I pay with my promise, witnessed by my peers, to do something of equal value, and when I do and the payment comes back to me, the 'units' no longer exist. This kind of money system means that the right amount of credit is always available, and furthermore, that there is economic equilibrium i.e. supply in the marketplace always equals demand, something which even the best economists struggle with.
This whole approach has a very strong aesthetic. One can find in it much symmetry and balance and the kind of mathematical elegance and simplicity that makes one want to make it the cornerstone of a new theory!
Mutual credit systems also allow participants, insofar as they are trusted, to spend BEFORE they earn.
It also means that the price of the unit isn't likely to attract speculators. A load of people promising to deliver "bananas' worth of goods or service" to one another is not likely to be the next pump'n'dump.
But the Credit Commons is not about creating one big mutual credit system. It is about existing systems joining together to make a meta system; it is a fractal pattern. This brings to mind many parallels in nature.
The model of many complete systems joining to make a metasystem is reminiscent of cells collaborating to make an organism or organisms collaborating to make a super-organism.
Each individual system can then be governed by its members and respond to local conditions. This in turn creates diversity and specialisation. By being connected all the systems benefit from being part of a larger marketplace.
By building with communities that already exist is like building on solid foundations. In evolution species must be viable at every stage of development. There is no kick-start or investment capital in evolution only slow progress and a continual selection through failure *

*The full mechanism for evolution is not yet known. Natural selection is still only a theory, though it seems like that it plays some role in shaping species.

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