Energy backed crypto-currencies

This post serves as documentation of an email exchange I initiated about setting up crypto-currencies based on (renewable, benign) energy created. It is very dense with information but it’s a great resource for sharing. Invitation open to participate in the conversation and/or extend/work on these ideas.

I formatted my initial proposal in bold, and decided to put the responses as-is from the email thread – if they responded inline, they are inline, if not they are the bottom.

This maybe does not help much for reading, but there’s quite some dense information which could be valuable to someone.

Participants in the conversation:
Shann Turnbull, Green Money Working Group
Leander Bindewald, New Economic Foundation (Josh Ryan-Collins had been initially invited for the conversation; Josh appointed Leander to respond)
Chris Cook, Senior Research Fellow at the Institute for Security and Resilience Studies at University College London
Graham Barnes, Feasta


Hi all,

Please allow me to humbly plead for a bit of your most precious time in addressing this self-compiled group exposing and synthesizing some ideas in relation to energy backed currencies and money, with the simple goal of kindly soliciting feedback about their validity and potential for implementation. I tried hard to write this in a most concise way in order to minimize impact on your valuable time.
Essentially, we have been witnessing the rise of crypto-currencies, with bitcoin as flagship, but with also ripple and all the forks and imitators.
I personally have come to the conclusion that digital currencies hold an intriguing promise through their technological foundations (p2p technology), which make them very difficult to be manipulated and controlled by any elite, institution or government.
Barnes: I agree. I think the significance of this is that their ‘uncontrollability’ might encourage more of the mainstream to realise that there are indeed alternatives to the money monopoly, and will be more and more alternatives in future. Therefore not a series of developments to be marginalised and ignored.
However, in short, the current incarnations suffer some important flaws from monetary, sustainability and community point of views. The lack of intrinsic value to me is a central point here.
Bindewald: Depending which basic function your currency is meant to serve, “intrinsic value” is not a necessary problem.

Barnes:I agree with Leander in terms of technical design – exchange currencies just need trust – but there is an attraction in relating the currency unit to something tangible.

A store of value currency could operate as a hedge against future energy price rises but
there are practical issues surrounding its redemption within any single renewable energy
project.  i.e. is the generation capacity there at the time the instrument is redeemed? Easier
to achieve if there is a collective redemption ‘pool’ (Chris’s thoughts I think) to smooth out the
supply and demand. But if this were in place it facilitates capital investment which (he
believes and intuitively seems should be right) is more cost effective than interest-based euro
loans.

Bindewald:We tried to defferentiat by CCs serving as 1) Medium of Exchange 2)Unit of account 3) store of value in the Energy Currency Report, all pre-determine your choice in currency design to some degree, but even more so reflect on the most important question: What kind of (today underserved) collaborations is your currency supposed to facilitate?
Barnes:I know this is the classic ‘unfulfilled needs meets underused capacity” model beloved of John
Rogers and others, but the unmet need does not have to be for goods and services today.
And its not the only guiding principle for a currency.
Here’s then a proposal: What if a digital currency unit would be backed by renewable energy produced? In practice, I could think of a kind of “energy” coin which would be “minted” for every kWh produced. Minting could be a managed process, akin bitcoin, virtually unbreakable, but linked to energy production (technically this would need further detailed analysis of how it could be done).
Barnes:Not just technically. How could you restrict the ‘mining’ to participants who have the ability to generate electricity.Theres a permissions regime needed isnt there?
I suppose that a unit being redeemed in payment for a unit of energy should be destroyed (?).
Barnes:I’d say so.
Some demurrage could be built in as well, but that’s already a detail.
Bindewald: When energy, particularly renewables, is/are “produced”, they are more often consumed very soon, not stored. This raises the question if the kWh produced or ToBeProduced is the backing to your currency.
Barnes:Kwh produced but not yet consumed by participants. Any renewable energy project like this
has to have connections to the grid – a bidirectional power purchase agreement. As smart
micro grids are established they decrease the reliance on the PPA but its needed whatever.
Bindewald:Or, if the units are not destroyed when redeemed for the energy that then gets degraded/”consumed”, what is the currency really reflecting?
This would empower any energy producer, namely and most interestingly transition movements, to create their own currencies. Having all of them a common unit of account, any transition movement or affine organization could start trading internationally,
Barnes:A common unit of account might seem to be of value in these future interconnections, but
Kws carry different values at different times, so the exchange is not a simple process.

fixing problems of value asymmetry and/or clearing with traditional community currencies (time banks etc.).

Whoa. I have a real problem with exchange of currencies that are based on different
value-sets. This is grounded in the work we did with DRA over here when Spice were
involved and explained to us the negative effects of setting a cash value against ‘hours-in’ in
a timebank.

Bindewald: Just as a point to consider: Michael Hudson stormed out of a session at the Teslaconference in Split last year, screaming “This is Enron all over again!”So, how do you make sure your currency differentiates or even discriminates between the energy producers?

Barnes:Unfortunately I wasn’t there but Ciaran Mulloy was so I will ask him what the fuss was about. I don’t understand Leanders question – is there a need to exclude big energy producers? I’d say they will probably exclude themselves.

Bindewald:This really relates to the questions that seem more relevant to successful currencies, then any (technical) design-feature: What is the user story, how do you get people to accept it, what is the benefit to them? This is always closer to social engineering then to currency issuance.

Barnes:This is an important perspective I think. On the Irish island group we are working with there is a deep distrust of outside ‘interventions’ and a key part of currency design is the social inclusiveness/ marketing aspect. Don’t like ‘social engineering’ – sounds like a project being done to them rather than with them.

Bindewald:You are raising such questions in the two paragraphs below, but you will have to answer them before anybody could engage in the implementation.

With this basic “protocol” in place, it can evolve to provide infrastructure for  cooperation, empowerment and support for (sustainable, green) entrepreneurs, by creating functionality for payments and marketplaces, but also for credit creation and/or even a “gamified” investment platform/market: individuals could invest in participating green-tech/sustainable/etc. businesses (worldwide or local), which would have to perform according to selected criteria, generating rewards for the investors.
Such currencies don’t need to be based on energy “only”, notwithstanding the technical nature of energy generation which makes it naturally very much a good match. We could think of such (parallel, non-interchangeable or rather interchangeable through the same accounting unit, energy) currencies for (every kilogram of, or a basket of, organic) food produced, for (every month worth of) land rentals, or (every minute worth of) mobile air-time (the latter being another pretty interesting one as technical in nature).

Response by Shann Turnbull

Hello Graham et. al
I agree that the core problem is to establish an independent unit of value as stated in my “view to share” sent yesterday as pasted in below to “Simon Lelieveldt the chair of our COP in The Hague<
I nowdays do not favour a currency redeemable into energy except for financing renewable energy projects but a currency whose value is defined by the retail value of benign sustainable energy created by those who create wealth by producing, consuming and investing as set out in the paper Josh presented for me on March 6 at the ECOBATE conference. Refer to: ‘Might sustainable energy money have a future?’ posted at http://ssrn.com/abstract=2178533.

I will be presenting this paper on June 11 at Aix-En-Provence, INFINITI conference on International Finance,[http://infiniticonference.com] , June 27 at Nottingham University International Finance and Banking Society Conference, (IFABS), and June 29 in Milan at the Society for the Advancement of Socio-Economics (SASE) conference. The ICCCS conference did not accept it!

Begin forwarded message:

Dear Simon, et. al

May I respond to your request for information in regards to your topics as follows:
A (Bio note)
Shann is a founding member of the Sustainable Money Working Group introduced at http://www.gtne.org/?q=node/337 with details posted at www.gmwg.org. His presentation is motivated by the objectives of its members to establish an emergency source of funding in the event of another financial crisis and establish a sustainable source of low cost funding. After obtaining an MBA from Harvard Shann became a serial entrepreneur founding a number of enterprises with three becoming publicly traded on the stock exchange in Australia. As a partner in a private equity group that acquired a dozen public companies in seven years he participated in their re-organisation as their chair, CEO, executive director or advisor. His PhD research established the science of corporate governance and risk management. Since writing Democratising the Wealth of Nations in 1975 Shann has been a prolific author on reforming the theories and practices of capitalism based on adopting ecological property rights to land, buildings, firms and money.
B (View point to share)
Governments and their regulators urgently need to facilitate if not initiate the introduction an objective stable unit of value to anchor and so sustain the 5,000 community currencies operating around the world when the current financial system next fails. The disruptive potential for cell phone money to replace current forms of money and banking needs to be used to reform the financial system from the ground up so that it is no longer back-to-front, upside-down, inside-out as explained here. Our discussion needs to empower members of parliaments around the world to create laws that allow new types of cell phone money to be trialled that can by-pass the official banking and payment systems to insulate host economies from any financial crisis. Regulation must prohibit cell phone money being created or controlled by any non-mutual organisation that is not democratically and transparently controlled by the users of the money. Only negative interest rate money would be permitted to eliminate money being used as a store of value that creates inequities, inefficiencies and inflation. Any units of value used by the currency that was not defined by a sustainable service of nature of the host bio-region would be subject to regulatory approval. Sustainable Energy Dollars (SEDs) or $Z would meet these conditions as explained here. My discussion paper is posted here.
LINKS to be embedded:
Democratising the Wealth of Nations, at:  http://ssrn.com/abstract=1146062
$Z would meet these conditions as explained herehttp://ssrn.com/abstract=2178533.
My discussion paper is posted herehttp://ssrn.com/abstract=2261519

Chris Cooks response:Shann

I agree and this is precisely what I was saying in Tehran this week.

The Iranians – like us – must move from a ‘least dollar cost’ economy to a ‘least energy cost’ economy, and the Danes demonstrate empirically how this looks in practice since they have essentially mandated least energy cost as an overall policy requirement since the Oil Shock of 1973.

Naturally, it can’t be done with conventional legal and financial structures, but it can straightforwardly be done with updated versions of structures and instruments which pre-date the bank credit financing and conventional ‘equity’ funding.


My response to allThank you all very much for all the very valuable responses. Greatly appreciated.

Instead of going into responding each of your contributions, which I will take the time to study seriously first, I’ll quickly lay out just a few points better of what I was thinking.
The idea of energy currency, of course, is to enable a break-through in ‘complementary’ currency thinking. Most currencies in that space are designed to be local – while our world today is undeniably global. This creates a tension which IMHO doesn’t allow regional currencies to take off. We travel, trade on the Internet, we buy computers, cell phones etc. which are a difficult fit (yet! 3D Printing to the rescue…) for local currencies. Thus many initiatives languish or die after the initial excitement.
I thought that having a unit redeemable in actual energy would enhance the trust in such a currency. While you don’t have to redeem – you can. I am not attached at all to this, seeing that most of you in this circle seem to not favour this approach. Rather I would like to learn how simply creating a unit in reference to say kWh can attain acceptance. How will I accept a unit issued in some corner or the UK and spend it in South America? If my local entities knew they can redeem it with energy (or air-time, organic food, land rental…) I was guessing it’d have better chances.
I was mixing crypto-currencies with digital certificates technically, and I am not sure that works at all. I was thinking that Transition movements (or any such bodies) could form an entity which would function as certificate authority (CA). Then, every participating movement would also be a CA – signed by the trusted main CA (think VeriSign etc.). With this certificate chain, transition movements would then sign a digital unit (e.g. for every kWh created), of which authenticity can be verified with established procedures – every browser does that today when you access secure sites. Multiple CAs are possible, there is no need for a central authority only – like it works today for server certificates. With this approach, non-green non-renewable non-participating energy generation bodies would not be able to participate (they could create their own circles though with the same tech).
I know it’s all maybe a bit fuzzy but maybe there are some grains of value which can be tracked further.

Another response by Shann Turnbull

Hi Fabio

I have attached my ops from my seminar of the the Australian Working Group on Financialisation held at the University of Sydney last Friday.
They describe $Z that are a global unit of account that has a local unit of value in each bio region to allow each local environment to define value, prices and costs.
Unlike the comments below I believe it is important to connect value, prices and costs to the environment to provide feedback information for allocating real resources including the distribution of the plague of people on the planet on a sustainable basis.
However, to provide sufficient supply of $Z without fractional banking they are not required to be redeemed into kwhs of benign sustainable energy.
The retail value of kwhs simply provide a reference value for individuals and firms to create contracts to trade goods and finance investments.
Insured contracts with part of the insurance cost attached create the money that is a self-lquidating asset to avoid monetary bubbles as well a bubbles of financial assets and liabilities that are now unsustainable.

Last response by Chris Cook

Shann
I have said for years that a standard unit of energy – as the only absolute there is – constitutes the natural candidate for a standard unit of measure for value.
Such an energy standard should therefore be the benchmark for exchanges on credit terms of the various forms of energy, and of other forms of asset-based and people-based value.
Most important of these is the use value over time of location/land (which is distinct from the energy and intellectual value embedded in or passing through it a location). The use value of land/location underpins perhaps two thirds of fiat currency in existence today, having been created as mortgage loans, and is what I call deficit-based but land-backed.
So in my view we will see geographically fungible national and regional currencies based upon land use value, and more generally fungible non-geographic currencies returnable in payment for energy eg an electricity-based currency (cf Bob Hahl’s Kilo Watt Card) or a currency returnable in payment for MMbtu; or a currency returnable in payment for carbon fuel.
These asset based currencies will change hands by reference to the energy standard (and note here that any government could mandate an energy standard tomorrow) on credit terms within a Guarantee Society framework of mutual credit insurance (which I first advocated in Scotland maybe 8 years ago).
While renewable energy is important, the cheapest energy of all is carbon fuel saved, and as I was pointing out to ministers in Iran last week, they should be drilling for oil and gas savings, and keeping physical oil and gas in the ground. Key to this is the monetisation of energy, and the concept of ‘energy loans’ whereby investment may be made directly in energy savings which I outlined here
I agree entirely that mobile payments and mobile credit (where the SIM card is a credit card) will enable the developing world to leapfrog us, through bypassing our barriers to entry and rent-seekers. Indeed I was making precisely that point four years ago at the Digital Money Forum in London.
That is where community P2P credit creation and clearing comes in
There is no more role for a centralised government intermediary in such a resilient networked monetary enterprise architecture than there is for centralised private sector intermediaries.
Pretty much all the elements are now in place for a new monetary and fiscal architecture introduced bottom up: all that is lacking is the agreement, and the will.

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