MyCHIPs Digital Money
A Brief Introduction
Human life is the ultimate measure of value. Things are considered valuable by how we think they will preserve, extend, or improve our lives.
We trade little bits of our lives—our time—by working for the things we need to keep life going, hopefully in a more satisfying way.
It is much more efficient to produce more of one thing many people need than to separately make just enough of all the little things we each need. That means we must cooperate with other people to exchange our own surplus for a little of what they have created.
This kind of trading can be a challenge because it is hard to find two things in any one trade that match up exactly in value. If you sell cars and I sell shoes, I would have to trade a lot of shoes for just one car. And you probably don’t need that many shoes.
So we need a temporary placeholder to store the value from the car so you can take some time to trade for the other things you do need like shoes, food and clothing. We call this placeholder money.
Money has been implemented in many different ways. Sometimes it has been a food stock like wheat or salt that is easy to measure out in different amounts, and most everyone wants and needs it. Other times, money has been a precious metal that lasts a long time and can be used to make things that are useful or pleasant. These are all examples of commodity money.
There is a lot to like about commodity money but it does have some potential problems:
- It can be bulky and difficult to carry around.
- It can’t be transmitted electronically or easily moved over long distances.
- It can be lost, corrupted or stolen.
- It requires civil society (private property laws) in order to maintain its value.
- There is never enough of any one commodity to act as placeholder for all the trades in any given economy.
- If someone corners the market on the chosen commodity, they can take unfair advantage by manipulating everyone’s access to money.
There is another kind of money, sometimes termed a money substitute. This money is simply based on a promise or, in other words, credit. For example, you trade me the car, and I promise to help you get your shoes, food and clothing later.
Not surprisingly, this is called credit money.
Credit money is so much more efficient because it can be represented on paper or even in an electronic document. But it is not without its own set of issues:
- It also requires some form of civil society (contract enforcement) to maintain its value.
- If you can’t rely on a promise, how do you know who you can trust?
- You may have my promise, but I might not have the shoes or clothing you want or need.
- How can you transfer my promise over to the place that has what you really want?
- This is called the fungibility problem.
Today nearly all our money is credit money. This is because commodity money is just too inefficient to keep up with the speed of our modern economy.
We have addressed the fungibility problem by consolidating all credit into a single, public monopoly: the central bank. We will call this Public Credit Money.
Everyone’s promises flow through this central banking system and are enforceable by law. This creates enough trust so people can more safely transfer credits along from one person to another.
But Public Credit Money also has some serious problems:
- In its cash-form, it becomes much like a commodity again: it can easily be lost or stolen
- Such a powerful, centralized monopoly is prone to corruption and abuse.
- The overhead in a central system expresses itself as an ever-increasing money supply, or what we call inflation.
- This exponential growth is unsustainable, eventually ending in a monetary failure.
Blockchain-based cryptocurrency was created to solve the problems of public money by returning to a commodity-based model. It promised decentralized control over a digital money that could be earned and spent electronically.
Unfortunately, it suffers from several fatal flaws as well:
- A public blockchain is still not entirely decentralized—all transactions eventually have to get included in a single, public data set.
- This is called the scalability problem—it only works on a small scale.
- Furthermore, you should not model money on a commodity that has no real usable value.
- Value based solely on perception leads to a wildly unpredictable booms and busts—what we call the volatility problem.
If only there were a way to achieve the strength and integrity of true decentralization, and still enjoy the improved efficiencies of Credit Money, what would it be?
The answer is found in Private Credit Money. And it is not a new concept.
In fact, private credit money has been used successfully for centuries. Rather than requiring a central authority, or even a public ledger, private credit can be issued by anyone in connection with their private trading relationships.
Distributed private credit is virtually immune from centralized corruption or misuse. And it enjoys improved stablility over the constant, exponential inflation built into central banking systems.
So why don’t we see private credit used more widely today as a form of money? Unfortunately, its lack of fungibility has been too great a hurdle. No one has figured out how to transfer private credits from one person to another and still trust the value of what you are getting.
That is, until now! The MyCHIPs credit lift algorithm allows for a system of digital, private money where value can be sent securely from anyone, to anyone, through a network of privately interconnected peers. And it has some amazing benefits that may just change everything about how we exchange value.
Ready to see how it works?