Open Source Currency - Will mobile phones enable ubiquitous LETS?

[Sepp]

What if we could use our cell phones to confirm transactions with one another as simply as pressing a button? We don't even need to shake hands with each other, only with the central server, which can confirm that both parties have agreed. As Paul put it in an email, "enabling the back-end for a truly decentralized marketplace with buyers, sellers, traders, and sharers is the open-source 'killer app' of the next century."

http://www.thefeaturearchives.com/101119.html


Open Source Currency

By Douglas Rushkoff, Wed Oct 13 11:45:00 EEST 2004

Or, how mobile phones can break the money monopoly.


In the midst of discussing wireless data business plans, cell phone technology developments, and the moment-to-moment success of the mobile media industry, it's sometimes easy to forget the bigger picture. Just as early Internet enthusiasts seemed to focus on ad banners and animated GIFs instead of what turned out to be the much more momentous power of blogs to influence the direction of culture, those of us covering mobile data may have also taken our eyes off the bigger prizes in store for this new medium.

It's easy to talk about how handheld, networked computers (that's what our cell phones are, after all) promote the decentralization of content creation, file exchange and even culture -- but what about the stuff that's so centralized we stop thinking about it as even up for discussion? That's right: I'm talking about money.

Handheld wireless technology stands ready to enable what's known as the "complementary currency" movement in ways so powerful that the dominance of national currencies such as the dollar and the euro may soon be called into question.

This is not as preposterous a scenario as it sounds. After all, it's only been since the Renaissance that nation-states have been powerful enough to corner the money market. Before then, most municipalities developed their own currencies, often basing them on very different principles than the ones we use to justify our currencies today.

For example, many earlier currencies were based on commodities. A person would bring grain to the store (not the shop, but the grain storage facility), and receive a note in exchange listing how much grain it represented. This note was a tender, and could be traded for other goods and services, whether or not the person accepting that note really needed grain or not.

Unlike most currencies today, these commodity-based currencies usually devalued over time. After all, the storage guy needed to be paid, and there was always some grain lost to rats and rain. This cost was passed on to whoever was holding the money, making money something you didn’t hold on to. Uninvested money was money lost. That's why so much capital went into preventative maintenance on windmills, and the construction of all those giant cathedrals.

Money today, on the other hand, is issued by what's known as "fiat." This means it is literally created out of nothing. Our money is all borrowed from the central bank, and must be paid back, with interest. If you get, say, a $100,000 loan, you must pay back $200,000 or more, over time. Where do you get that extra money? By competing for it. The ground rules for a certain kind of competitive marketplace are dictated by this relationship to currency.

Over time, many communities have seen fit to challenge the monopoly of single currency systems by developing their own. This works particularly well during periods of recession or depression, when centralized currency is hard to come by but people are still ready to do work and anxious to get the food and services they need. Complementary currencies, such as Ithaca Hours, allow communities to set a value on the goods and services they supply one another, and then exchange an agreed upon number of local currency units. Such systems have allowed, for example, people in cash-poor Japan to provide health care for their relatives in distant cities by doing chores for people in their own.

Who gets left out of this system? Why, the central bank, of course, as well as the tax man. But it does allow communities to provide for themselves, even over great distances, as long as the credits and debits can be properly recorded and managed -- and trusted.

Instead of printing money, most local currencies of today rely on centralized bookkeeping. While a physical accounting book might work for a small town - it still requires everyone to come in to the accounting office and register what they've bought or sold. The Internet has served a number of other communities as a more modern way to enter and verify transactions, and then tally everyone's accounts. The LETSystem is a free system for doing just that.

But going home to the computer to record transactions online is still something of a burden, and requires a bit of trust.

That’s where cell phones -- as well as a conversation that began in a forum here on TheFeature between me and futurist Paul Hartzog -- come in. What if we could use our cell phones to confirm transactions with one another as simply as pressing a button? We don't even need to shake hands with each other, only with the central server, which can confirm that both parties have agreed. As Paul put it in an email, "enabling the back-end for a truly decentralized marketplace with buyers, sellers, traders, and sharers is the open-source 'killer app' of the next century."

Killer app of the century? He may not be overstating the case. After all, if people can conduct transactions efficiently with alternative currencies, then they may look for those that have lower premiums than the US dollar. Cheaper money, anyone? The race is on, as Paul explains, "PayCircle is a non-profit organization that is working towards open APIs for payment systems based on XML, SOAP, Java, etc...There's even a Yahoo Group for the discussion of the 'emerging array of community currencies.'"

So watch out, Alan Greenspan, the wireless bubble may be coming -- but it could be the dollar that gets popped.

[Martien van Steenbergen]

Actually, Yes, I believe so.

Allow me to share one of the things that is unfolding in my head. Mobile phones already have a transaction system and monetary system readily available: SMS.

What if we design a LMSP: LETS SMS Protocol. A very simple, textual, human readable open protocol to place "orders", accept "deliveries" and send and pay "invoices".

Every SSLM (Short & Simple LETS Message) already has sender and receiver: the two parties involved in a transaction. Your mobile number is your LETS account number. The body of the message contains the transaction type and details. SSLMs are sent to a LMSP SP (LMSP Service Provider). The LMSP can do all kinds of checks (credit, trustworthiness, etc.).

For example: If John's mobile number is 0654321987 and Mary's number is 0654321987. LMSP is a free central number through which all transactions flow.

Just a rough, potentially buggy, scenario:

John and Mary negotiate an order (items, services and monetary amount). Mary issues an order number: 32991.

Next, John places the order through the LMSP using the SSLM, adhering to the protocol by specifying both order# and agreed upon price (so the LMSP can keep track of price).

From: John
To: LMSP
order Mary 32991 230

LMSP performs the necessary checks and forwards the order to Mary:

From: LMSP
To: Mary
order John 32991 230

Mary receives the order, fulfills the order, generates the invoice number 89012345 and sends John the invoice through the LMSP:
From: Mary
To: LMSP
invoice John 32991 89012345

LMSP sends John the invoice, including the order and invoice number:
From: LMSP
To: John
invoice Mary 32991 89012345

Next, it's up to John to accept the delivery and pay the invoice as follows:
From: John
To: LMSP
pay Mary 32991 89012345

LMSP accepts the payment, credits Mary's account and debets John's account in a single transaction.

Both parties happy.

LMSP can check both party's trustworthiness (or reputation) using a web of trust approach, not unlike PGP and Ebay.

The sending and receiving SMS messages can cover the costs of running and maintaining the LMSP by the LMSP SP.

A similar protocol can be used using e-mail (or other peer-to-peer communication).

If you add demurrage, invoices will be paid rapidly because you want your money to be somewhere else than your account.

I prefer to use the term “stream money” over demurrage.

[Martien van Steenbergen]

Combine this sms idea with the web of trust protocol described in Wizard Rabbit Treasurer.

[Sepp]

Thanks Martien,

here is a neat thing I just found that certainly could have relevance to this: Twitpay

It functions with conventional money put on the twitpay account through paypal.

http://www.twitpay.me/s/faq

[Martien van Steenbergen]

Cool. Thanks. I'll check it out.

[Martien van Steenbergen]

Just last Friday I received my first €1 through an SMS sent to me by Rob Veldhuizen, executive director particulieren (private banking) Rabobank Hilversum-Vecht en Plassen.

Very interesting indeed. Rabobank has its roots in ”peer-to-peer” and coop banking,

During the same conference I heard that in Africa too SMS transactions are quite common.

Googling on “africa sms transactions payment” gives some interesting results.

[Sepp]

Here is a recent post by Joe Edelman, which takes up this theme. He is working on a project in this area and is asking for people to join and help...

The Mobile Manifesto
How mobile phones can replace a broken economy

http://nxhx.org/thoughts/manifesto.html

[Sepp]

Here's what Edelman said about this in a post on a discussion list:

When we talk about trouble with the economy, we’ve been overlooking an
astounding opportunity. Something new is possible for the first time in
thousands of years. If you care about the planet, if you care about your
kids, if you care about other people, this is something to pay attention
to.

The availability of cheap, networked, programmable devices is as big a
deal for human economics as the invention of paper money and coins was.
It gives us, for the first time, the opportunity to change the rules of
the game, to tune the incentives, and to create much more flexible
access to resources—including other people—all without creating the huge
bureaucracies and informational inefficiencies associated with previous
attempts.

[ernie yacub]

sorry to take so long to reply, busy busy busy - here's what we wrote about cell phones for the japan open money project in 2001...
In Japan there's DoCoMo - a cell phone and mobile internet service already used by 20% of the country, and by perhaps 40% of Tokyo. DoCoMo phones are really internet terminals first, and voice phones second. I-mode is information mode - people use i-mode to play games, check stocks, pay bills through banking sites. Soon they will be able to reach their "cc" virtual money sites just as easily, and then any DoCoMo phone is a virtual money mover. Again, see Wired 9.09 - The Pocket Monster.

your phone or mine?

he says "that's ccY900 - here's the phone"

the payment screen has ccY900 already entered
she keys in her "cc" account id and passcode,
hits confirm, and hands it back

he glances to check and confirms the transaction

that's it, all done and recorded in both accounts

All that's needed for Japan to have mobile and universal access to virtual money is a well organized and operated naming system for managing the allocation of open money domains.
http://www.openmoney.org/way/topay.html

[Sepp]

I suppose that "cc" here means community currency.

Has anyone worked out a model for that currency that will not have security demands and yet has enough "pull" to buy anything someone might buy with the kind of money we're using today?

[ernie yacub]

the original LETSystem did although perhaps not in the way you mean - people bought and sold in green dollars via a phone answering machine - simple mutual credit system that can now be managed by account holders online - the model hasn't changed, just the tech, and security wasn't an issue then and isn't an issue now, depending on the size and purpose of the cc.

[Hugh Barnard]

Hi various folks

Actually I have a first version of this in cclite: http://www.hughbarnard.org/?q=node/8 Not the last word on it, but it was commissioned (rather than something I decided to do) so it has a fairly practical interface. There's some documentation on the page as well that shows the protocol. The PIN locks if it fails a configurable number of times.

[ernie yacub]

how about testing it out here as a reputation currency? and no, peace on earth isn't too much to ask.