P2P Energy Economy

A proposal by Marc Fawzi of Evolving Trends:

Description

P2P Social Currency Model

Release

v0.16

Changes

Please use history tab on Wiki page to see changes.

Current Release Mode

Agile–> release early, release often, high bandwidth communication

Odd versions: experimental and rapid-fire changes

Even versions: stable

Pending Changes

1. Need to elaborate on peer relationships and how they map to Fiske’s four definitions: Communal Sharing, Equality Matching, Authority Ranking and Market Price.

2. Need to have a meaningful, passionate narrative under Context.

Premise

Money is one of the foundational elements of society.

Changing how money is created and used will change society.

Context

The “P2P Social Currency” as it’s defined here is an ambitious idea, or “thought model,” for what we may end up with in 20 years from now, not a plan for today. Its goal is to stimulate and challenge people to think different.

The ideas contained in this model may be applicable to other alternate currency/payment systems, so people are welcome to adopt any aspect of this model, but it would be nice to contribute back by participating in the debate around this model.

The intention, going forward, is to turn this model into a game with human players to test out its propositions.

Model’s Scope

This model does not attempt to change the nature of money itself. What it attempts to do is to change the nature of the system (or the ‘environment’) for the creation and use of money, which changes how money behaves, and which in turn changes the nature of system (or the ‘environment’), while keeping the nature of money the same, i.e. as a neutral carrier of power and information, and while raising the value and the utility of the information carried by money by simply making such information explicit.

Model’s Axioms

1. Money is a carrier of both power and information, and as such it transfers both power and information in every transaction.

2. Most people agree on what’s good for society, e.g. less toxins in food, more generosity, less selfishness, etc

3. Enough people will exercise socially conscious judgment when given the opportunity.

4. In the envisioned [online] P2P Economy, it is natural for everyone to be a seller/producer, a buyer/consumer, a lender, a borrower, and a creator of money, all at the same time. In other words, all roles within the p2p economy are carried out by each individual peer.

Model’s Propositions

The following are the main propositions of this model:

1. Enable a lending system that rewards lender, without charging interest to borrower, and that motivates lenders to become producers of goods and services. This is achieved by moving from a time value of money to a peer production value of money. Peer credits accumulated through lending are convertible to monetary reward (for those lending peers who also happen to be producers of goods and services) by having the peers with most credit point rank higher as sellers of goods and services. The peer credits accumulated by a given peer (through lending) are also used to determine how much money they can borrow (see Peer Credits sections.)

2. Direct the flow of money towards socially conscious producers of goods and services. This is done using the Affinity Matrix (see Affinity Matrix for P2P Trading)

3. Democratize money creation by tying it to peer energy production, such that those who produce energy locally (from natural, abundant sources like solar and wind) and feed the extra energy they don’t need into the common grid (or Peer Grid) get the then-equivalent in P2P currency (or Peer Dollars) from the central bank (or Peer Bank), which is a distributed electric utility provider that is entirely fed by excess energy production from individual peers, and which can dispense new currency (in sync with economic growth) in return for energy generated by peers as well as simply act as a monetary hub for p2p energy transactions.

4. Make available cheap and abundant renewable energy which should enable the production of more goods and services (i.e. higher productivity) and drive economic growth.

Model’s Limitations

One of the three main objectives of this model (see Propositions) is to encourage the generation of energy by people/businesses such that we end up with an increase in energy production and decrease in the price of energy as more and more people exchange their excess locally generated energy for Peer Dollars, which they then use to buy goods and services, invest in appreciable assets, lend to others and/or produce more goods and services. If the economy as a whole fails to produce more goods and services as a result of cheaper more abundant energy then this model will not work.

Original Idea

If we had a networked, programmable currency then I could tell my money to exchange itself only for goods/services that are made by vendors who care about the planet AND who have donated to my chosen candidate for President.

I can be as particular as I want and my money should do the figuring out of whom to pay itself to, based on rules I supply, and based on information it can access about the parties I’m trading with.

Another example for networked, programmable currency is to enforce rules on the spending of a daily/weekly/monthly amount of my own money that I let my kids use (luckily no kids yet) so they don’t buy food that contains unhealthy ingredients.

The new networked, programmable money should abandon the idea of paying interest on borrowed money. There is so much debt in the system that it would take decades to get rid of it and return the economy to normal functioning. The interest on debt is like bad cholesterol. While it fattens the economy, it ultimately clogs the global economic arteries and can lead to economic failure, as it has done (see: global economic meltdown 2008.)

If you lend money to someone you should be able to get your money back and get “peer credit” points that would replace today’s “hamster wheel” concept of credit rating, which was designed to encourage people to buy money with money, e.g. buying $1,000 for $1,110, which is not only retarded but gives value to money from nowhere. Instead of being rated on your timeliness in paying back money borrowed + interest, you should be rated on how much you’ve lent others. This way people can dictate that their money is to be exchanged for goods/services only from providers with N “good will” points or more.

Maybe a good place to try this P2P Social Currency (or “Money 2.0″) would be in an online virtual world?

Follow-up and Clarification

I should add a clarification here that the conditions/rules imposed on the exchange of this new money (as defined in this post) do not last beyond the singular transaction. In other words, if I restrict my money to spend itself on organic food only, the grocery store that sells me the organic food will no longer have those rules imposed on the money I paid to them. They can enforce their on rules on it, whatever they may be, and then use it to buy stuff with, and so on…

As to the 1-dimensional value system that is imposed by the current definition of money, i.e. the numerical (or “price”) value, I think it is only a matter of time before this value system goes from being 1-dimensional to N-dimensional. The reason the value system that is imposed by the current definition of money is limited to just the numerical dimension, i.e. price, is because it is assumed that people do their own research/homework when trading with others and make their decision to trade based on that. What I’m suggesting is for the new money to have more than just a numerical value for a value system, i.e. other values that are programmed/re-programmed into it by every user of that money, thereby allowing the automation and streamlining of trading decisions.

The key argument here, besides the point about the need to abandon “interest,” is that the value system that is ‘explicit’ in the definition of money is 1-dimensional, i.e. the “price,” or numerical value, and there is no excuse for having this 1-dimensional value system when we have computers, the Internet and the ability to implement an _explicitly_ multidimensional value system as the basis for a new, social, P2P currency.

The Origin of the Idea for Tying P2P Currency to P2P Energy

A very interesting idea suggested by Michel Bauwens of P2P Foundation is to derive the numerical value for this new money from the energy each person is able to produce (see: P2P energy.)

Energy Backed Money: The Basic Idea

This model is based on the simple idea that cheap abundant energy leads to higher productivity and higher productivity leads to the growth of the economy.

Unlike gold, as energy becomes more abundant and cheaper its value increases, not decreases, so energy as an abundance-based (not scarcity based) source of capital makes sense.

There is a movement towards a Smart [Electric Distribution] Grid that allows individuals to produce electricity to power their homes and then send the extra capacity to the grid for others to use, and get paid for the energy they send into the grid.

The idea for peer energy production will take some time to mature but there are already localized implementation of Smart Grid that allow businesses to play the role of a small electric utility.

Taking the Smart Grid further, we say that since solar energy is abundant then why not connect this abundant resource (that anyone can produce) to new money creation. Meaning: if I can produce 100MegaWatts and push that into a ‘Peer Grid’ then the ‘Peer Bank’, which can print virtual Peer Dollars, would pay me 100 Peer Dollars or whatever amount, based on how much each Watt of energy goes for, which gets cheaper and cheaper the more energy is pushed into Peer Grid.

New money is only created by Peer Bank when Peer bank needs to inject new money into the economy (e.g. in line with economic growth) and the peer produced energy exchanged for this new money is stored by Peer Grid to hedge against unexpected rise in demand (over available peer energy supply.) Otherwise, Peer Bank simply simply acts as a financial hub for exchange of peer produced energy for Peer Dollars and Peer Dollars for peer produced energy.

Anti-Dumping and Anti-Monopoly Caps for Energy Production

There may need to be a cap put in place on how much energy a given party can produce so as not to allow one party or few parties to pump so much energy into Peer Grid as to bring energy price down for all other producers. Maybe a maximum on the amount of energy you can pump into the grid per hour has to be calculated based on demand.

There probably also needs to be an anti-monopolist provision (in the model) to disallow emergent master-slave behavior where one person or entity end up running a colony of P2P energy producing peers and taking up a larger share of the energy market than they should.

Energy Price Regulation

This value of Peer Dollar is regulated relative to the value energy, so that as energy becomes abundant its price will drop (and the reverse as it becomes scarce) but the price won’t drop or rise on speculation. In other words, the price of energy is set dynamically by Peer Bank, based on demand and supply for energy and the cost of energy production. The purpose of this is to allow energy price to go down continuously as the cost of energy production goes down, while preventing speculative boom and bust cycles from making the price of energy go up too high (in periods of high demand) as to make energy unaffordable or drop too low (in periods of low demand) as to make energy production economically unfeasible.

Achieving Comparative Economic Advantage

Since there is a cap on how much energy (per hour) a peer can pump into Peer Grid and since everyone who can produce energy is likely to maximize their contribution to Peer grid to make money, it is unlikely that significant comparative economic advantage can be achieved by one peer over others using energy production alone. The peer will have to compete for credit point (Peer Credits) by lending money to others and then use those Peer Credits to position themselves higher in the list of sellers for whatever good or service they produce (or resell). Another longer term way of achieving significant comparative economic advantage is to put money earned into assets that tend to appreciate as the economy grows, e.g. land or real estate.

Hoarding and Saving (of Money)

Since interest does not exist in this model, money will not grow on its own as it does today, e.g. sitting in a bank. Given that, the only other reason to hoard money is security. But given that money loses its value if it’s not growing (relative to the value of appreciable assets which should grow under this model proportional to increased productivity) hoarding money is harmful to the person doing the hoarding (in that their money will lose value) and is therefore expected to be a rare issue.

Given that only two ways exist for achieving significant comparative economic advantage:

1) accumulation of Peer Credits (through lending) combined with production of goods or services, and/or

2) investing in assets that appreciate, e.g. land or real estate

Participants in this mode are more likely to lend their money or invest it in appreciable assets, both of which are good for growing the economy.

While hoarding money is useless, saving money is always legitimate for establishing a buffer for normal and unexpected expenses. However, since anyone can gain credit points by simply lending money to others, and since borrowing a large amount is, by design, faster than saving up for it, and since money sitting idle doesn’t grow and loses value relative to appreciable assets, accumulating a large sum of money is generally considered hoarding, which, as stated above, is expected to be a rare issue.

Why Demurrage Doesn’t Work

The harm from excessive accumulation of money is felt mostly by the individuals who hoard money rather than lend it, invest it in appreciable assets or use it to produce goods and services. That is because, given there is no interest, money will not grow on its own, and if it does not grow it will lose value relative to appreciable assets, which go up as productivity goes up due to abundance of cheap energy. Applying demurrage (with or without redistribution) only forces peers to convert their money into gold or hold it in private safes, etc. Making excessive money accumulation disadvantageous (by simply eliminating the concept of interest) relative to investing the money in appreciable assets or infrastructure for producing energy, goods or services is the right way of dealing with the expectedly rare cases of money hoarding.

Wealth Accumulation

Selling goods and services or pumping excess locally generated energy into Peer Grid generates money for each peer, but, since money doesn’t grow on its own under this model, lasting wealth creation can happen only through the accumulation of appreciable assets. But you can have potential wealth, too, by accumulating credit points. You can also have wealth in the form of accumulated money but that wealth will depreciate over time, as the economy grows and prices of appreciable assets go up, so it’s not an efficient way to accumulate wealth.

Peer Credits

Why do we need to lend? Because we need money to flow in the system, like blood flowing in our veins. Lending is needed to keep money circulating, in addition to the circulation of money through the exchange of money for goods/services. That’s because in order to create or buy goods/services people need money and lending allows people to have more money than they can have from their labor. The problem with “interest” being the incentive for lending today is that it’s used to derive more money for the lender, which has nothing wrong with it, but it comes at the expense of the borrower, which is problematic at best.

In other words, “interest” rewards lenders and punishes borrowers. What we need is a replacement of interest as an incentive for lending. Something that would reward lender without punishing the borrower.

“Peer credits” are credit points that are given (by some central registry of credits) to peers who lend money to other peers, based on how much they’ve lent to others and/or how many peers they’ve lent to. These peer credits can be used in two ways:

1. Lender becomes a producer or seller of goods and services. In this case, his/her credit points will be used to rank them as sellers, so when people search for a certain product (imagine a _P2P community_ version of Google search) they will show up higher in the search results the more credit points they have. This means that instead of interest, i.e. time value of money, we move to a peer production value of money, or in other words, how much I can sell of a given product given that my credit points directly affect my sales (as proven by the Google model; the higher you are on the search results the more customers you get and the more products/services you sell.)

2. Credit points earned through lending are also used when borrowing, so you can borrow up to an amount that is determined by how many credit points you have accumulated (through lending)

Peer Credits do a few important things:

1. Allows lenders to be rewarded without using interest

2. Motivates lenders to become producers of goods and services (i.e. to become more than just a lender, which is consistent with the vision of a P2P economy where everyone is both consumer and producer)

3. Allows lenders to build credit for borrowing, based on how much they’ve lent others

Since there is no “interest” under this model, the “time value of money” is basically eliminated and there are only two ways to achieve comparative economic advantage: accumulating credit points (through lending) and investing in appreciable assets.

When it comes to accumulating credit points (through lending), allowing lenders with high credit points to make more money as producers/sellers and to borrow more money as a borrowers should motivate everyone to be a lender, a producer/seller and a borrower, which means that there are no lock on ‘roles’ under this model. Everyone is a lender. Everyone is a producer/seller. Everyone is a borrower. Everyone is a consumer/buyer (of goods and services.) And everyone is a creator of money (through energy production).

The fact that every peer under this model is motivated to play all roles within the economy (consumer/buyer, producer/seller, lender, borrower) is akin to the Holographic paradigm, where the characteristic of a hypothetically perfect hologram is that all its content is contained in every finite part of itself (at lower resolution).

The current idea for Peer Credits assumes an online community where each peer interacts with other peers and Peer Bank via a P2P client, which has a search function built into it. It’s through this search function that sellers/producers are ranked, based on their peer credit points. If, however, at some point in the future, online search engines (like Google) subscribe to this peer credit scheme then this model can work globally, not only within the confines of an online P2P community. Having said that, the peer credits model also depends on the existence of p2p power generation and distribution infrastructure (search: P2P Energy, SmartGrid)

Peer Credits: Lenders

The incentive for lending, under this model, is based on the assumption that in the P2P economy everyone is a buyer and a producer/seller (of goods and/or services), and the idea is to give lenders credit points that rank them higher as sellers (similar to seller’s ranking in Google search, which does affect seller’s profitability.) The number of credit points a lenders gets is based on how much they’ve loaned.

Peer Credits: Borrowers

When borrowers borrow money under this model (i.e., interest free, in Peer Dollars) they can only borrow up to their peer credit rating. If the borrower does not pay the borrowed amount after the grace period they’d get credit points deducted. When a defaulting borrower pays back the loan they regain the credit points they had lost, and after that they are free to gain new credit points, by lending others, which enables them to borrow more as well as sell more goods and services (see Peer Credits: Lenders.)

The ease with which people can generate money through the local production of energy (by pumping excess locally generated energy into Peer Grid and receiving the then-equivalent in Peer Dollars) should make it relatively easy for borrowers to recover from negative Peer Credit rating.

The amount a borrower can borrow is directly tied to the number of credit points they have, and since credit points can only be obtained via the act of lending, this model should encourage people to keep lending, which is good for borrowers. At the same time it forgives peers who fail to pay back borrowed money by giving them a chance to make money (by pumping excess locally produced energy back to Peer Grid) and payback defaulting loans to regain lost credit points, then start lending to others to increase their credit points, which allows them to borrow more.

Peer Credits: Producers/Sellers

When peers search for a certain product (imagine a _P2P community_ version of Google search) the seller/producer with highest number of credit points will show up higher in the search results for that product. Given that sellers/producers accumulate credit points through lending, this means that instead of interest, i.e. time value of money, we move to a peer production value of money, or in other words, how much a peer can sell of a given product, where their credit points directly affect their sales.

Peer Credits: New Entrants

A great way to start up the peer credits system is to give credit points to new entrants (to the community) who invest in local energy production infrastructure, e.g. p2p power generator and connection to Peer Grid.

The amount of initial credit points is given once per peer and it varies based on the output capacity of the p2p energy producing infrastructure that the given peer invested in, up to a certain limit (see Anti-Dumping and Anti-Monopoly Caps for Energy Production.)

Peer credits points are useful when borrowing money or selling products and services. They rank borrowers/sellers higher and allow them to borrow/sell more.

Affinity Matrix for P2P Trading

The Affinity Matrix allows the explicit definition of a multidimensional value system, or set of criteria that represent the buyer’s social, ecological and economic values as applicable to the seller, the product or service (i.e. the ‘thing’) and the given transaction.

The value system is 3-dimensional and consists of seller’s values, thing’s values and transaction’s values.

See: Buyer-Seller Affinity Matrix: Multidimensional Value System for P2P…

The affinity matrix applies only to goods and services. These do not include money because you shouldn’t be able to buy money with money as that would be equal to ‘interest.’ They also do not include or energy, except where the consumer cannot tap into Peer Grid and is forced to buy energy directly from another peer. The reason energy is not considered a general service is because the price of energy and the rate at which a peer is allowed to turn into energy into money must be regulated (dynamically, with respect to demand/supply and the cost of energy production) for this model to work properly, and the only way to regulate the price is to have Peer Bank act as the financial hub for the sale of energy by one peer to another. When that’s not possible, i.e. when the consumer cannot access Peer Grid, they may pay higher price for energy, so those cases need to be minimized. In other words, everyone should have the ability to tap into Peer Grid, regardless of their location.

The buyer’s multidimensional value system which can be applied as a selection filter/criteria for the seller, the product or service, and the transaction, is programmable into the money for each transaction. This way, the buyer’s multidimensional value system becomes represented as explicit information carried by the money, which includes the numerical value of money to be exchanged. This information, with the exception of the numerical value of the money, goes to blank state after money has been transferred from the buyer to the seller, which allows for the programming and transmission of new information.

Money can be programmed with the buyer’s multidimensional value system (which is applied to the seller, the thing being purchased, and the transaction itself) but only when the money is being stored for specific future transaction, or when preparing a transaction to buy something, or when transmitting a transaction to some middle man, who can then modify the buyer’s multidimensional value system, as agreeable to buyer, to negotiate and execute the transaction.

The reason the affinity matrix is unidirectional from buyer to seller is because the buyer holds money and the seller holds goods and/or services. Money carries the power (see Model’s Axioms), so in any given transaction, the one holding the money gets to decide. This model does not recognize power in the context of a transaction other than the power carried in the currency. Having said that, there can be a law (outside this model) that forbids the buyer from discriminating against the seller based on race, country, etc.

Clarification to Affinity Matrix

The purpose of the affinity matrix is not to determine how much a buyer gets charged by the seller for the given product or service.

It’s purpose is to direct money from the given buyer to those sellers with whom he/she has the largest affinity, for the given product. And it’s not independent of the product. As a buyer, you’d declare your social, ecological, environmental and economic values which get matched against the seller’s values, in those dimensions, but you’d also declare the thing’s (good or service) values (e.g. if the thing is “cucumbers” then you specify ‘Organic’) and the transaction’s properties/values.

The idea is to direct money flows to be in sync with society’s conscious social, ecological and environmental values. To do this, money allocated to the purchase of some product, e.g. I have $20 to spend this month on cucumbers, has to carry more information than just the numerical value (price). Making the information multidimensional (i.e. seller’s values, thing’s values, transaction’s values) and explicit will allow people to make conscious decisions as to whom to buy from (e.g. a farmer who cares about the environment, soil, chickens, etc or one who doesn’t) and what to buy (organic, no hormones, etc or whatever is “cheaper”, which, by the way, is why numerical price is part of the thing’s values, not the transaction’s values, as price is itself a value of the thing being sold.)

The affinity matrix effectively directs money flows to be in sync with society’s conscious values, and it does so by adding value specification for the thing itself, the seller and the transaction, i.e. not just the numerical value of the thing itself, so that people become not only “price conscious” but also “social/ecological/environmental value conscious.”

Model’s Applicability: Off-the-Grid Communities

The assumption is that the technology for p2p (or house 2 house) electric energy generation and distribution (see SmartGrid and P2P Energy) does exist (in the desired form, e.g. ability for the grid to store not just transport energy between peers) and is accessible to the community in question.

If so, the second assumption is that there is willingness to develop and use a P2P software client for the community, which is used to conduct all transactions, and that’s because both the “peer credits” idea and the “affinity matrix” idea require that. In short, the biggest assumption of the model is that all (or the majority) of transactions happen through such P2P software client.

So if those assumptions become OK at some point in the future or if they’re OK from the start then this model can be applied to such communities.

Interoperability Model

Given that there are many efforts now, mostly under the radar, to define various community currencies, it is obvious to me that we will have many “money models.” So the question becomes how to make all these models inter-operate, so that people can port their money out of one community into another, and so that inter-community trading becomes possible.

It is possible but it requires collaboration and, more importantly, orchestration.

I encourage those interested in defining community currency models to think differently and not follow ‘group think’ as that leads to reinforcing assumptions that maybe wrong. After all, even the geniuses who designed and evolved the current money system (sarcasm) were proven flawed in their assumptions.

Diversity of community currency models is not only essential it’s inevitable.

So there is definitely a need for an interoperability model that is thin and flexible enough to work with just about any model.

Related Links

Complementary Currency Software

P2P Exchange Infrastructure Projects

External Links

P2P Social Currency on Evolving Trends (comments welcome)

P2P Social Currency on P2P Foundation forum (comments under "Money 2.0" discussion thread)