Energy Is All You Need (Money)

# Table of Contents *There are two main parts to this article, the "Fundamentals of Money" covers how money works and the "Evolutions of Monetary Systems" covers the evolutionary stages of money throughout history. Feel free to skip some sections if you already understand it.* 1. [Introduction](#Introduction) 2. [The Fundamentals of Money](#The%20Fundamentals%20of%20Money) 1. [Functions of Money](#Functions%20of%20Money) 2. [Qualities the Materials of Money Need to Possess](#Qualities%20the%20Materials%20of%20Money%20Need%20to%20Possess) 3. [Qualities Monetary Systems Need to Possess](#Qualities%20Monetary%20Systems%20Need%20to%20Possess) 4. [The Nature of Money](#The%20Nature%20of%20Money) 5. [The Difference Between Money & Currency](#The%20Difference%20Between%20Money%20&%20Currency) 6. [Debt](#Debt) 3. [Evolution of Monetary Systems](#Evolution%20of%20Monetary%20Systems) 1. [Pre-Money – Barter (Pre-History — Today)](#Pre-Money%20%E2%80%93%20Barter%20(Pre-History%20%E2%80%94%20Today)) 2. [Commodity Money (~40,000 BCE — ~700 CE)](#Commodity%20Money%20(~40,000%20BCE%20%E2%80%94%20~700%20CE)) 3. [Coinage – Metallic Money (~700 BCE — ~1800 CE)](#Coinage%20%E2%80%93%20Metallic%20Money%20(~700%20BCE%20%E2%80%94%20~1800%20CE)) 4. [Representative Money – Paper Backed by Commodities (8th century – 1970s)](#Representative%20Money%20%E2%80%93%20Paper%20Backed%20by%20Commodities%20(8th%20century%20%E2%80%93%201970s)) 5. [Fiat Currency (1970s – Present)](#Fiat%20Currency%20(1970s%20%E2%80%93%20Present)) 6. [Cryptocurrency (2008 – Present)](#Cryptocurrency%20(2008%20%E2%80%93%20Present)) 7. [Energy – Society Protocol (Starts Now)](#Energy%20%E2%80%93%20Society%20Protocol%20(Starts%20Now)) # Introduction **_What is money?_** _Money is a system we use to measure, transfer, and store value in durable form._ **_Value to whom?_** _Value to other people around us. In totality, money is value to society_[^1]. When you zoom out and look at the big picture, a monetary system is simply this: > A list containing the state of how much value every participant is owed by society for their contributions (money). To go deeper and find the total value of every participant—we can use the common economic formula: > Shareholder Equity (total value) = Total Assets (money + assets) – Total Liabilities (debt) **That list is all any monetary system ever wanted to be.** An accurate state recording the value flows of society in aggregate. _Surprisingly a difficult task_[^2]. > _Therefore, the perfect monetary system: would accurately display every individual’s value to society at each point in time._ The question of how to measure, store, and transfer value to even your neighbors in an efficient and lasting way was once a nearly impossible matter…We have gone through many iterations of monetary systems and orders. As society has progressed…its monetary systems have evolved. We used to value each other by how many seashells, oxen, corn satchels, metallic ingots, coins, and paper representations of value a person possessed. Today, our monetary systems are digital, semi-attached to identity, and stored by intermediaries. **All of these systems are outdated**. Humanity has always wanted to transmit value directly through identities[^3], but has never had anywhere close to a technological infrastructure required to handle such an undertaking. In the upcoming _age_, money will become directly abstracted to the value each entities’ identity brings to society. At the end of the blockchain evolution, value isn’t going to be transferred through fiat currencies, blockchain tokens, or CBDCs. Value will be directly implanted and transferred through identities. _That’s what we’re building at Society Protocol._ Energy is the monetary system of Society Protocol. It is a superior monetary system which trades directly on the abstraction of societal value. This is what all money and currency systems aim to achieve, but never before in history has this been systematically possible to enable. _It is only made possible by creating Synchronized States._ Energy is more than a monetary system. It is an abstraction that combines: money, currency, explicit social status, access to control, and ownership of a Synchronized State. Money maps value to explicit generalized social status in society. Money is the explicit social status of the 🌎, and the implicit one is…_well, implicit_. It’s not obvious or measured. # The Fundamentals of Money > “We must notice, in the first place, that the great mass of the population who hold coins have no theories, or general information whatever, upon the subject of money. They are guided entirely by popular report and tradition. The sole question with them on receiving a coin is whether similar coins have been readily accepted by other people.” \[@jevonsMoneyMechanismExchange1876\] In this section, we will cover the mechanics of how money works. There is an important foundational book where most of the common knowledge about money comes from, called [_Money and the Mechanism of Exchange_](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html). We will cite it throughout this article to extract its foundational insights, which have proven timeless. > _People will do almost anything for money, except for figure out how it works._ Monetary systems are complex and it would create a big burden on society. Whether or not people are educated about money, they need to use a money system. Society should have a fair system that facilitates them to do what they like. A baker should focus on baking, not on the soundness, fairness, exploitability, and complex taxation of the monetary system. ## Functions of Money **Money is used for** [**three functions**](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=4#book-reader)**: to measure, transfer, and store value.** _These functions can notably be served independently by different materials in a monetary system. For example: you might measure value in Dollars, transfer it in Rupees, and store it in Bitcoin._ #### Measure: Unit of Account (UoA) Money is used as a measure of value, against which all other goods and services can be comparatively priced. Without this base of measurement, we would need to learn (and constantly re-evaluate) the pricing of every good or service against every other good or service on the market. This is n² combinations, which grows unfathomable to sustain with even merely 500 market offerings totaling 250,000 ever-shifting prices. By using money as a unit of account, we lower the need to measure prices down to the exact number of market offerings, all priced against the singular UoA. > “As such, ‘money’ might also be thought of as an individual’s ‘language of trade or value’. If presented with a number prefixed with a symbol that is not part of a person’s daily vernacular, he is forced to translate the value into the familiar denomination.” \[@kameirCryptocurrencyConfusionHackerNoon2019\] By all using the same UoA, we are able to arrive at an identical measurement of value. _Effectively speaking the same language._ This allows us to trade. #### Transfer: Medium of Exchange (MoE) Money _lubricates_ trade exchanges by allowing us a medium to transfer value efficiently. Without an efficient medium for transferring any size denomination of value…we would only be able to exchange offerings of identical value. To be able to exchange non-identical value offerings, we must either employ _money_ or _debt_ to _lubricate_ the value difference. Our potential range of trade interactions is therefore directly proportional to how widely and precisely our money material can transfer value as a MoE. Over the course of history, this function has taken many mediums...none of them perfect. All of them needed to be stored, secured, measured, divided, and transferred efficiently, to settle up exchanges of value. _Imagine transferring wheelbarrows of corn or iron to settle value flows today._ The limitations of past monetary systems made transferring value extraordinarily difficult. Even cash today feels quite clumsy: _What denominations do you need?_ _What do you do with the change? How do you secure it? How can you transfer value with it internationally?_ #### Store: Store of Value (SoV) _Money is societal value stored in durable form, that is the essence._ For that to be true, good money must retain essentially as close to equal value compared to every other trade offering in the market as possible. Assuming everything else is equal—money shouldn’t grow or decay in value (compared to the aggregate basket of every other offering in the economy). As a store of societal value: - Ideally, the only time money should grow in value (against the marketplace of offerings) is if your society has attained a higher level of development (and therefore, offerings have become cheaper to produce, as a percentage of societal value). - Likewise, the only time money should fall in value…is if your society has degraded into a lower level of development (and therefore, offerings have become more expensive to produce, as a percentage of societal value). ## Qualities the Materials of Money Need to Possess To achieve the [functions of money](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=4#book-reader) listed above: the materials of money should possess [certain qualities](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=6#book-reader). > To decide upon the best material for money is thus a problem of great complexity, because we must take into account at once the relative importance of the several functions of money, the degree in which money is employed for each function, and the importance of each of the physical qualities of the substance with respect to each function.” \[@jevonsMoneyMechanismExchange1876\] #### Utility and Value The material we use as money should itself have intrinsic utility and be valuable outside of its monetary value. > “Since money has to be exchanged for valuable goods, it should itself possess value, and it must therefore have utility as the basis of value. Money, when once in full currency, is only received in order to be passed on, so that if all people could be induced to take worthless bits of material at a fixed rate of valuation, it might seem that money does not really require to have substantial value. Something like this does frequently happen in the history of currencies, and apparently valueless shells, bits of leather, or scraps of paper, are actually received in exchange for costly commodities. This strange phenomenon is, however, in most cases capable of easy explanation, and if we were acquainted with the history of every kind of money the like explanation would no doubt be possible in other cases. The essential point is that people should be induced to receive money, and pass it on freely at steady ratios of exchange for other objects; but there must always be some sufficient reason first inducing people to accept the money. The force of habit, convention, or legal enactment may do much to maintain money in circulation when once it is afloat, but it is doubtful whether the most powerful government could oblige its subjects to accept and circulate as money a worthless substance which they had no other motive for receiving.[^4] > > Certainly, in the early stages of society, the use of money was not based on legal regulations, so that the utility of the substance for other purposes must have been the prior condition of its employment as money.” (Jevons, 1876) #### Portability The material we use as money should be easily transferable. > “The material of money must not only be valuable, but the value must be so related to the weight and bulk of the material, that the money shall not be inconveniently heavy on the one hand, nor inconveniently minute on the other. There was a tradition in Greece that Lycurgus obliged the Lacedæmonians to use iron money, in order that its weight might deter them from overmuch trading. However this may be, it is certain that iron money could not be used in cash payments at the present day, since a penny would weigh about a pound, and instead of a five-pound note, we should have to deliver a ton of iron.” > > Substances may be too valuable as well as too cheap, so that for ordinary transactions it would be necessary to call in the aid of the microscope and the chemical balance. Diamonds, apart from other objections, would be far too valuable for small transactions. (Jevons, 1876) #### Indestructibility The material we use as money should remain durable to be passed around in trade—the closer to indestructibility, the better. > “If it is to be passed about in trade, and kept in reserve, money must not be subject to easy deterioration or loss. It must not evaporate like alcohol, nor putrefy like animal substances, nor decay like wood, nor rust like iron. Destructible articles, such as eggs, dried codfish, cattle, or oil, have certainly been used as currency; but what is treated as money one day must soon afterwards be eaten up. Thus a large stock of such perishable commodities cannot be kept on hand, and their value must be very variable.” (Jevons, 1876) #### Homogenous The material we use as money should be fungible. > “All portions of specimens of the substance used as money should be homogeneous, that is, of the same quality, so that equal weights will have exactly the same value. In order that we may correctly count in terms of any unit, the units must be equal and similar, so that twice two will always make four. If we were to count in precious stones, it would seldom happen that four stones would be just twice as valuable as two stones. Even the precious metals, as found in the native state, are not perfectly homogeneous, being mixed together in almost all proportions; but this produces little inconvenience, because the assayer readily determines the quantity of each pure metal present in any ingot.” (Jevons, 1876) #### Divisibility The material we use as money should remain proportionally (equally) valuable when divided and be easy to divide. > “Closely connected with the last property is that of divisibility. Every material is, indeed, mechanically divisible, almost without limit. The hardest gems can be broken, and steel can be cut by harder steel. But the material of money should be not merely capable of division, but the aggregate value of the mass after division should be almost exactly the same as before division. If we cut up a skin or fur the pieces will, as a general rule, be far less valuable than the whole skin or fur, except for a special intended purpose; and the same is the case with timber, stone, and most other materials in which reunion is impossible. But portions of metal can be melted together again whenever it is desirable, and the cost of doing this, including the metal lost, is in the case of precious metals very inconsiderable, varying from ¼d. to ½d. per ounce. Thus, approximately speaking, the value of any piece of gold or silver is simply proportional to the weight of fine metal which it contains.” (Jevons, 1876) #### Stability of Value The material we use as money should remain stable in value (relative to the aggregate of other goods and services on the market). > “It is evidently desirable that the currency should not be subject to fluctuations of value. The ratios in which money exchanges for other commodities should be maintained as nearly as possible invariable on the average. This would be a matter of comparatively minor importance were money used only as a measure of values at any one moment, and as a medium of exchange. If all prices were altered in like proportion as soon as money varied in value, no one would lose or gain, except as regards the coin which he happened to have in his pocket, safe, or bank balance. But, practically speaking, as we have seen, people do employ money as a standard of value for long contracts, and they often maintain payments at the same invariable rate, by custom or law, even when the real value of the payment is much altered. Hence every change in the value of money does some injury to society.” (Jevons, 1876) This quality is most important for long-term contracts where money is used as a [standard of value](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=4#book-reader). #### Cognizability The material we use as money should be easy to recognize the authenticity of and distinguish from other materials. > “By this name we may denote the capability of a substance for being easily recognized and distinguished from all other substances. As a medium of exchange, money has to be continually handed about, and it will occasion great trouble if every person receiving currency has to scrutinize, weigh, and test it. If it requires any skill to discriminate good money from bad, poor ignorant people are sure to be imposed upon. Hence the medium of exchange should have certain distinct marks which nobody can mistake.” (Jevons, 1876) ## Qualities Monetary Systems Need to Possess The previous section about the _qualities of money materials_ focuses on money from an individual’s perspective (as a microcosm). The system of money itself (as a macrocosm) would also like to possess certain qualities. _What qualities are important in a monetary system?_ #### Scarcity (Limited Supply) The scarcity of the money supply is what protects a monetary systems value stability. _It can be thought of as the security lock for the value of money._ Historically, many monetary systems were rendered useless because the supply of their materials either grew or decreased (usually grew) in abundance. If the scarcity of the money supply changes, it naturally alters the distribution of value represented in the system. _Where does your money come from? What protects its value?_ #### Low Transaction Costs We all benefit from trade, but to use a monetary system is never free—it always incurs some amount of transaction costs. _The transaction costs of individual transactions are naturally derived from the costs of creating and maintaining the monetary system for society in aggregate._ The historical evolution of monetary systems is a steady slope of decreasing transaction costs expanding the range of profitable trade interactions possible at each evolutionary stage. _The easier it is to transfer value, the more trades we can profitably partake in—elevating the total wealth of our society._ Consider the simple act of buying a bottle of water for $1. This trivial exchange, completed in seconds using fiat currency at any corner store, would have been economically impossible in an era of oxen or gold ingots—where the overhead of measuring, and transferring value would have exceeded the value of the water itself. #### Inspectability (Bookkeeping of Flows) The more a society can peer into the monetary system of value flows happening within it—the more it can analyze statistics, collect taxes, align interests, understand itself, and improve coordination. While every individual actor is incentivized to hide their value flows for negotiating leverage—the monetary system as a whole, benefits greatly from being inspectable. #### Velocity (The Ability to Form Closed Loops) The quicker value is able to move around in the system, the more valuable the money itself becomes to facilitate these transfers. Every time we use a monetary system, we give it some power and value. This is called a monetary premium. _Do you feel the monetary premium leaking out of your pores and into the money when you use whatever monetary system you’re using? 🤔_ To create and use money, we must forego its opportunity costs—this means that the _monetary premium_ must be of greater value than simply using that material for its utility (i.e. eating the oxen). Each time we transfer value as money—it increases the velocity of the system. This active use-case as money increases the materials’ _monetary premium_—showing us that this material is indeed valuable as money and this monetary system itself is valuable, because people are frequently using it. Velocity is like the blood circulation of a monetary system. If there is no velocity over a prolonged period of time—_it’s likely dead_. When Energy stops moving around in Society Protocol, _the society is considered dead_ and its Energy would not command a _monetary premium_. Alternatively, when Energy is transferred at high velocities—the society is likely vibrant and its Energy valuable. #### Accessibility If we consider monetary systems somewhat like languages, they can also have language barriers. If you have a really obscure or restricted monetary system and participants are unable to join or easily participate, that is not good. _It lowers the monetary premium._ Let’s say for example we have a monetary system that’s hard to decipher, based in some materials of which access is limited to a specific sub-group of people, or its participation is artificially limited to only the members of a certain age, sex, religion, organization, or State, etc. _All of these would relatively lower its monetary premium._ #### Minimized Trust Assumptions Throughout history, money has always been a bearer instrument except in one case (today)—meaning: the sole possession and transfer of it determines who holds the value. Partly, this is just evolution, but partly, it’s extremely precarious to place trust in a monetary system anywhere other than the true owner of the value themselves, for seemingly obvious reasons. Placing your societal value into someone else's hands transforms money into a loan, and loans are inherently risky: they may not be repaid, they require tracking as debt, and they increase transaction costs. A monetary system naturally wants to minimize trust assumptions to avoid these risks and additional costs. --- ### The Nature of Money We tend to view money as a static object or material, rather than as an individual’s ever-changing value to society…and that is an incorrect conceptualization, which originates from a lack of understanding money from first-principles, since money has always been a static object or material historically. **_If money is societal value, how should money function over time?_** When money is kept idle—it _decays_—because we aren’t contributing value to society while others are. All else being equal, whatever materials and systems of money we use will naturally display this reality[^5], _if they are adequate_. This happens via inflation mechanisms in modern fiat monetary systems. In Society Protocol it happens via the Hunt mechanism. _There is no way to store value infinitely doing nothing over time._ **Money kept idle decays.** ### The Difference Between Money & Currency **Money** is a broader term that refers to anything widely accepted as a UoA, MoE, and SoV within an economy. It’s the idea of something that people trust and perceive all others to likewise find valuable. These qualities naturally make money a favored tool for trading goods, pricing services, and settling debts. **Currency** is the physical or tangible form of money that’s officially issued, used, and recognized within a specific system—usually by a government or central authority. So, the difference is in scope and abstraction. Money is the broader concept—the abstract idea of stored societal value that enables trade. Currency is the specific physical or digital medium that embodies this concept. ### Debt Debt is simply a ledger somewhere of “who owes whom what (value).” It uses trust and enforcement mechanisms to establish the delayed settlement of value (usually in the form of money). **Debt allows us to facilitate credit**. _It allows us to loan some of our societal value or borrow some from others without needing to immediately transfer money_**_._** This binds the societal value of both parties into a common enterprise. **Debt needs to be stored accurately.** It can be held in someone’s mind, on a piece of permanent record, in a duplicated contract, or in a synchronized state all the same. What’s important is that it remains accurate to all parties involved. Each method listed in the sequence lessens the cognitive load and increases trust and our ability to store debt records accurately. **Debt requires trust or an enforcement mechanism.** Debts depend on the trust assumptions of whoever loans and borrows the social value (which equates to money). We need to be able to price trust efficiently to be able to allocate debt, which has a sliding scale of value based on those trust assumptions. > For example: if Bob has only a 1% chance of paying Alice back—Alice needs to give Bob debt at a very high interest rate to account for that risk. Whereas, if Bob has a 99% chance of paying Alice back—Alice can loan Bob her social value at a very low interest. **There must always be interest in debt, because money has a time value itself. (Even if Bob has a 100% chance of paying Alice back, the value of the money itself would decay throughout the term.)** Societies’ best methods for pricing trust assumptions for debts are identity (provides the assumptions) combined with markets (prices the assumptions). The more trust a society can obtain—the more debt it can enable. This increases the range of potential economic interactions, and enhances efficiency by binding the economic fate of multiple parties together as a team. A society which can _accurately_ gauge trust assumptions and allocate debts is superior to one which cannot. _A_ society which inaccurately allocates debt (filled with bad debt) sinks bound together as a team. # Evolution of Monetary Systems In this section, we will briefly trace the key evolutionary stages which brought us to today’s monetary systems—each variant building upon the limitations of what came before it—before exploring Energy as the next monetary order. There are other works that already do an excellent job extensively covering the the evolution of money. One such work is Nick Szabo’s excellent article [_Shelling Out_](https://nakamotoinstitute.org/library/shelling-out/)[^6], which together with [_Money and the Mechanisms of Exchange_](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html) serve as the foundations for this article. ## Pre-Money – Barter (Pre-History — Today) _Barter[^7] was pre-money…They had no money! They was poor!_ So, our pre-historic tribal humans wanted to trade…but they didn’t have any money 😆! That made it extremely difficult to align trades…_there was no lasting way to store social status or credit_. Without access to money, trades had to be of an _exactly_ identical value or supplanted by debt. (I can’t trade my fur for your spear, if your spear is worth 3.5 furs.) Tribes had no way to store debt, other than in their malleable minds, nor did they have a standardized UoA to measure debt. > “Coincidence in time and locale of supply and demand for trade was rare – so much so, that most kinds of trades and trade-based economic institutions we now take for granted could not exist. Even more unlikely was the triple coincidence of supply with demand with a major event for a kin group – the formation of a new family, death, crime, or victory or defeat in war. As we shall see, clans, and individuals greatly benefited from a timely transfer of wealth during these events.” \[@szaboShellingOutOrigins2002\] Barter without money required a double identical coincidence of wants for “local” trades within one’s tribe (an exact match of supply and demand) and a more difficult triple coincidence of wants for intertribal “international” exchanges (supply, demand, and gathering time & locale). This is because tribes were hostile to each other and only rarely met to trade at gatherings, which required extensive rituals to harmonize the hostilities before being able to exchange at all. > “A related problem is that, as engineers would say, barter “doesn’t scale”. Barter works well at small volumes but becomes increasingly costly at large volumes, until it becomes too costly to be worth the effort. If there are n goods and services to be traded, a barter market requires n^2 prices. Five products would require twenty-five prices, which is not too bad, but 500 products would require 250,000 prices, which is far beyond what is practical for one person to keep track of. With money, there are only n prices – 500 products, 500 prices. Money for this purpose can work either as a medium of exchange or simply as a standard of value – as long as the number of money prices themselves do not grow too large to memorize or change too often. (The latter problem, along with an implicit insurance “contract”, along with the lack of a competitive market may explain why prices were often set by long-evolved custom rather than proximate negotiation). > > Barter requires, in other words, coincidences of supply or skills, preferences, time, and low transaction costs. Its cost increases far faster than the growth in the number of goods traded. Barter certainly works much better than no trade at all, and has been widely practiced. But it is quite limited compared to trade with money.” (Szabo, 2002) Ultimately, barter is both the worst and best form of trade. (That’s why it’s still around at present.) Without money to _lubricate_ it, barter hardly works at all. Money acts as a middle-man for transactions. When we use this middle-man, we give it value; which means we pay the other holders. We increase the _monetary premium_ of money merely by using it. If we can remove this middle-man by using a barter transaction, that means retaining more value for ourselves. _In that sense, barter is the best form of trade_. So, ideally, participants in trade want to use what’s known as a [coincidence-of-wants](https://docs.cow.fi/cow-protocol/concepts/how-it-works/coincidence-of-wants) (CoW) in addition to monetary systems, to attain the highest surplus in trades. _This brings us to an important note: using money isn’t free…we are paying whoever else owns and creates that money._ **_Summary:_** - _Barter made “local” trades unlikely, intertribal trades nearly impossible, and pricing trade offerings extraordinarily difficult without money._ ## Commodity Money (~40,000 BCE — ~700 CE) In _Shelling Out_, Nick Szabo does a very convincing job of explaining that the invention of money came in the form of collectibles around 40,000 BCE, and that is what really allowed Homo sapiens sapiens (modern humans) to exceed other primitive animals by being able to store and transfer value across time––allowing Homo sapiens sapiens to coordinate at levels that other species of animals couldn't achieve. > “Indeed, collectibles provided a fundamental improvement to the workings of reciprocal altruism, allowing humans to cooperate in ways unavailable to other species. For them, reciprocal altruism is severely limited by unreliable memory. Collectibles augmented our large brains and language as solutions to the Prisoner’s Dilemma that keeps almost all animals from cooperating via delayed reciprocation with non-kin.” (Szabo, 2002) ![[collectible-money.jpg]]_Caption: A primitive collectible monetary artifact. Detail of necklace from a burial at Sungir, Russia, 28,000 BCE._ Primitive commodity money replaced the need for memory and trust (about the complex problem of who owes whom how many favors or how much value), allowing us to store value in durable goods, which proved to be beyond useful. Collectibles and eventually other commodities reduced the heavy cognitive load for favor tracking and delayed reciprocation. By inventing commodity money—humans began the ascent to measure, transfer, and store value over time. > “Primitive money existed long before large scale trade networks. Money had an even earlier and more important use. Money greatly improved the workings of even small barter networks by greatly reducing the need for credit. Simultaneous coincidence of preference was far rarer than coincidences across long spans of time. With money Alice could gather for Bob during the ripening of the blueberries this month, and Bob hunt for Alice during the migration of the mammoth herds six months later, without either having to keep track of who owed who, or trust the other’s memory or honesty. A mother’s much greater investment in child-rearing could be secured by gifts of unforgeable valuables. Money converts the division of labor problem from a prisoner’s dilemma into a simple swap.” (Szabo, 2002) The invention of money created more opportunities for society to exchange value—boosting well-being, wealth, and coordination in society. > “With their unprecedented technology of cooperation, humans had become the most fearsome predator ever seen on the planet. They adapted to a shifting climate, while dozens of their large herd prey were driven, by hunting and climate change in America, Europe, and Asia, to extinction. Today, most large animals on the planet are afraid of projectiles – an adaption to only one species of predator. Cultures based more on gathering than hunting also greatly benefitted. A population explosion followed – Homo sapiens sapiens was able to populate more parts of the planet and at a density over ten times that of Homo sapiens neanderthalensis, despite weaker bones and no increase in brain size. Much of this increase may be attributed to the social institutions made possible by effective wealth transfer and language – trade, marriage, inheritance, tribute, collateral, and the ability to assess damages to dampen cycles of vengeance.” (Szabo, 2002) Nick Szabo posits that it was exactly the invention of money (in the form of collectibles) which allowed our species to dominate the world, and I'm with him. We have written a lot about how learning to permanently record the state completely transformed society in [The state of The State](https://societyprotocol.io/Published/Articles/The+state+of+The+State+(History)) and other articles at Society Protocol. Collectible money was actually humanity’s first way to permanently record and transfer valuable state—far predating written permanent records of the Single-Entry Accounting Age (SEAA). It was crucially the only way to permanently record the state of society 35,000+ years before the advent of permanent recorded state around 3,500 BCE in Mesopotamia. Collectibles are also where our instinctive desires for jewelry (such as wedding rings and necklaces) come from. Being able to safely keep these collectibles on person was crucial to securing them as money. Hence, they were fashioned into rings and necklaces to keep securely on person. Humans still instinctively perceive and value jewelry as money to this day because of this collective memory. The commodity money age spanned thirty thousand years, during which the materials used as money evolved dramatically. Early societies relied on collectibles, livestock, shells, and corn as their materials for money. Eventually, they progressed to metals—first iron and copper, then silver and gold. Through this long process, humanity discovered that precious metals possessed the superior qualities needed for an effective commodity money system. > “With the exception of iron, the principal metals are peculiarly indestructible, and undergo little or no deterioration when hoarded up or handed about. Each kind of metal is approximately homogeneous, piece differing from piece in nothing but weight, the differences of fineness being ascertained and allowed for in the case of gold and silver. The metals are also perfectly divisible, either by the chisel or the crucible, and yet a second melting will always reunite the pieces again with little cost or loss of material. Almost of them possess the properties of cognizability and impressibility in the highest degree. Each metal has its characteristic colour, density, and hardness, so that it is easy for a person with very slight experience to distinguish one metal from another. Their malleability enables us to roll, cut, and hammer them into any required form, and to impress a permanent design by means of dies.” (Jevons, 1876) **_Summary:_** - _Humans learned to store value in durable forms. Humans invented money. 🎉_ - _The Commodity Money age revolutionized value measurement, storage, and exchange by offering a consistent value units which could be used as a UoA, MoE, and SoV in the form of tangible commodities._ ## Coinage – Metallic Money (~700 BCE — ~1800 CE) > “The ancient Goths and Celts were accustomed to fashion gold into thick wires, which they rolled up into spiral rings and probably wore upon their fingers until the metal was wanted for trading purposes. There can be little doubt that this ring money, of which abundant specimens have been found in various parts of Europe and Asia, formed the first approximation to a coinage. In some cases the rings may have been intentionally made of equal weight; for Cæsar speaks of the Britons as having iron rings, adjusted to a certain weight, to serve as money.” (Jevons, 1876) ![[money-rings.jpg]]_Caption: Ring money was the precursor to coinage. It helped standardize monetary denominations to make money more easily used to measure value as a unit of account._ > “Although, in rings, grains, or stamped ingots, we have an approximation to what we call coin, it is plain that we must do something more to make convenient money. The stamp must be so impressed as to certify, not only the fineness and the original weight, but also the absence of any subsequent alteration. To coin metal, as we now understand the art, is to form it into flat pieces of a circular, oval, square, hexagonal, octagonal, or other regular outline, and then to impress designs from engraved dies upon both sides, and sometimes upon the edges. Not only is it very costly and difficult to counterfeit coins well executed in this manner, but the integrity of the design assures us that no owner of the coin has tampered with it.” (Jevons, 1876) ![[coinage.webp]]_Caption: Coins are ingots of metals of which the weight and fineness are certified by the integrity of designs impressed upon the surfaces of the metal. So, the difference between metal ring money and coinage is a good seal_[^8]. This excerpt from [_Shelling Out_](https://nakamotoinstitute.org/library/shelling-out/) explains the significance of minting coinage: > “Much later, well into the dawn of history, in 700 BC, though trade was widespread, money still took the form of collectibles – made out of more precious metals, but in their basic characteristics, such as lack of uniform value, similar to most of the proto-money used since the dawn of Homo sapiens sapiens. This was changed by a Greek-speaking culture in Anatolia (modern Turkey), the Lydians. Specifically, the kings of Lydia were the first major issuers of coins in the archaeological and historical record. > > From that day to this, government mints with self-granted monopolies, rather than private mints, have been the main issuers of coin. Why wasn’t minting dominated by private interests, such as private bankers, which did exist at the time in these semi-market economies? The main explanation for government dominance of coin minting has been that only governments could enforce anti-counterfeiting measures. However, they could have enforced such measures in protection of competing private mints, just as they enforce trademarks today and at that time as well. > > It was far easier to estimate the value of a coin than that of a collectible – especially at low transaction values. Far more trades could be made with money instead of barter; indeed many kinds of low-value trades became possible for the first time as the small gains from trade for the first time exceeded transaction costs. Collectibles were low-velocity money, involved in a small number of high value transactions. Coins were high-velocity money, facilitating a large number of low value trades. > > Given what we have seen about the benefits of proto-money to tribute and tax collectors, as well as the critical nature of the value measurement problem in optimally coercing such payments, it is not surprising that tax collectors, specifically the kings of Lydia, were the first major issuers of coinage. The king, deriving his revenue from tax collection, had a strong incentive to measure to value of wealth held and exchanged by his subjects more accurately. That the exchange also benefited from cheaper measurement by traders of the medium of exchange, creating something closer to efficient markets, and allowing individuals to enter into the marketplace on a larger scale for the first time, was for the king a fortuitous side effect. The greater wealth flowing through markets, now available to be taxed, boosted the king’s revenues even beyond the normal Laffer curve effect of reducing mismeasurement between given tax sources. > > This combination of more efficient tax collection with more efficient markets meant a vast increase in overall tax revenues. These tax collectors almost literally hit a gold mine, and the wealth of Lydian kings Midas, Croesus, and Giges is famous to this day. > > A few centuries later, the Greek king Alexander the Great conquered Egypt, Persia and much of India, funding his spectacular conquest by plundering Egyptian and Persian temples, filled with assemblages of low-velocity collectibles, and melting them down into high-velocity coins. More efficient and encompassing market economies as well as more efficient tax collection sprung up in his wake.” (Szabo, 2002) During the Coinage Age, States (kingdoms) for the first time took full control over the minting of currency. This combined with the nature of coinage to make value flows more standardized, secure, transmissible, and taxable. Ever since then, currency creation has been a function of the State. It’s a good time to mention one of the important laws of money—**Gresham’s Law**. > Gresham’s Law – “Bad money drives good money out of circulation.” Gresham’s law essentially states that, “If you put money into circulation, of which individual parts are unequal (such as a 70% gold coin and a 75% gold coin), the better variant will be taken out of circulation (to be held as a SoV), while the weaker variant will remain circulating as a MoE.” Over time, this dynamic degrades the currency supply to the weakest variant which people are willing to accept and circulate, because the whole idea of a MoE is that it’s not meant to be held onto forever…it circulates around the economy as a medium to transfer value. So, participants always want to pass on the weakest currency and hold the strongest currency for themselves. _In this sense, the SoV and MoE functions of money grow unaligned._ Every participant is incentivized to store maximal value while transferring the least valuable variant of currency which other participants will accept. It’s a big part of why currency wants to be homogeneous. The dynamic of whether currency should be created privately or under the control of the State has been argued by many economists. Stanley Jevons addresses it in this passage: > “Gresham's law alone furnishes a sufficient refutation of Mr. Herbert Spencer's doctrine, already noticed that money ought to be provided by private manufacturers. People who want furniture, or books, or clothes, may be trusted to select the best which they can afford, because they are going to keep and use these articles; but with money it is just the opposite. Money is made to go. They want coin, not to keep it in their own pockets, but to pass it off into their neighbour's pockets; and the worse the money which they can get their neighbours to accept, the greater the profit to themselves. Thus there is a natural tendency to the depreciation of the metallic currency, which can only be prevented by the constant supervision of the state. > > Every standard coin thus tends to degenerate into a token coin, and such a coin can only be withdrawn from circulation by the state.” (Jevons, 1876) In his work, Jevons labels the difference between “standard coins” and “token coins” as being**:** the standard coins ARE money, while the token coins are not fully money—they are currencies issued to represent money**.** For example, a 100% gold coin is a “standard coin”, while a 20% gold alloyed coin is, a partial “token coin” representation of money. _Currencies can run the gamut: from 100% money standard (such as 100% gold coins) to a mixture (99%-1% alloys) to purely token representations of money (paper currencies)._ If you’re clever, by now you’ve understood that Gresham’s Law continuously drives standard coins out of circulation in favor of token coins. Throughout history, Governments started printing 100% gold “standard” coins…progressed down that slope to 99-1% alloys (as long as the public is willing to circulate the token coin representation)…eventually reaching a purely token abstraction of money in paper currency—representing a claim to actual money (gold, silver) stored in vaults. **Summary:** - _Standardized coins made out of metallic commodities (gold, silver, copper) made value transmission more standardized and simpler, enabling lots of small transactions and improved tax collection_. - _The act of coining currency moved to the State itself; this presented many challenges_[^9]. ## Representative Money – Paper Backed by Commodities (8th century – 1970s) Paper currencies originated in China in the 8th century[^10]. This innovation was possible because China possessed all the prerequisite technologies[^11] centuries before anywhere else: paper, woodblock printing, and a sophisticated commercial economy that needed lighter money than strings of heavy bronze and copper coins. The earliest official paper money in history was the Jiaozi (交子), introduced in China during the Song Dynasty in the city of Chengdu, around 1023–1024 CE. It emerged as a response to the shortage and inconvenience of heavy iron and copper coins. Merchants initially issued private promissory notes (similar to IOUs) backed by deposits of coins or goods. By 1024, the Song government established an official bureau in Chengdu to issue state-controlled Jiaozi, making it the world's first government-issued paper currency. ![[Jaozi.jpg]]_Caption: Jiaozi from the Song dynasty was created using woodblock printing and stamped with six different inks and multiple banknote seals to make it cognizable._ Paper currency wouldn't emerge in Europe until the printing press made it feasible—almost a millennium later in 1661, when Sweden's Stockholm Banco issued Europe's earliest banknotes, the Kreditivsedlar. ![[Kreditivsedlar.jpg]]_Caption: Pictured: A Kreditivsedlar banknote from 1666. All Kreditivsedlar notes were initially signed by the head of the bank himself and the other clerks of the bank._ Paper currencies allowed societies to [^12]retain a value system based in the qualities of metallic money for measurement (UoA) and storage (SoV), while abstracting away the transfer of value (MoE) into easier to manage paper representations. Paper had three distinct advantages over metallic coins: - **Weight of metallic coins:** Paper was easier to transport, especially in long-distance voyages. - **Inconvenience of metallic coinage:** Paper currencies abstracted away the security risks of holding large amounts of metallic money. - **Savings of interest:** By procuring effectively **_loans_** of metallic money and exchanging it for paper representations (IOUs). The merchants, banks, and States holding the metallic money were able to pay off their debts and re-loan that metallic money. _Allowing them to save interest on their debts and gain interest on their re-loaning of the metals._ Banks emerged during this same era in Venice, Italy, serving as intermediaries for value transfer. These early banks accepted deposits, issued loans, and enabled fund transfers through cheques and promissory notes—all without requiring customers to physically withdraw coins. By lending money to the bank and receiving a paper representation in exchange—_we are lending our value to the bank._ Meaning: if we aren’t putting our money to use, and it’s sitting in our possession as coinage decaying (as all money does) and causing security risks—the bank can potentially put that money to better use with a loan from us. In exchange: customers gain the ability to easily transfer value as paper currency and earn interest on the value their money loan (hopefully) creates for society. **This is the basis and foundation of banking.** _We lend banks our value, they give us a receipt (IOU) which we can transfer within their network and (usually) retrieve our loan. In the meanwhile, they attempt to use the value lent to them profitably_. A globally interconnected economy emerged during the representative money age. Banks helped society transfer value in a globally interconnected world—without tugging hoards of gold coins across the ocean and getting it stolen by pirates. Famous economists like Adam Smith emerged to understand how to optimize value transfers. **Capitalism was a product of the coinage and representative money ages.** The Coinage Age allowed society to transfer value in small transactions and paper money backed by commodities made international value transfers easier. What resulted is an age of free markets—where people carried around real value (money in the form of gold coins or paper currencies exchangeable for those commodities) and used them to transfer **real** value in international settings. Nation States during this time had no means to impose taxes on everyday trade happening across the globe. They had no means to freely manipulate who gets the printed money (societal value), without paying the corresponding price in valuable precious metals. These factors limited early Nation States’ ability to steer society in regards of value flows they found preferable. _They had to pay just like everybody else._ > An example: If a Nation State wanted to incentivize its ship-building industry—it couldn’t just print value and give that money to ship-builders (as is possible today), it would need to give those ship-builders real value (in the form of scarce metallic coins or paper redeemable for them), which the Nation State itself had limited quantities of. Hence, capitalism and figuring out how the mechanics of free markets (economics) worked was the order of the day. The people carried real capital around with them, and Nation States couldn’t simply print that capital to manipulate value flows. While paper currencies were used within the jurisdiction of a Nation State (where they could be redeemed), the only acceptable form of international settlement remained gold and silver—precious metals with a scarce quantity. **Gresham’s Law** continued to plague society during the representative money age. Since paper representations were only accepted in their locality and could easily become fraudulently over-printed and non-redeemable, the paper currencies drove the sound metallic money entirely out of circulation. Since paper currencies functioned as an abstraction of metallic money, the issue of over-printing could only be resolved by the absolute perfect handling of the printing of paper currency and security on the underlying metals—which absolutely no State entity could achieve under the straining pressures of life. Paper money pegged to commodities has never lasted throughout history: No commodity-pegged paper currency has remained permanently pegged to a commodity (gold, silver, or anything else) over the very long run[^13]. Every single one has eventually suspended, broken, or formally abandoned its peg—usually during wars, financial crises, or periods of high inflation. > Hence paper money has exactly the same capacity for driving out standard money that light or depreciated coins possess. > > In the case of inconvertible notes this has always been most obvious. As the quantity of such notes issued progressively increases, as almost always happens, coin must be exported, otherwise the currency would become excessive. But when most of the coin is gone, need of it begins to be felt for making foreign payments, and then the value of the paper falls below that of the coin which it is supposed to correspond to. Many persons begin to hoard the coins for the sake of anticipated profit, and nothing but paper is soon to be found in circulation. This effect of paper in driving coin out of use has been manifested over and over again, as in the time of the assignats of the French Revolution, the suspension of specie payments at the Bank of England between 1797 and 1819, and the late American war. One of the most recent and striking instances is to be found in Italy, where large quantities of beautiful gold and silver coins had been struck in the years 1862 to 1865, but all disappeared very rapidly from circulation as soon as the cours forcé of paper money was proclaimed.” (Jevons, 1876) _Money and the Mechanisms of Exchange_ covers the topics of representative money in chapters 17-19: [Representative Money](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=17#book-reader), [The Nature and Varieties of Promissory Notes](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=18#book-reader), and [Methods of Regulating a Paper Currency](https://www.econlib.org/library/YPDBooks/Jevons/jvnMME.html?chapter_num=19#book-reader). **Summary**: - Paper currencies made trade easier by abstracting away the inconveniences of metallic coins. - International trade and free markets proliferated. Capitalism was the order of the day. - Banks emerged as valuable intermediaries, helping to facilitate the transfer and storage of value. - Centralization of holding all the value in one place gave exploitable advantages to States and banks—who couldn’t help but take advantage of those opportunities (the representative money only retains its full value if they perfectly and securely handle the its metallic counterparts at no cost). ## Fiat Currency (1970s – Present) > “It is hardly requisite to tell again the well-worn tale of the over issue of paper money which has almost always followed the removal of the legal necessity of convertibility. Hardly any civilized nation exists, excepting some of the newer British colonies, which has not suffered from the scourge of paper money at one time or other. Russia has had a depreciated paper currency for more than a hundred years, and the history of it may be read in M. Wolowski's work on the finances of Russia. Repeated limits were placed to its issue by imperial edict, but the next war always led to further issues. Italy, Austria, and the United States, countries where the highest economical intelligence might be expected to guide the governments, endure the evils of an inconvertible paper currency. Time after time in the earlier history of New England and some of the other states now forming parts of the American Union, paper money had been issued and had wrought ruin. Full particulars will be found in Professor Sumner's new and interesting "History of American Currency." Some of the greatest statesmen pointed to these results; and Webster's opinion should never be forgotten. Of paper money he says, "We have suffered more from this cause than from every other cause or calamity. It has killed more men, pervaded and corrupted the choicest interests of our country more, and done more injustice than even the arms and artifices of our enemy. > > The issue of an inconvertible money, as Professor Sumner remarks, has often been recommended as a convenient means of making a forced loan from the people, when the finances of the government are in a desperate condition. It is true that money may be thus easily abstracted from the people, and the government debts are effectually lessened. At the same time, however, every private debtor is enabled to take a forced contribution from his creditor. A government should, indeed, be in a desperate position, which ventures thus to break all social contracts and relation which it was created to preserve.” (Jevons, 1876) It becomes apparent from this excerpt, Jevons and economists knew, as far back as 1876, that inconvertible paper money is the lowest form—the underworld of money—reserved for when “the finances of a government in such a desperate position” that it ventures to “break all social contracts it was created to preserve.” After the Second World War, the United States government was the wealthiest in the world—holding approximately 20,000 tons in gold reserves—approximately 2/3rds of the world’s total gold (and therefore value) supply. How did the world’s sole hegemony find itself in such a “_desperate position”_ that it had to abandon the monetary order it itself controlled and benefitted the most from to “_break all social contracts it was created to preserve?_” _The story is a tragic, but predictable one._ It starts in 1933, when the United States outlawed the private ownership of gold (value). After the Second World War, the Federal Reserve in charge of the currency, ended up printing about 500% as much of the paper currency as the gold it was representing to fund the rebuilding of Europe, Great Society Program, and the Vietnam War. In total, the United States owned 2/3rds of the world’s gold supply, and the Federal Reserve printed 5x that, so, in total: _330% of the worlds total value supply in paper currency_. Not fearing gold redemption from private citizens (_because that was illegal_)—the only entities which could redeem the overprinted US Dollars for gold were other Nation States. In ruins after WWII, they couldn’t take advantage of it either. Nevertheless, eventually foreign Nation States caught on (especially France), and started converting the overprinted paper dollar representations into gold. During this time, the United States gold supply dropped from ~20,000 tons to ~10,000 tons—realizing that it would simply lose the rest of its gold supply to further conversions of the overprinted paper currency quickly, Richard Nixon took the United States off the gold standard in 1971—breaking the social contract and refusing to honor further redemptions. ![[Gold reserves.png]]_Caption: Gold reserves of Nation States 1950–1973 ([source](https://swcs.com.au/goldreserves.htm#Table1))._ Under the direction of the Federal Reserve, between 1945–1971, the United States wen’t from dominantly controlling 2/3rds of the world’s total gold supply to the lowest tier underworld of monetary systems: _inconvertible paper currency_. By March 1973, no major currency remained convertible to gold. By 1976, during the Jamaica Accords, all nations in the world followed suit and agreed to abandon the gold standard. All nations of the world betrayed their social contract with their people at this time.[^14] The temptation for whoever is in control of the value supply to fraudulently manipulate it at **the expense of everyone else’s value** is always irresistible—just as much so when in a dominant position as when in a desperate one, as this story shows. The United States already had everything, and _still_ decided to see how far it could “stretch” the monetary supply. _“What would be the cheapest and lowest point of value that the people would be willing to transact in?”_ Until, this exploitation was counter-exploited and the United States lost it’s real value (gold)—dragging the entire world with it into inconvertible paper money, by controlling the world’s dominant military power. Fiat currency is an indefinite “forced loan” of societal value from the populace to the central bank—essentially economic servitude **Fiat currencies aren’t new.** Stanley Jevons wrote about them in 1876. They are the unconstrained gutter bottom of all monetary systems, a sewer that governments fall into when they have lost legitimacy, and struggle to get out of. While the State should always be able to incentivize certain actions[^15]; there is no pro to States being able to seamlessly manipulate economic value unrestrained. Let’s take this example: if a government wants to help poor workers by redistributing value in a gold standard system ––> they can do that, depending on the value accumulated in their treasury. It costs the State real resources, which it collects through its various activities: taxes, war plunder, natural resource exploitation, etc. The State must effectively manage it’s limited resources. It can still serve it's job of redistributing value, but it’s constrained by the real economic value it controls. Under a fiat currency system, _that is not the case_. Fiat currency is an infinite “_forced loan_” of value from the entire population to its currency controller[^16]—which can redistribute the entire societal value however it sees fit at any time, at zero cost. Fiat currency is a forced indefinite loan of every participants social value to the State. It’s essentially economic servitude, because no matter how much currency an individual acquires, they never gain any ultimate control over any percentage of societal value—which always remains entirely under control of the currency controller in a fiat currency system. **A Theoretical Example** 1. A government prints 1,000 trillion dollars, giving itself all the value, and buys absolutely everything in society. (This is the opposite of privatization, it’s the State seizure of ownership.) **A Real-World Example** ![[Federal Reserve MBS.png]] After the World Financial Crisis of 2008—the United States Federal Reserve printed some value (money) for itself and bought what amounts to 22% of all the home mortgages in the United States (as mortgage backed securities (MBSs)). In the process, redistributing 22% of the total value in real-estate mortgages to itself. _Effectively, rescuing the risky businesses of private banks from bankruptcy using the “forced loan” granted by the entire taxpayer population, seizing possession of 22% of home mortgage value for itself, and evicting the same taxpayer base which couldn’t afford their mortgage._ **Gresham’s law continues to plague us.** Society has went from real value (gold and silver) passed around in the hands of the populace during the coinage age…to token currencies in the hands of the populace, redeemable for real value held in centralized vaults (this restrained the manipulation of value) during the representative money age…to the complete control of all value by the central bank as a “forced loan” from the entire populace using inconvertible paper notes during the fiat currency age. **Real societal value no longer belongs to the hands of the people, making capitalism impossible, because we are no longer trading real value. The value is now entirely under the control of centralized cartels who run the central banks of each Nation States. Making free markets and capitalism impossible.** Free markets and capitalism were a relic of when real value was in the hands of the people, and they went around the world trading—thereby deciding what is valuable—that is not how fiat currency systems work. The world’s switch to fiat currencies in the 1970s represents the death of capitalism and the birth of the techno-feudalism age we have entered into as societies. Capitalism was a notion borne of when individuals travelled around the world, held real value in their hands, and exchanged that value as a decentralized network. That is now how fiat currency monetary systems work—they are a top-down control by the central bank of the distribution of value. **Fiat Currencies and capitalism are fundamentally incompatible**. “Just announcing $4.5 trillion in future spending to support securities markets was enough to keep owners of capital protected from the downsides of the coronavirus. The Federal Reserve announced on March 23 that it would start direct purchases of corporate debt—an unprecedented rescue of corporate America. Since then, the stock market has risen over 30 percent, corporate bond funds have recovered, and companies have saved tens of billions in borrowing costs,” from [How the Fed Bailed Out the Investor Class Without Spending a Cent](https://prospect.org/2020/05/27/how-fed-bailed-out-the-investor-class-corporate-america/). The Federal Reserve ultimately shifts the value of society wherever it wants in a fiat currency system. Free market value flows comparatively have 0% control of the system. ![[helicopter-money.png|600]] Banks morphed from intermediaries of convenience—helping to facilitate the seamless transfer and storage of value during the representative money age—into critical infrastructure during the fiat currency age. Headed by the central bank of each Nation State, the former privately held intermediaries have completely taken over the value flows of society. Upon printing money and placing it into circulation, this money goes to the State’s favored banks, who use this “forced loan” from the populace—to grant loans to the populace—thereby increasing the monetary (M2) supply. _Banks are inherently a risky business._ They take loans from their customers, and while re-loaning them out is their business—it carries inherent risks of what’s known as “bad debt” or “bank runs” when the bank is unable to repay the loans of their customers. However…in a fiat currency system, this is not considered a risky business, because the loans are “forced loans” from the populace and so the banks which are favored can never lose their societal value…because they are being held up by the “forced loan” from the entire population. This offloads the entire inherent risk of banking onto the entire population—while simultaneously privatizing the profits. Meaning, the populace is forced to loan its value to the central bank, which can always give some value to any bank it favors[^17] in the case of “bad debt” or a “bank run” making the bank insolvent. During the fiat currency age, banks are critical societal infrastructure of value storage and _transfer_, granting them legal immunity, fiscal immunity, and effectively making them quasi-government entities[^18]. In this techno-feudalist environment, the interests of private banks are aligned with the interests of the public central bank, but not aligned with the interests of the populace. This culminated in the age of digital fiat currency, which is simply fiat currency stored in the digital realm, instead of on paper. Digital versions of fiat currency emerged in the 1990s. **Digital fiat currency is the only time period throughout the entire human history in which money has become separate from being a bearer instrument.** In the digital variant of fiat currency, the private bank is ultimately in possession of individual’s “forced loan” of value—allowing banks to control the digital fiat currency value flows in society, down to microscopic levels of value—in addition to the macro levels of control already facilitated by the central bank in paper fiat currency. Money is now simply bits and bytes transferred around by “private” banking institutions and headed by the central bank of each Nation State. _It no longer belongs to the people._ On the pro side, digital fiat currencies is the first time that money has become completely divisible and portable! 🎉 **Fiat currencies aren’t a new invention, they’ve been around for almost a millennium—every single one of them has failed.** ![[World Gold Council.webp]]_Caption:_ _The average lifespan of a fiat currency over this sample size is around ~30 years before failure. (Source: World Gold Council)_ **Summary:** - The entire world transitioned off the gold standard and into fiat currencies—which are a “forced loan” of value from the population to the central bank of each Nation State. - Capitalism became impossible, as the population no longer had control over the value flows, and techno-feudalism age emerged. - Banking became crucial infrastructure for facilitating the value flows of society. Private banking became often backstopped by public institutions. - Digital fiat currencies emerged—notably being the only time throughout history when money has ceased to be a bearer asset. ## Cryptocurrency (2008 – Present) > “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” –the message embedded in Bitcoin’s genesis block. Cryptocurrency emerged with Bitcoin in 2008 as an escape route from what many saw as the failures of fiat currency—paper money that could no longer be redeemed for real assets. Satoshi Nakamoto became a legendary figure, offering a way out of a system where citizens were effectively forced to lend their economic value to central banks. Bitcoin achieved this by introducing three critical properties that fiat currencies fundamentally lacked. 1. _Bitcoin returned the control of money back to the hands of its direct owners as a bearer instrument, by using cryptography._ 2. _Bitcoin introduced a predictable mathematical supply schedule of value distribution. All participants and observers could agree on how much value was introduced into the system and where it went, by sharing a singular Synchronized Social Contract (SSC), which is inherent in all cryptocurrencies. This_ _removed any single entities’ ability to manipulate the societal value distribution inherent in fiat systems, without breaking the social contract._ 3. _Bitcoin removed the trust assumptions inherent in fiat currencies by routing transactions through distributed a peer-to-peer (P2P) network rather than any centralized intermediary._ ### Are cryptocurrencies good money? We have to return to the most misunderstood part about cryptocurrencies: _who controls the economic rails?_ **Cryptocurrencies** **aren’t actually money.** **They are a networks—entire synchronized societies upholding a Synchronized Social Contract (SSC) about how value within them is to be distributed.** The money part, is simply a part of that social contract upheld by the network, but cryptocurrencies are networks—not money. Within the network, there is a SSC about money (value flows) and potentially other things. **Everything boils down to the integrity of that SSC.** It ultimately controls the monetary system. **A cryptocurrencies only utility and value comes from the SSC and the network upholding that social contract.** If the social layer changes or abandons the SSC, no cryptocurrency is guaranteed to retain value, as it's only utility and intrinsic value can come from being a value system for the SSC it's attached to. > As an example: In the SSC of Ethereum, the utility of Ether (ETH) is to provide payment for computation in the “world computer.” So, before judging the monetary systems within cryptocurrencies…we need to understand and judge who owns and controls the SSC. In that sense, it’s imperative to judge cryptocurrencies as communities bound by their SSC—before we judge their monetary systems. The monetary system is just a derivative of the SSC, and the SSC is in the hands of a network. _Who runs these networks—these societies?_ We can’t really see…they’re mostly opaque token addresses and off-chain social connections. Please refer to [Fake Everything](https://societyprotocol.io/Published/Articles/Fake+Everything+(Prelude)) to understand how this works. That SSC can be broken. Some cryptocurrencies have already broken it. So, in that sense it’s hard to understand who/what they’re ultimately controlled and backed by, because their participation is either a) opaque and pseudonymous or b) permissioned and controlled by central banks in the case of CBDCs. What makes this different from a “forced loan” of economic value, economic servitude to a fiat currency central bank cartel which can redistribute the value of its State with total control, while the populace carries around token representations of money devoid of intrinsic value? - Well, we can start with that no one is forced to use cryptocurrencies - They also operate under the cultural assumption that the social contract will not change So, in the _key question_ is: who controls the value flows of these networks and are they an accurate representation of each participants value to the system at each point in time? It’s a complex question, but…_we can’t even clearly decipher who participates in these systems…how many people there are…who controls it…how they make decisions…etc…_**How can we derive an accurate perception of each entities value \[over time\] in such a monetary system? We don’t even know who the entities are.** As we previously explained in [Fake Everything](https://societyprotocol.io/Published/Articles/Fake+Everything+(Prelude)): without identities, we cannot accurately perceive or evaluate the accuracy of the monetary system—because the valuation of any assets (including money) is dependent on who owns them. During the past, in the commodity money, coinage, representative money ages, this quality of who owned each asset wasn’t perceivable. People _still_ trusted the system because gold had an inherent scarcity (limited supply) and alternative utility (real value). This meant that wherever people carried the coins and used the value—that was naturally real value which couldn’t be forged, and so the value of a society was distributed accurately (minus the ability to find gold mines and scrape coins let’s say). But in modern systems, such as fiat currency and cryptocurrencies, where the only scarcity and utility comes from the social contract itself (either by the central bank or the SSC of cryptocurrencies) _that is not the case. This changes the equation—since both fiat currency and cryptocurrency derive their only scarcity and utility from the social contract, rather than nature—it makes identifying_ **_identities_** _within that social contract and controlling that social contract the only way to understand the value of the monetary systems—because there is no intrinsic scarcity or utility—it all comes from the social contract._ **_Identity is the scarce resource._** * * * ### Comparison of Monetary Qualities of Cryptocurrencies In this section, we are going to compare the monetary qualities of three distinct cryptocurrencies: **Bitcoin**, **Ethereum**, and **CBDCs**—dissecting their subtle differences and abilities to serve as a monetary systems. We are going to take the sustainability of their networks and their SSCs for granted. Only concerning ourselves with the monetary qualities of these systems, as they currently exist within their social contracts. For a full comparison, see the chart at the end of this section. #### Bitcoin Bitcoin has some significant pros over fiat currencies, namely: - **Scarcity ✅** – The network has a predictable and limited supply schedule, limiting Bitcoins total supply to 21,000,000. This social contract does a good job at preserving the value of Bitcoin, as long as there is a demand for it. - **Minimized Trust Assumptions ✅** – Satoshi famously introduced cryptographic non-repudiability as an improvement to trust assumptions in the “Introduction” of the Bitcoin whitepaper: > “The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.” \[@satoshinakamotoBitcoinPeertoPeerElectronic2008\] - **Inspectability ✅** – Bitcoin is additionally a _bearer instrument_ which can transfer value over communication channels while simultaneously retaining clear **inspectability** of the entire network. While Bitcoin possesses excellent qualities of the materials of money, it lacks a few very important qualities: - **Utility and Value ❌** – Bitcoin has no intrinsic utility and value other than serving as money. (Jevon’s mentioned this as the single most important quality for materials of money to have.) Satoshi understood that Bitcoin lacked this important quality and argued for its value anyways, “_As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: \[not useful/no utility\]. And one special, magical property: can be transported over a communications channel” –Satoshi_ - **Stability of Value ❌** – The value of Bitcoin has been fluctuating in unstable ways for the past 17 years. It has no mechanisms to keep price stability against the aggregate basket of other goods on the market, and we can’t see its true value because we can’t see who’s participating in the network at any given time. - **Homogenity ❓** – In some ways, a Bitcoin is a Bitcoin is a Bitcoin—entirely fungible. In some other ways, the history of every Bitcoin is unique and entirely visible on the blockchain ledger. ![[zooko fungibility quote.png]] Similarly, while Bitcoin possesses mostly excellent qualities for a monetary system, it lacks one important quality: - **Velocity** – ❌ – Bitcoin cannot facilitate a high volume of transactions, due to its primitive technological nature (10 minute blocks), and the actual volume on the Bitcoin blockchain is decreasing over time due to centralized custodians settling IOU paper contracts without requiring settlement on the Bitcoin blockchain. **Functions as Money**: As a result of the lack of these qualities, Bitcoin’s role in a monetary system has been limited to a store of value (SoV) due to its pre-programmed **_scarcity_**. We can neither measure value in it as a UoA (because it lacks **_stability of value_**_)_, nor use it to transfer much value as a MoE (because the network lacks the **_velocity_** required). * * * #### Ethereum How does Ethereum fare as money compared to Bitcoin and CBDCs? _Well, it has a few distinct advantages compared to Bitcoin:_ - **Utility and Value** ✅ – Ether has intrinsic utility and value as the payment currency for access to computation on the distributed network of Ethereum, the “world computer”. - **Velocity** – _At Present_ ✅_:_ Ethereum is faster than Bitcoin, synchronizing its state every 15s and capable of producing much higher transaction velocity. When we consider Ether as a medium of exchange, we must include its interoperable network of L2 rollups, which in totality, can settle all economic value transfers of today. _In Future_ ✅: When we consider the economic value transactions expanding to micro economic value interactions such as "social media likes/dislikes" in the triple-entry accounting age (TEAA)––Ethereum must be considered for future velocity of value flows in conjunction with its interoperable network of L2 rollups––which in totality, as a network can support enough velocity to facilitate future micro economic value interactions such as "social media likes/dislikes". Ethereum has essentially no cons as a monetary system on paper compared to Bitcoin, fiat currencies, or CBDCs. There are nevertheless a few questionable sociological issues, somewhat outside of our original lists, which should be considered: - **Accessibility ❓** – Unlike Bitcoin’s value distribution, which was allocated to proof-of-work over it’s lifetime, 70% of Ethereum’s total societal value was distributed at it’s inception[^19] to its initial participants. In societal value terms, this heavy initial distribution of total value makes the accessibility of value for future participants questionable. - **Minimized Trust Assumptions ❓**– Early on during it’s lifetime, the Ethereum network has broken and re-adjusted it’s social contract with the hard fork which happened after the [DAO hack incident](https://www.coindesk.com/consensus-magazine/2023/05/09/coindesk-turns-10-how-the-dao-hack-changed-ethereum-and-crypto). _This value redistribution could be considered an illegitimate breach of the social contract._ **Functions of Money**: Ethereum can be used to store value (SoV) due to it’s programmatic **scarcity**, which is dependent on network usage. It can be used to transfer value due to its enhanced **_velocity_**, with tremendous prospects for the future. Ether doesn’t make a good measure of value due to it’s lack of **stability of value**[^20]. * * * #### Central Bank Digital Currencies (CBDC) CBDCs are a continuation of the fiat currency system with improved technology. In that sense, CBDCs are a continuation of a “forced loan” of economic value from the populace to the central bank controlling them. CBDC’s have no monetary quality advantages compared to Bitcoin and Ethereum, also lacking most of the qualities of money: - **Utility and Value** ❌ – CBDCs have no intrinsic utility and value other than serving as currency. - **Indestructibility ❌** – Your CBDC tokens can be entirely destroyed (POOF!) by the central bank. - **Stability of Value ❌** – Whether or not CBDCs can keep their stability is entirely dependent on the central bank of the State which runs them—which is inherently unstable due to constant political pressures and misalignment of interests between the systems owners and users. Out of Bitcoin, Ethereum, and CBDCs––CBDCs are the only one which has mechanics built into the system which could theoretically achieve price stability (via central bank currency manipulation), but practically this is impossible without an omnipotent State and rulers (which is impossible). CBDCs also lack the majority of all the qualities desired in a monetary system: - **Scarcity ❌** – Participants aren't even promised a social contract of scarcity OR immutability. - **Inspectability ❌** – It’s not guaranteed or likely that your CBDC will be public and inspectable by all parties involved. It’s more likely that some central bank delegates will be able to see all the value flows, while everyone else remains in the dark. - **Velocity** – _At Present_ ✅: CBDCs can have <1s latency & finality on transactions and are able to support enough velocity to run all the value flows of their respective Nation States by using modern blockchain technology. _In Future_ ❌: When we consider the economic value transactions expanding to micro economic value interactions like "social media likes/dislikes" in the triple-entry accounting age (TEAA)––this singular architecture held by central banks is not actually enough[^21]. - **Accessibility ❌** – Participation in CBDCs is generally permissioned. In all three senses of: participating in the monetary system, participating as a node in upholding the network, and access to distributing the material which counts as value (CBDC tokens). Accessibility to the system is entirely controlled by a small sub-group of the populace, in central banks. - **Minimized Trust Assumptions ❌** – While trust assumptions in CBDCs are slightly improved in comparison to digital fiat currencies (by allowing all banking intermediaries to interoperate on a singular network). They do not effectively minimize trust assumptions, because every transaction is dependent on trust in a cartel of permissioned intermediaries. **Functions of Money**: CBDCs cannot effectively store of value because of their lack **scarcity**. CBDCs cannot function as an effective measure of value, because they lack **stability of value**. The only monetary function CBDCs can adequately fulfill in the present is the transfer of value, by using their **velocity**. But it’s not likely that CBDC infrastructure will be able to handle even societies’ transfer of value requirements as micro-value interactions in economies are expected to scale in the future. #### Monetary Qualities – Bitcoin vs Ethereum vs CBDCs: ![[Monetary Qualities – Bitcoin vs Ethereum vs CBDCs.png]] ## Energy – Society Protocol (Starts Now) Remember when we said the perfect monetary system would ideally display every participating entities’ value to society at each point in time? **_That is Energy_**_._ Energy is the essence of money. It is a direct, fluid abstraction of a participants value to a Society Protocol (SP) instance. It maps each entities’ value to the system at each point in time. _How do we go from static assets (objects and abstractions representing value), to flowing Energy (an ever-changing value abstraction emanating directly from identities)?_ **At the root, what we need is a system for continuously accurately redistributing an abstraction of value across society.** **The core concept is: How do we redistribute Energy in such a way, that at each point in time, every entities’ Energy in the system is measured accurately?** All we need for this to happen is a protocol for redistributing Energy (explicit social value) to society accurately, which includes all the common generalized functions all societies engage in (in Society Protocol these are called Levels, you can read about them in [Level Up](https://lex.page/d/009a574f-a5db-45cb-ae7c-1323eb3d6aa0)). In order to achieve such a protocol, two things are required: 1. A technology able to keep track of all the state produced by these interactions in a synchronized manner. 2. A redistribution mechanism which accurately redistributes the value generated or lost by all participants[^22]. **_That’s all we need._** 1. _A protocol to enable all the generalized interactions of human civilizations._ 2. _A way to accurately redistribute the value of each generalized interaction._ 3. _A technology to track, compute, and record it all in a synchronized trust-minimized manner._ **That is Society Protocol.** * * * **Energy serves many overlapping functions on top of simply acting as money:** - **Money**: Energy is the stored value of each participant’s identity to society over time. - **Currency**: Energy is used as an official currency which all participants in a Society Protocol instance can use to transfer their societal value around instantly worldwide. - **Explicit social status**: Energy gives all participants a common language to measure value by mapping the explicit social status of every participant in the system to the same metric—showing each entities’ current standing and where it originates from. Where it came from, where they came from, whom they’ve interacted with, how their status has been earned, and how it’s been spent. - **Access to control**: Energy’s utility is in allowing participants access to control a proportional portion of societal interactions by using the Levels and Governance functionality of Society Protocol. It additionally shows everyone in the system how every participants Energy has been allocated throughout their entire Lifeline and used for utility as a pie chart. - **Ownership of a Synchronized State**: Although no one directly owns the Synchronized State, Energy is the closest mapping we have to measure the proportional ownership of each identity in a Synchronized State. ### How Does Energy Work? All participants are algorithmically and automatically rewarded in Energy for doing things that their Society Protocol instance finds valuable and punished for doing things that their instance finds detrimental. (This is embedded in the STF for Society Protocol and occurs automatically at each Timeslot.) _Energy can never be captured and held by those who do not produce value._ For example, if a hostile government seizes half of the Energy in a Society Protocol instance, and attempts to lock it in a vault…it will simply float away over time towards those entities who are contributing value to the protocol. A lot of this redistribution is accomplished by the [Hunt Level](https://societyprotocol.io/Published/Handbook/Level-Hunting) mechanism—which lotteries off Energy at every Timeslot from everyone in the protocol, based on their Activity Score. Other methods of redistributing Energy also exist at every other Level, to facilitate the streaming of societal Energy (money) towards valuable participants. Each Society Protocol instance will be a little bit different in this regard, regarding the variety and intensity of the functions controlling how Energy is redistributed over time. > “Energy cannot be created or destroyed, it can only be changed from one form to another.” ―Albert Einstein **There is never any inflation or deflation in Energy. The supply of Energy never changes, it is always 100%.** Energy redistributes social value inside a society, it does not create or destroy it. There is only ever 100% of explicit social status to go around, and it is constantly being redistributed to various participants based on their value over time. _That is why Energy does not inflate or deflate, it always remains constant at 100%. The community is worth what the community is worth. The value of the Energy changes based on what the community inside a Society Protocol instance is worth, not it’s supply._ **_A certain amount of Energy always represents exactly the same percentage of a Society Protocol instance._** The scarcity of every single monetary system throughout history could always inflate or deflate. _Collectibles could be created, commodities could be grown or mined, coins could be minted, fiat currencies can be printed, cryptocurrencies can distribute inflationary tokens._ All of the inflationary and deflationary mechanics from every past and present monetary systems were put in place because of physical or sociological coordination constraints—_not because that’s how optimal money should function_. **Money is simply societal value**—**there is only ever 100% of societal value to go around in a society**[^23]. Inflation and deflation have been side-effects of the material used for money. They have always been exploitable side-effects—which certain parties would cluster around in order to “mint” money—gaming the exploitable portions of the monetary system. Whether it was collectible creators, corn farmers, gold miners, or fiat currency central bankers—whoever could create money has always been in a privileged position. Throughout the past, whoever had these god-like inflationary or deflationary abilities has always obviously abused it to enrich themselves and impoverish their enemies. The same happens with redistribution abilities such as control of a tax code or property rights. **Society Protocol takes away anyone’s individual ability to create and control money.** The Synchronized Social Contract (SSC) clearly displays the rules of how value flows around each particular SP instance—available for everyone to view. The SSC can only be altered by the collective Governance (the rules for how the SSC can be altered are also defined in the SSC itself). **Energy puts everyone at the same level. No one can create it, and no one can destroy it. There are no privileged parties in the system—everyone is playing by the same exact rules.** Energy redistribution in Society Protocol instances is based on Levels and Protocol Parameters. Various SP instances will have different Levels included in their Synchronized State—based off how they prioritize redistributing their value (Energy). There is no single clearly optimal way—some implementations are better and worse, but there is not a single game-theory optimal formula to redistribute the Energy in a SP instance…different priorities and optimizations favored by various types of participants will create a multitude of SSC’s. Society Protocol has an [ideology](https://societyprotocol.io/Published/Movement/Ideology) to guide this process for our partner communities who are seeking our support on their journey, based off what we consider correct as an organization. **Rules on how Energy can be transferred as a currency can also vary across various SP instances.** Energy is not 100% fungible. Just like Ether, Bitcoin, and CBDCs—every piece of Energy has a specific fully transparent history of where it’s been, while simultaneously counting as a fungible unit for use in Levels. Various SP instances will create different rulesets about how the Energy inside their instance can flow—for various reasons. Some SP instances will have no limits at all on the transfer of value and how Energy can be used, while others will program specific rules to limit and control it for a multitude of reasons. There again isn’t a clear game-theory optimal way to do this, there are tradeoffs to many approaches. Any functionality which can be programmed into a Turing-complete environment can be achieved—including hooks into identities, organizations, histories, etc. At Society Protocol, we will only support organizations who follow our [ideology](https://societyprotocol.io/Published/Movement/Ideology) in their implementations. ### What can Energy Enable? As the monetary system of the triple-entry accounting age (TEAA) of human civilization—Energy enables unprecedented functionality. **Energy flows:** Energy offers instant global value measurement, transfer, and storage without intermediaries. What currently requires a large army of bankers, clearinghouses, credit bureaus, stock exchanges, debt collectors, accountants, tax collectors, credit card services, credit reporting services, and government regulators—each adding delays at every step in the chain, increasing processing times, which can add weeks or months of holding up the value flows of the world—all becomes instantly measured, transferred, and stored synchronized and transparent global value. **Micropayments:** By removing the aforementioned intermediaries, the system _lowers transaction costs_ to the point where entirely new genres of economic interactions become possible. Things that you wouldn’t consider an economic interaction in the present day, such as a social media “likes/dislikes” or letting someone pass in traffic—become entirely automated via identity and instantly settled economic interactions. _The marginal cost of holding up not only the economic system, but the entire societal infrastructure, becomes breathtakingly low_[^24]. **This commoditization of infrastructure, amazingly doesn’t lower the value of the actual society, because it’s all non-fungible and moated via unique identities and histories.** > _“It's the same situation as gold and gold mining. The marginal cost of gold mining tends to stay near the price of gold. Gold mining is a waste, but that waste is far less than the utility of having gold available as a medium of exchange."_ –Satoshi Nakamoto _Energy doesn’t function like this example presented by Satoshi, it doesn’t fall to the marginal cost of producing it—because the society itself is non-fungible._ **Programmatic value transfers:** Energy is entirely programmable, it can be: - “_Streamed_” over time, rather than paying per week or per month for rent, Energy will stream payments in real-time. - Set to automatic value transfers and interactions based upon certain programmable trigger conditions—all of which are entirely synchronized together with the actions and history all of the objects inside a Society Protocol instance (Individual Actors accounts, Distributed Corporations actions, Cultural Agreements, Governance decisions, Curation events, etc…). _The range of possibilities of this type of synchronicity is endless and more powerful than nuclear weapons. SP contains the entire public state of society, synchronized together, and simultaneously has access to the entire history of all past states—as programmable objects. The butterfly effects of small actions here in synchronicity are more powerful than anything Nation States have known.🦋_ **Verifiable history of activity society-wide:** Energy facilitates the trust and knowledge of whom you’re interacting with by recording the public history of absolutely every identity, both Individual Actors and Organizations, in the system society-wide from inception at Genesis Time to the final breaths of a society at the end state. _This allows all participants to have an incredible amount of trust and knowledge about whom they’re interacting with—facilitating interactions which weren’t possible during the double-entry accounting age (DEAA), by using the full weight of each identity at each interaction._ **Debt:** In Society Protocol, the trust assumption on each line of debt is at the very minimum—_the entire public history of each identity participating in the interaction._ This enables SP instances to allocate debts more efficiently than ever before throughout history: - **Uncollateralized loans**. Each loan is collateralized by the entire identities and reputations of all parties involved at minimum. - **Appropriate trust assumptions** for debts drawing from the entirety of information within the Synchronized State. - **Credit which cannot be rehypothecated** (i.e. credit without the fear of fractional reserve banking on that credit). Currently, the reason we have credit bureaus tracking all our debt interactions, is so that we don’t go to 100 different parties with our good reputation and ask them all for debt independently. It’s a big problem with uncollateralized credit in the DEAA, that aspiring debtors can ask for debt from multiple parties simultaneously, without those parties (who must decide upon granting the debts) being aware of the total amount of credit given to the debtor (they cannot see who else they’ve interacted with or how much total credit they’ve been given by the system). **Society Protocol solves all this by keeping track of the total debt in the system, visible to every participant.** - **Interest rates** can be dynamically adjusted based on the entire history of all parties involved, serving in conjunction with worldwide markets to price each debt accurately. - **Automated enforceability.** The automated repayment terms of each loan can be inserted into in the system—allowing for a guaranteed enforceability of all debt terms. **Trust Extension**: Energy inside of a Society Protocol instance can be pledged as value and trust to secure interactions outside of the Society Protocol instance by using a technique similar to [EigenCloud](https://www.eigencloud.xyz/)[^25]. Unlike EigenCloud, only unallocated Energy can/should be used in such services to extend trust externally in Society Protocol. **Alternative Monetary Systems:** Society Protocol can support a near-infinite array of alternative, fully programmable monetary systems—gaining essentially all the same benefits as Energy. These alternative systems are created as Property inside the Society Protocol instance, fully programmable (Turing-complete), and can function however that particular monetary system wants to function—while simultaneously remaining attached to all the other objects within the SP instance (Individual Actor’s identities, Organizations, Curation, Cultural Agreements, Distributed Corporations (dCorps), etc…). **_What if the trade you want to participate in is happening outside of your Society Protocol instance?_** _Easy._ Energy is an automated system and intermediary merchants will pop up to exchange it for any other currency in a global 24/7 foreign-exchange market[^26]. * * * #### Gresham’s Law It’s time for us to revisit our favorite, **_Gresham’s Law_**_…which causes us so many problems: “bad money drives the good out of circulation, but good money cannot drive out bad money.”_ _Society Protocol invert this cycle._ All Energy is in a sense the same, yet at the same time non-fungible in the sense that each piece of Energy has a unique history. All Energy is incentivized to be put to work doing things that are valuable to society (more information about this can be found in [Rebalancing Pyramids](https://lex.page/d/4e7563f6-01a6-491b-9aaf-36703e351e81) and [Level Up](https://lex.page/d/009a574f-a5db-45cb-ae7c-1323eb3d6aa0)) to avoid decay, and has absolutely fungible access to utility of the Levels in that sense. At the same time, if Energy is used as a MoE, to transfer value, and is considered “unequal”, (let’s say some Energy is owned by a terrorist, and nobody wants it). It would have _less_ of a chance to be accepted a MoE, not more chance—leaving that Energy out of circulation would get it lost in various ways (it would be redistributed via Hunting mechanism to the more valuable Actors in society) _healing it in the process._ ### Energy is the Perfect Money So, we get back to the problem of: money is something that everyone similarly trusts and desires, and believes everyone else around them likewise values. _Energy exactly describes those characteristics_…every participant inside an SP instance wants Energy, because it allows them to interact with the entire system. It’s a prerequisite for existing in Society Protocol: therefore, anyone that wants to participate automatically values Energy. An account without Energy in Society Protocol is considered _dead and is frozen forever_. **Energy is the optimal form of money, for each and every society.** Yet, only Synchronized States can use it. Society Protocol instances don’t pay anything or require any separate effort to upkeep the mint and circulation of their monetary system. Energy is included into the system itself—it’s a core part of every Synchronized State. _All the burdensome mechanics of needing to upkeep a money system go out the window_[^27]. **Removing Intermediaries**: - Banks the unbanked – Every Society Protocol account is effectively a sovereign bank account, digitally connected to the entire SSC (and beyond!). Each individual's identity IS their bank—only the account owner and their designated delegates can access it, with no intermediaries required. Society Protocol grants every participant direct bearer asset control over their identity, assets, and data while maintaining seamless global connectivity through the SSC. - Cuts out all the bureaucratic costs – All our financial infrastructure takes a lot of money and effort to upkeep, and nevertheless remains woefully clumsy. All the accounting and infrastructure can be handled automatically by Society Protocol, which is simply a _duplicated computer program_. - Removes a special subset of intermediaries from “creating money” or controlling the money supply. No intermediaries can “mint” or “destroy” money in Society Protocol like the gold miners or the central banks of today. The social contract regarding value flows is stored transparently in the SSC and controlled by the Governance of the Synchronized State. - Every participant gains direct, real-time visibility into all societal value flows—no gatekeepers, no information asymmetries, no privileged access. The complete economic picture that was once hidden behind various intermediaries becomes transparently available to everyone. **Coordination:** Energy isn’t a neutral static object, but rather a flowing representation of value to society—it coordinates all participants: incentivizing the actions society finds valuable, and disincentivizing the actions which society finds detrimental. All [shared realities](https://societyprotocol.io/Published/Articles/The+state+That+Binds+(Shared+Reality)) exhibit some degree of coordination of their values. The big difference in Synchronized States, is that we can algorithmically automate this process across the entire Synchronized State—by embedding it into the Synchronized Social Contract (SSC), indicating what’s valuable (more information about this can be found in [Rebalancing Pyramids](https://lex.page/d/4e7563f6-01a6-491b-9aaf-36703e351e81) and [Level Up](https://lex.page/d/009a574f-a5db-45cb-ae7c-1323eb3d6aa0)). **Community Currency:** Energy functions as what would be considered a community currency. It’s a form of value passed around within a community. A small group can use Energy to measure, transfer, and store value right away, without requiring middle-men. As long as the community values their [shared reality](https://societyprotocol.io/Published/Articles/The+state+That+Binds+(Shared+Reality)) in the Synchronized State—the Energy within it will remain valuable in proportion to the value of the shared reality. **The value of Energy is directly proportional to the value of the society itself. Therefore, every participant is incentivized to support the value of their society—creating a virtuous cycle.** This remains the constant whether there’s two participants in the shared reality—or the entirety of all the humans in existence use it. Adding new and valuable participants into the shared reality is also easy and incentivized by using the [Parenting](https://societyprotocol.io/Published/Handbook/Level-Parenting) Level. **Scale:** So what size can Society Protocol instances scale to? _Worldwide and interplanetary._ Every Society Protocol instance receives a monetary system in their unique SSC which scales from 2–100 billion people. Modern technology allows us to scale these systems to onboard the entire global human population—both present and future. Society Protocol can become useful at two people, but can functionally support entire civilizations. #### Energy is a Decentralized and More Powerful Alternative to Cryptocurrencies and CBDCs **There is no future possible without a blockchain based graph of social trust.** You can read [Synchronized States](https://societyprotocol.io/Published/Articles/Synchronized+States+(The+Golden+Record)) to understand “why” this is the case. The only question is: “_who controls it?” and “how much say individual participants get?”_ Will it be a tyranny where the masses are controlled by a few technocratic elites or more decentralized where everyone gets input? As the world is currently on fiat currency systems (which never last), the potential choices for our future monetary orders would seem to be listed above in the cryptocurrency comparison of Bitcoin vs Ethereum vs CBDCs. _Let’s add Energy into the comparison_[^28]. **Monetary Qualities – Energy (Society Protocol)** ![[Monetary Qualities – Energy.png]] **Functions of Money:** Energy can be used to measure value in society due to its inherent **stability of value** (which is tied to the stability of the social layer using the SP instance). It can be used to transfer value instantly worldwide, with enough **velocity** and **portability** to handle all civilizational value flows both at present and in the future**.** It can be used to store value directly tied to your identity within the Synchronized State—where Energy always has inherent **utility and value**. Keeping that value stored inside a common shared reality raises its _monetary premium_. **Energy is the ultimate monetary system.** Energy is the answer to a collapsing Western civilization and fears of a CBDC. If the West wants to continue a non-dystopian civilization, it will need to transition into Synchronized States. Energy is simultaneously the answer for Eastern civilization. Society Protocol is the continuation of the populist crypto ethos made possible by such visionaries as Satoshi Nakamoto in Bitcoin and Vitalik Buterin in Ethereum. It is a system which can facilitate a new age of human coordination from the bottom-up, without any top-down decree. It can also be used in a top-down manner. **All roads lead to Society Protocol.** **Summary:** We are about to enter the triple-entry accounting age (TEAA) and the _Age of Synchronicity_. The rules of monetary systems will function differently during this epoch. Money will be reconceptualized as Energy, an ever-changing flowing abstraction directly tied to the social value of an entity in a Synchronized State. - Value will be stored directly inside of societies and directly tied to identities. - Energy will make it easy to transfer value worldwide instantly, without intermediaries. - There will be no need for the vast bureaucracy maintaining the monetary system—_lowering transaction costs_. - No privileged parties will have access to “create” or “destroy” money. - Money will come as part of a SSC, which will incentivize certain things favored by the Governance of the Synchronized State (which ultimately controls the SSC). This feature will help **coordinate** society in unfathomable ways, creating more value for everyone within. - Trust will greatly increase. It will be directly tied to the full history of each identity for debt issuance, and not able to be rehypothecated. --- ### Should Money be Apart or A Part of the State? As we civilization evolved, the State has taken more control of the monetary systems at each stage. By the coinage age, monarchs took the sole rights and responsibility to mint coins, and is still true today during the fiat currency age when the central banks of the Nation State have the sole right to mint fiat currencies and thereby redistribute value in society. **Is this actually an optimal setup or should the State and value flows be separated?** There are lots of advantages to having money as a part of the State: - It allows the State to coordinate the populace using tax systems and other coordination mechanisms to emphasize what it values. - It is easier and more interoperable to all use the same system, and the State is the entity which can serve this function best. - When we use a singular the monetary system originating from our State, we bring it value (as we said earlier, using money leaks some value to the money itself as a _monetary premium_)—we are actually raising the value of our State and community in doing so. It makes sense to use a monetary system in a way that enhances our communities, rather than an external one. There is only effectively one reason to use a monetary system that’s outside of your State, _as a hedge against your State_. Today, we see many individuals run to store their value in Bitcoin, a synchronized state itself (without all the functions of a Synchronized State), to escape the exploitative mismanagement of their State’s monetary systems. Will future societies, using Society Protocol instances ultimately need an independent SoV, such as Bitcoin or gold, which exists outside of the protocol, to hedge some of their value—or will that hedge simply be other alternative, potentially specialized “hedge” instances of Society Protocol? **_I don’t know, but some form of hedge against the State will always remain valuable._** _We cover this question because it’s the question which will ultimately decide the fate of (2D–3D) synchronized state networks like Bitcoin and Ethereum._ ### Money, Violence, and Evil People often say that money is the root of all evil. It is not money. 1. It is the competition for social status that makes people do bad things to each other. 2. In that process, evolution happens and humans grow stronger. So, what appears evil is actually progressing humanity. This process is a virtuous cycle for humanity. 3. Energy will not change that dynamic (it’s a feature, not a bug). A good example of this is the modern banking system. Three qualities can explain this: 1. People feel extremely oppressed by the modern banking system. 2. The modern banking system is extremely fragile, keeping only a minuscule fraction of the loans made to them as reserves on hand—making it extremely easy for these disgruntled participants to collapse essentially any bank they choose. 3. Banks collapsing is still exceedingly rare, because while the banks are extremely exploitative towards the public…without an alternative—the same oppressed public collapsing their own oppressive banks would leave them in an even worse predicament. _It’s possible to be oppressed and benefiting at the same time._ Meaning, until we create better systems—even an extremely exploitative system is usually better than without it. If we want to remove these exploitations, we must create better systems first. **Society Protocol is not a revolution, it’s an evolution.** ## Conclusion Throughout human history, monetary systems have been constrained by the materials and technologies available to us—from shells and livestock, to precious metals, paper notes, and digital bits. Each monetary system was an approximation for the fundamental challenge of accurately measuring, transferring, and storing societal value. The commodities couldn't be efficiently divided. The coins were too heavy. The paper currencies became tools of exploitation. The cryptocurrencies created new digital societies but lacked the complete infrastructure needed for human coordination. Every system was a stepping stone, each better than the last, but all fundamentally limited by trying to represent value as something separate from the identities that create it. We no longer need and can evolve from commodity & fiat currencies. The functions they served are no longer needed in Society Protocol. Energy is a superior form of money. Unlike every monetary system that came before it, Energy doesn't attempt to be a static representation of value—it IS value itself, flowing directly from the identities that generate it. There's no mining to corrupt, no printing press to manipulate, no supply to inflate or deflate. There's only the 100% of societal value, constantly and automatically redistributing itself to those who contribute, ebbing away from those who don't. This isn't just an improvement to money—it's the culmination of what money always wanted to be but never could: an accurate real-time mapping of every participant's value to society. At the end of the blockchain evolution, value isn't going to be transferred through money, or blockchain tokens, or CBDCs. It's going to be transferred directly through identities. _That's what we're focused on building at Society Protocol_. The age of treating value as objects to be passed between anonymous hands is inefficient and ending. The triple-entry accounting age demands something fundamentally different—a system where your societal value is inseparable from who you are, where trust is built into identity itself, and the coordination mechanisms of civilization are woven into the fabric of how we measure and transfer value. Society Protocol doesn't just upgrade the monetary system; it synchronizes money with the complete state of human society. **Energy is All You Need**. We need your support to accomplish this vision before the age of techno-feudalism descends on us and engulfs the world in another dark age. If you are interested in contributing to the creation of Society Protocol and would like to be a part of the journey, you can: [join our community](https://societyprotocol.io/), [invest in the movement](https://societyprotocol.io/), and [contribute to the architecture](https://societyprotocol.io/). ### Bibliography Jevons, W. S. (1876). _Money and the Mechanism of Exchange_. https://oll.libertyfund.org/titles/jevons-money-and-the-mechanism-of-exchange. Kameir, C. (2019). _The Cryptocurrency Confusion HackerNoon_. https://www.forbes.com/sites/forbesfinancecouncil/2019/01/24/the-future-of-money-from-cryptocurrencies-to-money-over-ip/#28125bb76731. Satoshi Nakamoto. (2008). _Bitcoin: A Peer-to-Peer Electronic Cash System_. Szabo, N. (2002). _Shelling Out: The Origins of Money Satoshi Nakamoto Institute_. https://nakamotoinstitute.org/library/shelling-out/. ### Footnotes [^1]: How do we determine what is valuable to society? _We don’t, the aggregate of society does._ It’s a combination of the social contract (State) and the free market (individual). [^2]: Every participant in society is incentivized to corrupt this system by taking a little bit more value for themselves. [^3]: Primitive money systems evolved around the need to keep money as close to the personal identity as possible for security. It’s the reason rings and necklaces bind to your hands and neck. [^4]: Governments have proven in the modern age, that they have the physical power to enforce money without intrinsic value or utility, but this is not particularly a good thing. It’s something that wasn’t possible throughout history, up to the point _Money and the Mechanisms of Exchange_ was written in 1876, and is enforced at the barrel of a gun. The populace would always prefer money with intrinsic utility and value. [^5]: This would appear at first glance not to be the case with cryptocurrencies like Bitcoin accumulating tremendous returns by simply acting as store of value (SoV). This dynamic is only possible currently due to the incredibly large exploitative advantage that cryptocurrencies such as Bitcoin enjoy over their predecessors, in fiat system. [^6]: Satoshi was obviously inspired by Nick’s work and mentions ‘collectibles’ often throughout his writing and in the Bitcoin whitepaper. [^7]: The book [_Debt_](https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290) makes a _notable_ point that historically exchange was never truly handled solely in barter—that barter economies are a common misconception of history and what ancient tribes actually used was _debt_ (either stored in their malleable minds or recorded as tokens and clay tablets). [^8]: _“Seals were familiarly employed in very early times, as we learn from the Egyptian paintings or the stamped bricks of Nineveh. Being employed to signify possession, or to ratify contracts, they came to indicate authority. When a ruler first undertook to certify the weights of pieces of metal, he naturally employed his seal to make the fact known, just as, at Goldsmiths' Hall, a small punch is used to certify the fineness of plate.”_ (Jevons, 1876) [^9]: Kingdoms had to create tamper-proof coins, balance their metal supplies, change and re-mint money based on the supply of the metals, and accurately decide how much to degrade their alloy currency representations in ever-changing circumstances. [^10]: Paper notes had been tried since the 8th century when Flying cash (feiqian, 飛錢) was used in the Tang Dynasty by merchants as deposit certificates (IOUs) to transfer funds long-distance. [^11]: The prerequisite for paper currencies representing value in society was the easy duplication of recorded state—an ability humanity acquired in the double-entry accounting age (DEAA), lasting from around 500–Today. We have covered this topic in [The state of The State (History)](https://societyprotocol.io/Published/Articles/The+state+of+The+State+(History)). [^12]: Seemingly. [^13]: No commodity-pegged paper currency in history has survived more than about 120–150 years without a major suspension or revaluation, and none at all have remained permanently pegged once they became large-scale national paper money. The British pound holds the record (~110–214 years depending on how you count suspensions), but even it ended in 1931. [^14]: This arrangement was only made possible because, as the sole hegemony in the world, the United States' military dominance was able to _encourage_ the entire world of sovereign Nation States to abandon the gold standard. If the tables were turned, and an impoverished nation demanded the world to get off the gold standard, the rich nations would have no reason to oblige. [^15]: In order to coordinate society and facilitate social cohesion. [^16]: Not all fiat currency systems are the same. What ultimately matters is who controls the currency. While all fiat currency systems are a “forced loan” from the population to the controller of the currency, the range of who controls the currency can vary: from dictatorships, to enshrined councils, to representative governance, to direct democracies, to meritocracies. So, it really changes the range and matters who everyone is loaning their value to. [^17]: This is a crucial issue in the system and creates unsustainable imbalances in banking as a private enterprise due to the fact that banks are considered private enterprises acting to make a profit, but their survivability ultimately rests in the hands of the central bank’s willingness to backstop them. All banks are vulnerable to not being able to repay the loans made to them by customers in either the case of _bad debts_ or a “bank run”, because they only carry a small percentage of total loans made to them in reserve. The central bank is not required to save all banks in this scenario (they are private enterprises), only banks which it favors. Large banks that are critical to the system of value flows have an important distinction and advantage and can a) pander to potential customers about their favored nature and b) collapse the smaller banks (their rivals) in such a system simply by depositing large sums of money…waiting for it to be lent out…and withdrawing it. [^18]: Yet, banks are still considered private entities in order to exfiltrate the value created from the “forced loan” of the populace, using the government backstop support they receive. [^19]: The other 30% of the value is distributed using an inflationary proof of stake (PoS) mechanism, counterbalanced by a deflationary mechanism which burns the Ether (value)) depending on usage, implemented post EIP-1559. [^20]: Theoretically, the price stability of Ether should depend on the usage of compute on the Ethereum network—which isn’t correlated to the aggregate basket of market goods. [^21]: People often model the requirements for payment networks based off the economic interactions that large payment networks handle today, but it’s crucial to recognize that these value interactions will scale in the future—just like they have expanded through every previous evolution of monetary orders. [^22]: Notably, this redistribution mechanism will work differently in various instances of Society Protocol. Each instance is opinionated and will decide for itself: what it values, how it Governs, and what Levels (roles) it allows. [^23]: _It’s quite a simple concept._ Yet, it wasn’t possible to represent in that way as an abstraction until recently with technological advances—namely Bitcoin. There was simply no technology or material to facilitate such an abstraction available to humanity before…so, civilizations used what they could to achieve these ends. [^24]: This happens because everyone can participate permissionlessly in holding up the infrastructure after joining an SP instance. Combined together with technological advances, this makes society easier to hold up. At the same time…only the optimal people in the world are incentivized to participate…as the marketplace of Levels creates a competition to produce those roles at the highest quality and lowest cost. [^25]: EigenCloud can in some ways be considered as a “bank for value and trust”—what it does is actually the evolution of fractional reserve banking. EigenCloud takes value and trust from Ethereum (and other platforms), often already liquid staked (meaning it’s pledged somewhere), and rehypothecates that value to secure other sources named AVSs (establishing the trust for them to operate). _This is the essence of fractional reserve banking, the same value is used in multiple places at once._ [^26]: This can even include a Parenting invite to any Society Protocol instance you would like to be a part of. [^27]: The only thing that needs to be tuned is how much Energy each function (Level) costs & receives. Those parameters are controlled by the Governance of the system. [^28]: _Energy can technically be considered a form of cryptocurrency._ Access to the state machine in Society Protocol instance is secured using exactly the same cryptographic methods as in cryptocurrencies and CBDCs.