Introduction to the New World of Alternative Currencies

First in a series by Eli Gothill:

“The words ‘money’ and ‘currency’ are used synonymously in everyday language. However, the rising importance of collaborative consumption and social networks is bringing another, broader definition of ‘currency’ into focus. To understand the impact of new social technologies for trading and sharing, an analysis of this broader concept of currency can be illuminating.

Art Brock, a monetary theorist and founder of the meta-currency project, recently articulated why a broader definition of currency is now needed. In a panel discussion aptly entitled ‘Monetizing Intangible Value,’ Brock suggested that many symbols which aren’t in fact fungible, like money, are in fact forms of currency:

- [m]oney is a subset of the overall range of currencies that we have. For me, something like “Certified Organic” is actually a currency. There are rules by which it’s issued. It changes value flows. It changes the way people shop. It changes the way production is done.

The suggestion is that other types of symbols than money, which aren’t units of exchange, but do affect the way value flows through the economy, are also types of currency. A “Certified Organic” sticker is a socially accepted symbol for an underlying (otherwise invisible) aspect of a product’s value. By creating a social symbol, which has “currency”, patterns of consumption and production can shift. The production of such socially recognised symbols can be a powerful way of changing economic habits. However, there is more to the search for a broader understanding of currency than concerns about organic apples. Brock’s motivation as a theorist about the future of money stems from his interest in the rise of the internet as a platform for quantifying and recording “flows.”

Currencies now exist to measure previously vague and unquantifiable social assets, like reputation on eBay. Likewise, trust earned in the context of gift economies like CouchSurfer, where users invite each other to stay in their homes as guests, can now be measured and displayed in the form of a review, another type of social currency. A good host can earn valuable “CouchSurfer currency” which can be used to encourage others to trust them as a guest, all around the world.

You can’t sell your CouchSurfer reviews or eBay reputation points, by virtue of their not being transferable. Reputation depends intrinsically on identity, and symbols which exist to represent our reputation, or other social assets, can’t be meaningfully transferred to another person. Indeed, the possibility of transferring reputation currencies to other people is a threat to the underlying system which confers them, as eBay recently demonstrated when they prevented a user from auctioning off their eBay identity.

However, there are other economic reasons for acquiring currencies of these sorts. In the domain of exchange, trust points help to persuade others to enter into trust-dependent transactions. This is quite clear in the case of eBay, where there is a time-delay between payment and receipt of the purchased good, requiring trust form the buyer that the item will be delivered as it is described. Currencies of this kind also find uses in lubricating the flow of online gift economies, such as CouchSurfer. In other contexts, like the programming community StackOverflow, reputation points earned by coders answering questions have been used to find paid software jobs.

The increasing importance of the broader class of currencies can therefore partly be attributed to the increasing importance of social assets, as we come to interact in social networks, and depend more on intangibles like reputation and trust to navigate our interactions with others. Furthermore, collaborative consumption platforms such as peer-to-peer car rental, power tool lending sites and couch surfing, all allow their users to gain access to valuable goods and services on a temporary basis for free or little cost, thanks to the existence of such currencies.

The broader class of currencies has much in common with money. Like money, it is a symbol whose production is regulated by an issuer, such as eBay, or a message board forum which acknowledge different levels of seniority based on the number of posts. Like money, currencies can be counterfeited, or abused by their issuers. The failure of the credit ratings agencies to correctly assess the riskiness of toxic derivatives in the 2009 financial crash did damage to the “currency” of its credit ratings.

However, there are some sharp differences with money – and reasons why money, as a fungible unit of transaction will always remain a separate concept. For one, as we have seen, social currencies can’t be meaningfully traded with each other. It seems to matter that reputation currencies were earned by the person who owns them, and not transferred by anyone else. Not so with money.

Further, the mindset of currencies is quite different to the mindset which underlies money as we currently use it. Currencies like reputation points are not scarce – their creation is subject solely to a system of rules accepted by a community which uses them. Acquiring social currency does not depend on a pre-existing quantity of “reputation points” – the points are simply created digitally under specific conditions. This has the positive effect of encouraging participation in exchange networks, such as CouchSurfer, where there is no shortage of currency to reward participation.

Money could be described as a system for keeping track of debt in an economic game. Social currencies acknowledge different kinds of assets, like reputation. However, like money, as currencies they make these previously intangible assets more visible and readily acknowledged by others. The result is goods and services flowing according to new patterns, facilitated by greater trust and confidence in network-based economic interactions.

In the future, we can expect greater acknowledgment of the importance of a broad class of currencies for navigating economic life. We will look for stickers on apples, as well as reviews, reputation points and other symbols of value. We may also see efforts to integrate the various forms of currency systems which have emerged online in recent years. This could take the form of an online social currency wallet, aggregating currencies across different platforms. Finally, we might also gain the ability to leverage social currency earned in one context in another. The ability to ‘connect flows,’ by renting a power tool, based on CouchSurfer reputation points, would make social currencies even more valuable.” (snip) ...

This article is originally published at this website:
http://thedailyattack.com/2011/07/20/introduction-to-the-new-world-of-alternative-currencies