Decentralized Money

Functions and properties of money

The body can not be healthy without good blood and conversely, if there is a problem anywhere in the body it can usually be detected by a blood test. Blood serves the dual functions of transporting nutrients and oxygen to tissues and also removing waste products. Good circulation of the blood is necessary for it to perform its functions properly.

Money is the lifeblood of society. Bad money can ruin a society and conversely, a decaying society will show evidence of its illness in its monetary system. The main function of money is to facilitate exchange between individuals and organizations. For society to be healthy, money must be sound and circulate freely.

Circulating money is called currency, reminiscent of the flow of water. Sometimes money facilitates exchange because it is intrinsically valuable, such as with gold and silver coins. In such cases, money can function as both a currency and a store of value. However, these two functions partially conflict because if valuable money is hoarded it is not available for circulation.

What properties make money sound? Possibly the most important property is that it should be secure against counterfeiting and other forms of theft. But it’s also desirable for money to be convenient for ease of circulation. Convenience and security are conflicting properties in general. The usual compromise is to keep money in several different forms; for example, some in a bank for security and some in cash for convenience.

Due to the conflicting functions and properties of money, it is unlikely that there will ever be a single perfect form of it.  The best solution is to let a free market decide which among several competing forms of money are most useful and when, where and how to use each form.

This brings us to the subject of this article, decentralized money. If we believe in the free market ideal, then decentralization is implied. Central control of the entire monetary system is antithetical to this ideal, especially when the central monetary authority creates debt-based, interest-bearing, fractional-reserve money by fiat and suppresses all competing alternative forms, as in the case of the current dominant system. Such systems are virtual invitations to the predators and parasites of the world to tap into the lifeblood of society and drain it dry. So, decentralization of the money system should be the overriding objective, through providing independent competing alternatives, some of which should be decentralized in their own right.

Centrally controlled currencies

It is generally accepted that a central authority for the creation and management of the money supply enhances security. But in reality, the security of the US dollar, for example, was seriously compromised as a consequence, losing over ninety-five percent of its value through stealthy theft during the past 100 years by the very authorities entrusted with its security, namely, the Federal Reserve Banks. Any centralized system will attract the predators and parasites of society to the points of control of those systems. The greater the power and wealth accessible at those control points, the stronger the attraction.

Thus, even successful locally centralized currencies such as BerkShares are susceptible to corruption. But with vigilance the small scale of local currencies might escape the notice of the worst predators; and since they are more decentralized than state, national or global currencies, they offer a partial solution.

Local currencies can be based on gold or silver, but are more likely to be paper scrip created by fiat of local authorities and to have no intrinsic value. Despite this, local currencies have been known to bring struggling communities back to prosperity by promoting local commerce and public works. Sometimes they are designed with demurrage so that their nominal value decreases with time, thus encouraging high money velocity — the opposite of hoarding. A famous example of this was the scrip that the town of Wörgl, Austria issued during a depression in the 1930’s. It was a very successful experiment until the Austrian central bank interferred.

There are over 2,500 local currencies in the world, the number surging in recent decades. Check the Wikipedia community currency page to see if one already exists in your area and consider supporting it. If not, consider starting one for your own community, building on successful models elsewhere.

The moral hazards of centralization increase at the state level, but nevertheless North Dakota has proven that a publicly-owned bank can maintain its integrity for more than 100 years, perhaps in part because this small-population state has stayed under the radar of the wost financial predators. The Bank of North Dakota exists to serve the people of the state, not private shareholders, and so North Dakota is one of the economically healthiest states in the US and has become a role model for other states and countries. For more details, watch Ellen Brown’s Web of Debt video.

At the national level, the US Treasury itself could directly issue debt-free and interest-free fiat money as it has in the past, eliminating the predatory and parasitic Federal Reserve Banks that currently control our money. For more details on this kind of solution, watch Bill Still’s video The Secret of Oz.

Bill is strongly against a gold-backed national or global currency, making the case that the elite could get control of too much of the gold supply while simultaneously outlawing silver money as they have done in the past. The mere fact that so many elite insiders are now promoting a gold standard is cause for suspicion. This is why I stress that the fundamental issue is not whether the money system is debt-based or gold-backed (though the latter is clearly superior), but whether it is centralized or decentralized.

The reintroduction of something like Lincoln’s Greenback in the US would be a positive step, but the banksters would not rest in their efforts to regain control of our money, even if it takes them a century or more — it is what they live for. It was just because the US was the fattest cow on the planet that the banksters were relentless in their efforts to co-opt politicians until, on their third attempt, they managed to get control of the US money supply in 1913 and have been milking the country dry during all the years since, charging us interest on our own money, orchestrating boom and bust cycles as a means of wealth transfer; and lately, in the final stage of mass looting before complete collapse, simply moving trillions of dollars out of the country. I refer you to the videos Money as Debt and The American Dream for more details about the current destructive monetary system.

For a centrally controlled national money to maintain its integrity, there must be competing forms of money in a free market. The banksters knew this when they demonetized silver in the “crime of 1873” to prevent competition with a new gold standard. They previously had acquired so much gold themselves that they effectively monopolized the new gold-backed money supply. This deliberate reduction in money supply brought about a six year depression, possibly the longest in US history, transferring even more wealth to the elite. So we see that even a gold-standard is not sufficient protection against the elite, because any centralized monetary system can be co-opted.

In summary, the decentralization principle is of overriding importance. Local currencies and banks are preferable to state currencies and banks, state to national, and national to global; but a free market that permits competing forms of money is essential. Even if a particular form of money is centrally controlled on some scale, as long as it is not the sole “legal tender” then it can, along with other legal alternatives, be part of a decentralized system. But the overall integrity of the system would be best protected if at least one of the alternative forms is inherently decentralized. This would help keep honest all partially centralized alternatives within a free market.

The one inherently decentralized form of money that is already well-established are the precious metals — and I mean the physical metals themselves, not a paper substitute. There is also the promising prospect of decentralized digital currencies now under development.

Decentralized gold and silver as a store of value

Gold and silver coinsPrecious metals are decentralized in nature and so are an excellent antidote to the fraudulent debt-based fiat paper money system perpetrated by the predatory elite, who rely on central control more than anything else to achieve their ambitions of dominance. Metals have intrinsic value due to their usefulness in industry and their natural scarcity, and can therefore serve as a store of value when sufficient security measures are taken.  They are relatively difficult to counterfeit when stamped into standardized coins or bullion and therefore have been a ubiquitous form of currency around the world and throughout history, but they are relatively cumbersome for this purpose, especially in the digital computer age.

Physical possession of precious metals is the best shield against the banksters who use their fiat money to steal our wealth from us.  Physical possession of silver in particular is also recommended as a effective bullet to undermine their mechanism of wealth transfer by exposing the uncovered naked short silver positions in the commodity futures market as the key to their scheme of suppressing precious metal prices in order to prop up their fiat debt money. Read The Silver Bullet and the Silver Shield for more details.

We are in the midst of class warfare, and precious metals are among our best means of both defense and offense. In this circumstance, we prize the metals mostly for their intrinsic value and, perhaps without realizing it, their inherent decentralized nature: gold and silver exist and have value in their own right regardless of what any central authority may declare. Although for a time the metals might also be important as a currency, in the modern global world there should be alternative forms of decentralized money better suited to perform the currency function of money.

Decentralized digital currency

The problem

Part of the reason why our cancerous money system has persisted is because the are enough drawbacks associated with the various alternatives, even precious metals, that it has taken a crisis to get us to seriously consider them again. It’s just too convenient to pull Federal Reserve Notes out of our wallets, or to swipe credit cards, even thought the banksters have found 101 ways to bleed a dollar here and a dollar there as money flows through their system, mostly beneath notice until recently. Nowadays, they are beyond brazen with their fees, scams and outright looting.

I lost my patience with the banksters recently while a foreign country. I wanted to get some money out of an ATM machine. A few years ago, there was a two dollar ATM fee (which was bad enough) but no charge for currency conversion and no withdrawal limit. Then they added a 3% conversion fee, increased the withdrawal fee to $3 and reduced the maximum withdrawal amount to $125. So it cost $27 or 5.4% to withdraw a total of $500. How is this justified?

I hoped I could get a better deal with a wire transfer of a larger amount of money. I transferred $2000 for a flat-rate $40 international wire fee, figuring that paying only 2% made the 3-5 day wait worth it. (Why does it take that long to transfer a few bits electronically?) But my bank routed the transfer through American Express, who tacked on another $25 fee. Finally the local foreign bank added $25 on their end for a total of $90 or 4.5%. I managed to saved 0.9% but had to wait 4 days.

I looked into Western Union and other companies, but they were no better. Aside from my personal experiences, I’ve heard and read many banking horror stories. For example, there was the case where a bank deliberately switched the order of a customer’s deposit and subsequent withdrawal on the same day so that their account appeared overdrawn for a short time. They did this so they could charge an exorbitant overdraft fee. This is a relatively minor scam. Major scandals include money laundering for drug cartels.

All this profit for transferring a few computer bits and issuing a few pieces of paper backed by nothing but debt. You have to give the bankster parasites credit for getting away with it. Why do we tolerate this and the other questionable practices of the big financial corporations? What if we could bypass the banks and their scams? What if we could make an exchange of value with anyone in the world in a matter of minutes at virtually no cost?

A hopeful solution

BitcoinThis is the hope of those promoting the first truly decentralized digital money, bitcoin. Because it is new and experimental, it is controversial and risky. It is in a phase of development something like the Wild West or the Gold Rush, when enthusiastic homesteaders and prospectors risked everything for dreams of abundance and a better life, but sometimes found hardship or ruin instead.

But over time the flaws should be worked out of bitcoin or its successors. Decentralized digital money is here to stay and will be equally important as and complementary to gold and silver as an alternative to centrally controlled fiat debt money. Besides being decentralized, it has the potential to be convenient, relatively secure, circulate easily, and even has an effective intrinsic value by virtue of its scarcity.

I have watched the evolution of bitcoin since its early days, when only a few idealistic geeks and hackers were involved. They could see the immense potential once all the necessary components of a viable decentralized currency were brought together in one package. Some of these components did not even exist until about a decade ago. There were breakthroughs in cryptographic techniques that eventually lead to the solution of the double-spending problem of digital money, which is a variation of counterfeiting. For the first time, a central authority is no longer needed to protect the integrity of the money supply. This function can be performed by a decentralized network of computers, each of which is identical in authority to all others in the network.

Bitcoin languished in obscurity for a couple of years until exploding onto the international scene earlier this year. I’m sure that the timing had something to do with the spreading awareness of the impending collapse of the dominant money system. But there have been many growing pains, some of which have been caused by predators and parasites moving in to take advantage of the zealous but somewhat naive visionaries and the wave of early speculators who jumped onto the bandwagon. But so far the setbacks have only made the bitcoin community stronger and more determined; they still hold the original vision that bitcoin as not just a get-rich-quick scheme, but a means for the people to regain control of their money system from the banksters.

I would not invest in bitcoin as a store of value at this stage of its evolution. There are too many potential pitfalls, including that it could become illegal since it is a genuine threat to the dominant monetary system. Hoarding bitcoins would be risky speculation at best and would be self-defeating as this practice undermines their real value as currency. However, bitcoin holds so much promise that I would contribute to its technical development and use it modestly and cautiously as a currency.

Some of the weaknesses of bitcoin are that it doesn’t yet scale well to large numbers of users and it is publicly accessible to attackers. Many talented programmers are working on these problems. But since the software is free and open source, it could easily be adapted in its current state for use as a local digital currency on a trusted private network. The ultimate solution might be to have many competing variations of bitcoin operating on local and regional scales, with competing exchanges mediating between them.

A decentralized free market keeps money honest

A decentralized free market keeps the various alternative forms of money honest and in balance. Gold and silver help keep the store of value function of all other forms of money honest. Decentralized digital currencies promise to help keep the currency function of all other forms of money honest, particularly centralized currencies at the state, national and global levels as well as the corporate money services like credit cards and PayPal.

This is the third article in a series of eleven on the theme of decentralization: Fractal Sovereignty, Decentralized Manufacturing, Decentralized Money, Decentralized Education, Decentralized Agriculture, Decentralized Government, Decentralized Communication, Decentralized Security, Decentralized Energy, Decentralized Medicine and Decentralized Religion.

8 comments to Decentralized Money

  • Gareth

    Totally agree with this well-written article.

    Let all the debt-free currencies compete, with a ‘no legal tender exists in this realm’ ACT and a complete outlawing of usury. It’s probably impossible to ever stop usury occuring, but it must NOT BE recognised by the law. Rothschild et al would effectively be loan sharks operating outside the law, unprotected by law, and be prosecuted in a common law court.

    All the best,

    PS I’m a tad suspicious of bit-coin. It’s basically a mechanism that rewards you to turn your computer on – strange!

  • Citizen Doctor

    Thank you Gareth.

    PS I’m a tad suspicious of bit-coin. It’s basically a mechanism that rewards you to turn your computer on – strange!

    The way I look at the bitcoin generation process is that it simulates scarcity, thus effectively creating value.

    We only really need money for exchanging one scarce thing for another. If everything we needed and wanted existed in unlimited abundance, money might not even exist. So, for money to be useful it must be scarce, either naturally or artificially. Gold and silver are naturally scarce and so make good money. Paper money is made artificially scarce by decree or fiat of a central authority, which regulates the supply.

    Bitcoin is tied to something that is naturally scarce, namely the electricity needed to produce them, which in turn traces back to oil or some other limited energy resource. To create a bitcoin, it is necessary to perform such a large number of computer calculations that in some areas where electricity is expensive it is no longer cost effective to do so. This is comparable to the energy and resource cost of extracting gold and silver from the earth, which is roughly comparable to their market value. If the price of gold and silver become low enough, mines will shut down.

    It’s no longer merely a matter of turning your computer on to generate bitcoins. Due to intense competition among bitcoin miners, it’s now necessary to have a power hungry graphics card installed in your computer to have any chance of being the first to compute the hash code for a new block of transactions on the network. You’ll be lucky to mine enough bitcoins to recoup the cost of the card plus electricity use.

    All the best,

  • Gareth

    Ah, I see, thanks for the explanation of bitcoin.

    Think i’ll still focus on stock-piling silver coins :-)

    Let all debt-free currencies compete, and end usury.

    All the best,

  • Citizen Doctor

    Mike Rivero is promoting the idea of Electricity as the universal basis for a new money system making use of bitcoin technology. A paper currency backed by electricity already exists in the form of the Kilowatt card, but it has not caught on yet.

  • Citizen Doctor

    Bill Still reports on the proposed Bank of California modeled after Bank of North Dakota.

  • Citizen Doctor

    P2P lending via Prosper.

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