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Replacing Old Money


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Old Money

We have been using traditional money all our lives. Most have become so comfortable with it, we don’t really think much about what it is, and is not. It can be easy to forget, money is not the ultimate end of our efforts.

For example, you might sell a car to a friend, even though he couldn’t pay you right away. Likely you would create some kind of promissory note, or a loan. Your friend would agree to pay you at some point in the future—maybe in a series of monthly payments, instead of all at once.

If you are like most people, you might feel some sense of exposure during the term of the loan, until the promise has been completely fulfilled. Likewise, you would feel a comforting sense of closure when the final payment has been made. Now your sale is complete. You have the money in hand. And what could be better than cash?

But the part we usually forget is, money is not the true end of the transaction—at least it shouldn’t be. The car had a utilitarian value in your life. You could use it to go places and carry things. Once sold, that value was transferred to your friend.

You sold the car in the first place, because you wanted something else in its stead. Maybe you wanted a newer car. Or maybe you wanted a new computer, a cell phone, and some new clothes.

The point is, your transaction is not really complete until you have purchased the other goods and services you want more than you wanted the old car. The money you get for the car is just a proxy, or a substitute for the car, which you hold until you have figured out what else to buy.

What’s more, the money you got for the car is really no different in type from the promissory note you received from your friend. Both are just notes, or promises of future value.

The promise from your friend, we will call a “friend note.” The “real” money you eventually collected is a bunch of “Federal Reserve notes.” We use the word “note” because that is what they actually are—promises, or obligations. And just like the note from your friend, they are a promise of some value in the future.

So even though the cash gave you that nice feeling of closure, it really was not the end. You had just traded one promise for another. The first promise was only backed by your friend. But the promise that eventually replaced it was backed by your government and its ability to tax you, and the rest of its citizens.

So this leads us to how MyCHIPs work. But make sure you understand this notion that money is a promise of value. We just happen prefer certain promises over others, because they seem more dependable.

New Money

MyCHIPs is designed to solve a number of undesirable problems with our existing money, which is based on a fractional reserve, central banking model. These include:

  • Inflation
  • Exponential growth of the money supply
  • Bank failures
  • Monetary crises
  • Abuses of regulatory power
  • Involuntary debt, or servitude
  • Unfair access to credit
  • Financial institutions becoming “too big to fail”

We should recognize, a monetary system is practically impossible without some kind of objective intermediary to regulate transactions and mediate disputes between trading partners. Old money solved this problem by creating an all-powerful, government sponsored monopoly that issues money and unilaterally sets monetary policy for the entire economy. Bitcoin addressed it by creating a distributed network of computers that resolve contentions by the consensus of the user base.

MyCHIPs is similar to the Bitcoin model in that it distributes regulatory power broadly among its own users. But that regulation is not done by consensus, but rather on a peer-to-peer basis. You don’t have to trade with anyone you don’t feel you can trust. And if you want credit from other people, it is up to you to prove you will be reliable.

MyCHIPs also follows some valid principles from the central banking model. This includes the concepts that money is created through indebtedness, and that the total money supply can, and should be, elastic—growing and shrinking to meet the demands of the economy.

Like Bitcoin, MyCHIPs employs an open-source software core that operates according to a standard, published operating protocol. But more than just open-source software, the currency itself is open-source. Anyone can create and issue currency. And the backing, or assets used to guarantee the value of the currency are available for creditors to examine and scrutinize.

We call software open-source because we can see and modify the source code. MyCHIPs money is open-source because creditors can see and understand the source of its value—the collateral that backs it up.

In addition to issuing money, participants can also perform other regulatory duties we would normally associate with the government or a central bank. For example, anyone can become a lender, a borrower, an auditor, or an insurer—even in some cases, an enforcer for the rules of the system. People and companies can compete within the system to perform these functions in the best possible way and at the lowest possible cost.

People can also choose a quieter presence on the network, just as consumers. Their identities are known only to those they normally do business with like employers and service providers.

Some Basic Definitions

The first thing to understand is what a CHIP is. It stands for Credit Hour In Pool, to help us remember that money is credit, or debt. And it can be pooled together in a relatively fungible way so we can trade with anyone else we may want. If you think the acronym is too painful, you can just use it because it sounds cool.

As we have mentioned elsewhere, a unit of time money is not the easiest standard to define. It has been chosen not because it is easy, but because it has other, more important benefits. So to tackle the problem of exactly what a CHIP is, we will use the following definition:

  • Credit for the value produced by one continuously applied hour of adult human work;
  • in such circumstance where there is neither a shortage nor a glut of such willing labor available; and
  • where the job can be reasonably understood with only minimal training and orientation; and
  • without considering the added productivity due to the use of labor-saving capital equipment; and
  • where the person performing the work has a normal, or average, functioning mind and body; and
  • can communicate effectively as needed with others in his/her work; and
  • can read and write effectively as needed with others in his/her work; and
  • understands, and can effectively employ basic arithmetic and counting; and
  • otherwise, possesses no unusual strengths, weaknesses, developed skills, talents or abilities relevant to the work.

One possible example of a one CHIP/hour job is stacking 50lb boxes in a warehouse. The job can be done without the need of tools or equipment. It is pretty easy to learn and understand. And most any adult without a physical impairment can do it.

We all recognize, a person digging a hole with a shovel is a lot more productive than someone using a spoon. The standard definition is meant to account for that. In other words, it is the job of the employer to fund the equipment necessary to do the job at the desired efficiency level. And the capital necessary to buy the shovel should receive its own reward from the resulting increase in productivity. But in this example, a person digging with a spoon would receive the same one CHIP per hour as the person using the shovel, as long as it is up to the employer to determine which tool is best for the job.

On the other hand, a person who operates heavy equipment to dig the hole might require months or years of training in order to do it safely and effectively. That training itself is a form of capital investment and so can also command a reward. So people with these kinds of developed skills would be expected to earn more than one CHIP per hour.

Exactly how much more, should be a function of market forces. If machine-powered excavation is in great demand, it is likely to command much higher pay than in an economy where it is not.

Also, a mechanical excavator machine represents a much larger investment of capital than a mere shovel. That investment can also demand a return to the equity that owns it. But while this affects the price charged to the customer, in itself, it does not change the rationale for compensation to the operator.

If you’re still confused, you might be thinking: OK, but what is a CHIP really worth? Maybe you mean in terms of “real money,” meaning dollars or euros.

If so, you’re probably still not getting it. A CHIP is worth what an unskilled person can produce in an hour. It is purposely not linked to any existing, and particularly floating, currencies.

But you could expect the market exchange rate between CHIPs and dollars to be something close to the minimum wage. This doesn’t necessarily mean a minimum wage mandated by government but rather, the effective minimum wage employers must pay in order to adequately staff unskilled labor positions. Accounting for all costs and benefits, this might currently be thought of as being around $10 per CHIP.

Over time, we expect central bank currencies to continue to inflate. But the basic CHIP definition stays the same. So the exchange rate will gradually move upward to track with the ever-decreasing value of traditional money.

Finally, we should understand the difference between CHIPs and MyCHIPs. As mentioned, a CHIP is just a proposed unit of measure for time-based credit money. MyCHIPs is a specific proposal for a digital interchange protocol for facilitating the trading of CHIPs over the Internet.

The idea is, people can maintain a CHIP account on a networked computer, or on a server of a provider such as Yahoo or Google. Using the network, they can exchange credits for products and services, much like we use credit cards today. The system even has the potential to handle much larger and longer term credit facilities, such as corporate debt, industrial bonds, and home mortgages.

Starting out Simple

It can be mind-boggling to try to comprehend how money circulates within an economy. Understanding MyCHIPs can be just as confusing at first. So it can be helpful to start with some simple examples, gradually add on some more complexity, and then extrapolate to understand how the system would work on a larger scale.

As mentioned, money is created through the act of making a promise to deliver value in the future. Conversely, money is destroyed when that promise is fulfilled. We will call the first part the issuance of money. The second part we will refer to as its redemption.

This idea of money just coming into existence, and then vanishing again, can seem very strange at first. It is especially hard if you think of money as having intrinsic value like gold, or as being in finite supply like Bitcoin.

We have all cringed at seeing hundred dollar bills going through the shredder at the Federal Reserve. How can they just destroy money? Isn’t value being somehow lost? It is hard to understand without some simple examples of money creation and redemption.

For our first example, we will imagine an economy where there is only one employer, a bunch of employees, and only one place to buy things. To make it even simpler, we will choose a company, Wal-Mart for example, that can serve as both the employer and the place to buy things. Since Wal-Mart sells lots of different things, we’ll imagine they have everything you need to survive.

So you are a Wal-Mart employee and you go to work each day and earn your pay. Under the old money system, you would receive dollars—either in the paper form, or more likely, just as bits and bytes stored in a bank’s computer somewhere. Then, when you buy something, you would spend those dollars, giving them back to Wal-Mart in exchange for the things you actually want and need.

At this level of simplicity, it is pretty easy to see, the bank is not really very necessary. Instead of accumulating some digital information in a bank’s computer, it would be just as easy to accumulate the same information right in Wal-Mart’s computer. In other words, your employer could just recognize your work and give you a printout showing the credits you have accumulated toward future purchases.

In essence, you are lending value, in the form of work, to Wal-Mart. Said another way, they are making a promise to deliver value to you in the future, equal to the hours you have worked for them in advance.

In this scenario, you are the creditor, or lender. And Wal-Mart is the debtor, or borrower. Because Wal-Mart is the one making the promise, it is the issuer of the money.

When you decide to buy something, they will debit your CHIP account for the proper amount—the amount of debt being redeemed. The total amount of outstanding credit will be reduced. The money supply will be reduced, just as if some bills had been sent through the shredder.

So one principle to remember is: money, like an IOU, is of no value while in the possession of its issuer. It only has value to others when they possess it.

The second thing to note is, no banks are needed so far—just two parties, voluntarily associating with each other in a mutually beneficial relationship. You just have to trust Wal-Mart to honor your credits and actually give you the stuff you want to buy with your available balance of credits.

Now let’s turn things around a little. Imagine you are a trusted, valued employee—so much so, that Wal-Mart is willing to let you buy a certain amount of things even before you do the work to deserve it. So even if you’ve used up all your credits for the month, they still let you come in and get more of what you want and need.

Suddenly, Wal-Mart becomes the lender and you become the borrower. Wal-Mart is lending you value in the form of goods and services.

You promise to repay them at some future time, so this will show up as an asset on Wal-Mart’s balance sheet, a promise, or note receivable. But you’re not going to give them regular money—you will just be trading them some more of your work time. And when that happens, the credit will diminish, until it has been extinguished completely.

Now it’s your money going through the shredder. And you shouldn’t be worried, because it just means your debt is being reduced.

This simple case demonstrates pretty clearly how credit can be both issued and redeemed. It also helps us understand why we could be satisfied receiving nothing but a computer printout of our accumulated time credits. As long as we trust the issuer of the money, it can be just as real as the dollars we carry around in our pockets, or whatever we think it is that exists inside our bank’s computer.

But the world is obviously much more complex than a single employer who also produces all the things we want to buy.

Adding Another Employer

To start to understand how things work in a more complex economy, let’s just take a very small step by adding just one more employer. After all, Wal-Mart really doesn’t sell everything we need. So we will add Home Depot to the mix because they really have a lot more power tools and other cool things we can use around the house. In fact, we could probably build a house just from the stuff we can get at Home Depot.

So you still work at Wal-Mart, but your neighbor, Bob works at Home Depot. Just as you accumulate credits in your Wal-Mart account, Bob accumulates credits in his Home Depot account. He can go into Home Depot any time and buy some of those great tools. How can you get stuff from Home Depot too?

All it takes is some trust between your two employers. Sure, Wal-Mart and Home Depot may compete in certain areas. But they have some mutual respect for each other too. And they would both like to sell more things—even if it is to employees of another company.

So they come up with a mutual agreement whereby they will vouch for the credit of their own employees. In other words, Wal-Mart will stand behind your purchases at Home Depot. They become a guarantor of your credit, or a credit certifier. And Home Depot can do the same service for Bob. This way, both of you can shop at both stores, as long as you don’t exceed some agreed-upon credit limit.

But how do the two stores settle accounts between them? Won’t they have to get some “real bank money” and send it over to the other guy at some point? That depends only on the level of their trust.

If Wal-Mart can trust that Home Depot will stay in business, and honor its debts, there is no reason to ever have any other money than a promise from Home Depot. In other words, Wal-Mart can just debit its balance sheet for any amounts owed from Home Depot. And Home Depot can credit its balance sheet for the same amount.

In this case, Home Depot is the borrower and Wal-Mart is the lender. As long as a Home Depot note is trust-worthy, and in demand, there is no reason to have to convert it to a central bank note.

And as you can imagine, the balances are likely to fluctuate in both directions. In one month, Home Depot might owe some amount to Wal-Mart. But the next month, the obligation might go in the opposite direction.

And these balances are not just affected by the purchases of you and Bob. Wal-Mart might want to buy a hammer and some nails from Home Depot to repair a damaged checkout counter. And Home Depot might need some office supplies from Wal-Mart to use in their accounting department.

Each of these purchases can be tabulated in the same computer accounts. And they will either result in the creation of new credit or the redemption, or elimination of existing credit.

Adding More Parties

Once you understand this basic flow of value from credit issuance to redemption, it is easier to extrapolate to a larger economy. The flow of value always travels in a circle. In our first example, it was a very small circle, only involving you and Wal-Mart. As we add more players, the circle gets bigger.

Imagine we also have a Subway Sandwich store where the employees of Wal-Mart and Home Depot can enjoy their lunches. And we also have DR Horton busily building homes for the employees of all four businesses. Subway can buy groceries for its sandwiches at Wal-Mart and get its kitchen equipment at Home Depot. DR Horton can get their building materials from Home Depot and their uniforms and other supplies from Wal-Mart.

What’s more, assuming DR Horton has enough credits built up, they could build you a house in exchange for your promise to pay for it over time. In other words, maybe we don’t even need a bank to establish your home loan. Instead of paying for your house with central bank notes, you can just use your regular Wal-Mart notes. Instead of promising to work for 20 years to earn enough old money to pay the bank off, you just promise to keep working for the same 20 years, presumably at Wal-Mart. And as your credits are passed along to DR Horton each month, these gradually redeem the total amount you owe on your home.

In a real economy, money can circulate through 10, 20 or more different hands before it is eventually redeemed. In most cases, the money is issued by the act of private borrowing, such as with your home mortgage. And it is redeemed when you attend work, earn money and use it to pay down the balance of your mortgage.

This example also shows us, there is a need for different kinds of credit: short term and long term. Short term credit is the kind you employ to make sure you do enough work each month to pay for the groceries you need that month. Long term credit is for big, expensive things like a house or car where you might pay for it over a much longer period of time.

Those who hold your long term debt will need to be a lot more patient in getting repaid. So they will deserve a reward for that patience. We call it interest, or the “time value of money.”

They also need to be a lot more trusting. More likely, they will require a claim to some kind of collateral such as the house itself, to make sure you honor your promise of repayment.

Scaling to the Full Economy

It does require a small leap of faith to go from these imagined micro-economies to the full, real-world economy of a state, a country, or the world. But if you understand the basic principles of how credit is traded, you can begin to imagine it.

There is also the nagging question of how to roll out such a vast program in its full scale. Do we need to pass a law making old money obsolete and replacing it with MyCHIPs?

Actually MyCHIPs shouldn’t need any new laws in order to work—at least if it is done right. It may need a few old laws repealed in order to work effectively, but we will discuss that a little later. The point is, we shouldn’t have to force people to use it. And we wouldn’t want to anyway.

New money should get used because people prefer it—because it is better and more useful. And it doesn’t need to replace all the old money either. It only needs to be a viable alternative in order to be useful in an economy. And the more it gets used, the greater the competitive forces to keep the central banks more honest.

New money could be phased in very similarly to the way we have presented it in our examples above. Imagine if a few large employers like Wal-Mart, Costco, Kroger and Target began to develop a program for employees where they could bank their work hours with the company. Each employee could be issued a credit/debit card to use for tapping their time credits. In-store purchases would simply be managed as internal transactions. And when employees used their card for outside purchases, the necessary conversion to dollars could be done transparently.

The primary benefit to companies would be an immediate reduction in the amount of capital they must otherwise maintain from other sources, such as equity and debt. Employees would benefit by the convenience of the card. And their employer might even offer to pay some interest on balances they maintain in their time bank account.

Depending on the laws of the country in question, employees might even be able to defer taxes on time accumulated in an account. The theory is simple: Rather than working for money, the employee is lending his time to his employer. The compensation will come later. If the taxable event could be postponed until the lent time is redeemed, this would form a good incentive for increasing personal savings. In some ways, it is not too different from the idea of a 401K account.

Once a handful of companies had functioning time banks, the next logical step would be for them to begin trading time credits among themselves. That way, an employee of Wal-Mart could shop at Costco or Target without converting to dollars first. As more companies chose to join the network, employees would have more opportunities to spend their time credits directly.

The next step would be for other kinds of companies, not in the direct consumer market, to join. It may not be as obvious how this would work, but a company that sells to other businesses, or even to government can also benefit from time banking for their employees.

As an example, consider a refrigeration company that does nothing but service the ice cream freezers in retail stores. No consumer buys anything from them directly, but the retailers themselves regularly pay for their services. Employees for such a service company could also bank their time, just like the Wal-Mart employees. And they could redeem that time, by buying things at Wal-Mart or anywhere else in the network. And ultimately the credit of the service company itself would be redeemed as it performs work to keep all the freezers in good, operating condition.

So we see, a new, digital credit market could emerge very gradually and naturally, slowly taking on much of the load currently managed by the traditional banking system. By the way, don’t expect the big bank lobby to go along with this without a lot of kicking and screaming. Ma Bell didn’t go down without a fight either. But that is not a good reason to avoid better, more innovative new technologies when they come along.

A Network of Trust

These examples serve to illustrate what MyCHIPs really is: a cellular network of trust.

It is cellular in the sense that you only have to establish a direct trading relationship with a few other parties you know and trust. But those parties will have relationships too, different from your own connections. And you can pass value through the network, allowing you to effectively trade with other companies and people you may not know or trust.

So your normal, direct trading partners would correlate to actual connections you have in the real world, like an employer, an employee or a provider of goods or services. In many cases, these relationships are backed up by real-world, written contracts. And any credit allowance granted might be secured by tangible assets, or it could be based solely on mutual respect and reputation.

For example, a club might establish a MyCHIPs identity so its members could pay their dues online, using the network. Such a relationship might exist on nothing more than reputation because the stakes are not very high. If you provide quality credits in satisfaction of your dues, you get to continue enjoying the benefits of membership. If you don’t, the club can kick you out. And if the club lets you down, you can always leave and find some other, more reliable association.

Part of the job of the MyCHIPs software to help you evaluate the risk involved with various potential partners so you can make an educated decision about whether to establish a direct trading relationship with them or not.

For example, your relationship with your employer is pretty solid—at least within a specified credit limit and scope of time. You know each other, you have experience with each other, and you can execute an employment contract to spell out your real-world obligations to each other. In the example above, MyCHIPs would advise you that transactions with Wal-Mart, and within the proper limits are reasonably safe.

But MyCHIPs might give you a security warning about the club you pay your dues to. You may just ignore it because your exposure is low and you don’t mind the risk for such a small amount of money.

However, if you wanted to sell your laptop computer to Bob on the basis of his own personal credit, this could rightly give you pause. You would not want to risk such a valuable asset unless you were pretty sure he could make good on his promise. MyCHIPs could provide you with valuable information about Bob’s credit rating, in case you want to establish that relationship.

But much more likely, you would never have to make that decision. Rather, the system would discover that Bob works at Home Depot, and they have a deal with Wal-Mart. So by carefully crafting the right chain of trades, Bob will be able to send you value through the network. And you won’t have to accept promises from anyone but Wal-Mart.

So, the whole point of MyCHIPs is to formalize a digital platform for establishing a network of credit relationships, to facilitate commerce between partners who can find a reasonable way of trusting each other, either directly or through the relationships of others.

In a very real way, MyCHIPs is not so much a new currency as it is a way of automatically trading a whole world of privately issued personal and corporate currencies. You have your money, Bob has his. Wal-Mart and Home Depot also have their money. But with a properly designed infrastructure, they can all begin to work together as though they were a single form of money.

There are many more technical details to be covered. For now, we will leave much of this for the software description. Next, let us turn to some of the general principles of how the network is managed and how peers function with one another.

Credit Certification

As mentioned, MyCHIPs is regulated, but not by a single, monopolistic authority. Rather, the duties of managing the system fall to members of the network itself.

We noted how participants can be both lenders and borrowers—both issuers or accepters of credit. Similarly, any participant can become a regulator within the system as well. They will just have to price and perform their services responsibly if they expect to be successful.

One service, we will call credit certification, has been covered in passing, but not pointed out explicitly. In our examples above it was shown how you could shop at Home Depot using the time credits you banked from your job at Wal-Mart. As mentioned, this doesn’t work because Home Depot trusts you, but rather because Home Depot trusts Wal-Mart. And that trust will likely be based on a real-world contract which either company can enforce in a civil court, if necessary.

So to reiterate, money is all about trust. If people trust you, it is easier for you to issue money, or credit. Certainly, you could just issue your own credits directly on the MyCHIPs network, but they might not be considered very high quality by anyone else. If no one knows about you, you might need the help of someone who already has a better reputation than you do. If that party is willing to somehow endorse your credit, your quality rating can be much higher.

So in our examples, the employers became certifiers or guarantors of the credit of people who, by themselves, might not have as much credibility on the network. Normally, you might have to pay a fee for such a valuable service. But an employer is in a good position to do this for free, or even at a small rate of interest paid to the employee, because it saves the company money on debt or equity it might otherwise have to seek elsewhere.

But many people work at companies that might not be particularly credible within the network. Other people may be farmers, lawyers or otherwise self employed. Furthermore, many will have a need for larger or longer-term tranches of credit than can be secured solely on the basis of an employment relationship. Examples could include the purchase of a car or a house.

This is the bit of good news for our friends in the banking industry. Their jobs may not have to go the way of the buggy whip, after all. As it turns out, bankers are pretty good at evaluating collateral, such as a home or a commercial building, figuring out how much it is worth, and then creating a credit facility for a lesser amount. This practice, commonly called a mortgage, is just a form of credit certification.

In other words, banks don’t usually lend you money out of their vault to buy your house. They create new, state-sanctioned money and trade it to you in exchange for the private money you create, based on your promise to work, along with the equity in your home.

In a MyCHIPs network, credit certification is a great niche for all those out-of-work bankers displaced by the revolution in new money. They can just do their same old jobs, but in a slightly more honest and open way—that is, after a few arcane, and protectionist, existing federal laws have been repealed.

The idea is pretty simple. You create a trading identity on the MyCHIPs network and associate it with a new or existing corporation. That company records a clean, insured, first position trust deed on a piece of real estate. And you also obtain one or more independent appraisals showing the current value of the property.

Using the MyCHIPs protocol, you post all the records necessary to fully document the value of the property. In addition to the trust deed and appraisals, you might also include copies of sales contracts and/or county tax valuations. The more information you provide, the better others will be able to evaluate the value of the collateral you hold in trust, and the higher the quality of the CHIPs you can therefore issue.

Based on your quality rating, the market will have a natural demand for these new CHIPs. For example, imagine you only issue about 70 CHIPs for every 100 CHIPs of real market value of assets you hold. That would certainly be attractive to the CHIP market, and so people would respect your CHIPs as a reliable store of value. But if you leverage 100% of the value of your security, that would result in a much lower quality rating so others might be less interested in your credit.

Your reputation could be improved if you have a larger portfolio of diversified properties. It would also help if you have been in business for a long time and have a good reputation for being financially responsible.

This process of certifying credit using real collateral could also be done by individual participants on their own behalf. Once issued, the newly created CHIPs could be used to buy the collateral real estate itself, assuming you had a reasonable down payment to “chip” in. Imagine being able to simply create your own home mortgage from scratch. No banker required!

Alternately, you might leverage an existing property you already own outright, just to create credits for spending on other things you may want to buy. This is a way of converting existing assets to fungible money so you can slowly convert one kind of asset into something else you may need more.

This is how we gradually replace a job presently being done by a centrally managed, overly regulated, government sponsored monopoly. We replace it with thousands of independent entrepreneurs who all compete to provide the best pricing and most reliable service possible.

Auditing

At this point, the more statist readers are having a panic attack because they just can’t fathom the thought of interacting with a “bank” that is a small business. Many people would feel more comfortable with “Wells Fargo Bank” than say, “Steve’s Credit and Trust.” However recent history would suggest, this instinct could be somewhat misguided.

Admittedly, you would not want to trust your deposits to a bank with a questionable reputation. But when it comes to creating a recorded lien to secure a documented debt, it is not really rocket science. Any lawyer or title company can get it done just fine. And if you provide the proper documentation, others can reasonably evaluate the quality of your security.

However, the world is full of crooks and cheaters, both inside and outside the traditional banking industry. And they are bound to find their way to the MyCHIPs network to try to somehow steal value if they think they can. So we should take other prudent steps to make network credit even more secure. One of those steps involves auditing.

At least two forms of possible auditing are contemplated. The first, we will call “voluntary.” As a credit certifier, either for yourself, or for others, you could voluntarily hire someone to audit your collateral from time to time. The best auditors to use would be those who had already established a great reputation, and a history, tracked by the system, of accuracy and objectivity.

Auditors would review the public information about security collateral and compare it to other information they may have, such as comparable sales, market trends, and so forth. They might fully endorse the valuations published by credit certifiers, or they might have a different opinion. Their valuations would give another important and objective opinion about the quality of your credit. If you are willing to issue money in a ratio, and according to standards consistent with their recommendations, your own quality rating will be much higher.

You might ask: what if the credit certifier and the auditor are in league together to cheat the system? First, it would be difficult for an auditor to maintain any kind of long-lasting, positive reputation if he makes such compromises in his work. And a brand new auditor won’t have a valuable reputation anyway. But let us consider the case, in order to discuss a second possible kind of auditing—freelance.

A freelance auditor would scour through the network looking for public credit security he thinks might be questionable. This could be due to fraud. It might be because of sloppy work in documenting or recording liens. Or it could just be, the value of a property is depreciating over time and more recent valuation data needs to be taken into account.

Some freelance auditors might seek out and report faulty securities just to improve their own reputation. Then, they could use that reputation to get more regular jobs as a paid auditor. Or, in a fully developed MyCHIPs network, they could do it for profit by short-selling as follows:

Once a flaw in the issuance was detected, the freelance would seek to borrow a number of existing CHIPS, specifically issued against the over-valued collateral. He would then sell those CHIPs or, in other words, trade them for other CHIPs with a higher quality rating. Next, he would then reveal the flaw, and fully document it according to standard MyCHIPs procedures and protocols. This would cause the quality rating to drop, and with it, the demand for the targeted CHIP issuance. At the new, lower rating, the auditor could then purchase (or trade for) enough CHIPs from the targeted issuance to repay the CHIPs he borrowed in the first place.

If he is skillful in his analysis and trades, he could provide the market with a needed correction, and earn some money for himself in the process. Maybe a lot.

This may seem unduly harsh to some. An uncompassionate, greedy freelance auditor has just revealed a potential weakness in someone’s currency. Now everyone who was holding that currency just lost some potential value, due to the new, lower quality rating. And to make matters worse, he earned a profit in the process!

But that’s the beauty of the free market. Left to their proper function, the natural feedback mechanisms inherent in the laws of economics provide a regulating function. They solve problems while they are relatively small so they don’t become “too big to fail.”

It is true: Having an auditor successfully reveal a flaw in someone’s valuations can strike a painful blow to their reputation on the network. But if companies start to issue credit dishonestly or even carelessly, it can be dangerous to others they are trading with. So we should want to know as soon as possible if a credit representation is less reliable than we might have thought.

We should also remember, most people won’t be exposed to this kind of auditing. It only works for companies who are seeking widespread acceptance of their credit or, in other words, borrowing from the public. Those of us who are quietly existing on the network as consumers will be subject only to the private credit relationships we have established.

Insurance

In addition to auditing, we can also imagine another way of improving one’s credit rating: insurance. Just as anyone can act as an auditor, so can anyone become an insurer.

Let’s say you have an existing MyCHIPs presence with a good reputation and an existing demand for your CHIPs. You have excess credit available and would like to earn some extra income.

At the same time, you are aware of a new startup company who is struggling to establish their MyCHIPs presence and reputation. Because you are familiar with the company and its principles, you may have a higher degree of confidence in them than others. So you agree to insure up to 1000 of their CHIPs, and you negotiate a 15% annual rate of return for your trouble.

The new business may have the potential to make a lot of money if it can just generate enough liquidity to fund its operations. But others don’t yet respect their CHIPs enough to allow them to profitably trade in the network. With your endorsement, others in your trading circle will have confidence in the new company’s credit. And their chances of success will be greatly enhanced.

The MyCHIPs protocol could even be developed further to facilitate relationships between those who have or need credit capacity. This would enhance the ability to diversify your risk by insuring smaller amounts for more partners. That way, if some of them fail, you will not incurr so great a loss.

Jurisdictions

By this time, the securities lawyers reading this are pulling their hair out! What is this guy trying to do, completely replace the entire stock market? Well, no—not the entire market. But wouldn’t it be great to be able to access a community-regulated, free market alternative platform, where we can trade debt, along with some its most common derivatives?

Admittedly existing regulations will get in the way of a great deal of what is being proposed here. Furthermore, existing monopolies are likely to propose many more prohibitive regulations if the existing ones are not enough. That brings up the notion of jurisdictions.

Because of its implementation on the Internet, MyCHIPs is inherently capable of becoming a world currency trading platform. People could effectively exchange credits with anyone else, anywhere in the world. However, people and companies are still subject to the jurisdiction of the countries in which they reside. This is why the platform must include a mechanism to correctly identify the member’s country of jurisdiction, and then factor their credit risk accordingly.

For example, if one particular country finds it illegal to sell insurance or issue credit on the MyCHIPs platform, members in other countries need a way of knowing this. Citizens from countries with more oppressive regulations need to have much lower quality ratings than those with systems of civil society willing to allow voluntary associations and enforce private contracts.

For example, if you can’t depend on the courts of Zimbabwe to reliably foreclose on a lien, you may be less inclined to accept credits issued from within that country. Likewise, if United States citizens start getting hauled off to jail by the SEC or the FTC for buying or selling insurance for private credit, people in the rest of the world won’t want to do business with them either.

The point is, to make MyCHIPs an effective platform for the fair and equitable trading of time credits. This will be done by facilitating a network of privately arranged relationships of trust. Then, leave it up to the citizens of individual countries to petition their governments to implement regulatory reforms, where necessary, to allow the free and unfettered trading of time credits.

Compliance Contracts

This leads us to the next mechanism for evaluating the quality of CHIPS issuances: Compliance.

When you set up your MyCHIPs node on the network, you may need to convince potential trading partners you are trustworthy. So, it will be advisable to execute one of several optional compliance contracts. <> These bind you to a set of practices and policies you agree to honor with your partners. For example, you would explicitly agree to not engage in any fraudulent activity, and to only engage in trades that are completely voluntary on both sides. Obviously, you would agree to honor all your debts, even if it takes a great deal of effort to do so.

You might also agree to only have a single trading identity on the network. For example, you wouldn’t join, rack up a bunch of obligations you fail to honor, ditch your account, and then come back later with a new, untainted identity.

Whatever form of contract you choose to execute would form a critical part of your quality rating. If you don’t agree to play nice, others may not want to trade with you. The higher the standard of behavior you pledge, the more people will be able to trust your credit.

It is a valid concern that a compliance contract executed in one country may not be easily enforceable by someone in another country. And while that could be desirable, it is not the only method of enforcement. It is also possible for the network itself to enforce your contracts. If you make certain representations to the community, and then don’t keep them, your reputation will suffer and others will choose not to trust you in the future.

With the protocol designed properly, those who are productive and trustworthy will thrive. Those who are not, will be left to find other ways to conduct their business.

Capital Investments

As you have probably realized already, MyCHIPs opens the door for several kinds of debt-based capital investments as well. Having accumulated CHIPs in the network, you could choose to lend them out at interest. This may differ mostly in semantics from the insurance and credit certification models discussed above. Still, the idea of lending money is familiar to most of us and we should recognize how the network facilitates it.

If you hold credits that are in high demand, and someone else has, or can create credits with a lower demand, they may have an incentive to borrow from you. You are providing a valid service, and are entitled to earn a fee for it. If you can find a way to get more secure with the borrower’s debt than the rest of the market is willing to recognize, you have found a valid niche to fill.

While MyCHIPs is clearly not designed to be an equity market, there should be nothing to prevent you from investing credits say, in a startup company. The distinction of whether you are buying debt or equity is not really in the nature of the kind of money you are contributing, but rather in the nature of the commitment you are receiving in return from the company.

There are also possible niches for companies to manage the credit holdings of others. Say for example, you are saving CHIPs for retirement. One of the things you like about CHIPs is they don’t lose their value due to inflation. If you save up 20,000 CHIPs today, that should still be worth about 10 person-years of unskilled labor even in the future.

But you worry that all your CHIPs are issued by the same company: Wal-Mart. As good as that sounds, you would still like to be even more secure. So you might process your CHIPs through a service provider where your holdings would get diversified among 100 or so well performing companies, each with their own great quality ratings. Now, if the worst happens and one or two of them fail completely, you will still retain most of your savings value.

Alternatively, you might want to trade your corporate CHIPs for other credits backed instead by real-estate and serviced by long-term repayment schedules. This could provide an even more secure way to save for the future.

Money Markets

We often hear of countries having trade imbalances, but many of us don’t fully comprehend what it means.

It happens when one country, using its own currency, is buying lots of goods and services from another country, who has a different kind of currency. The trades going in one direction outweigh the trades in the reverse direction. So you end up with a surplus of the net-buyer country’s money in the hands of people in the net-seller country.

Since MyCHIPs potentially involves millions of different currencies, it has the same dynamic. But it occurs in much smaller amounts, and across a massive number of trading relationships.

Consider, in our examples above, if lots of Wal-Mart and Home Depot customers were shopping at Home Depot, but not so many were shopping at Wal-Mart. You can imagine, Home Depot CHIPs would be in higher demand, and hence more scarce. Wal-Mart CHIPs, on the other hand would be easier to come by, or more plentiful.

Monetary systems work best when the credit continues to travel around in circles, eventually getting redeemed. But different people are bound to trade in different amounts. And some producers will be more successful than others. So certain issuances of CHIPs are certain to be more popular than others.

So what do we do when things get out of balance?

The solution is called a money market. It is a mechanism whereby people can trade different kinds of money. So if one kind is stacking up somewhere in the system, and another kind is stacking up somewhere else, maybe a trade will straighten things out.

In MyCHIPs, money markets can exist in two ways: The first is called a “credit lift.” It is internal to MyCHIPs itself and is discussed in more detail in the software article. But essentially, the software contains a protocol for scanning the network to find people who want to buy or sell a particular kind of CHIPs.

For example, imagine someone who works at Gap, and so has lots of credits there. But she also wants to shop at Wal-Mart. And maybe Gap hasn’t made any deals directly with Wal-Mart or Home Depot, so there is no obvious path for her to use her Gap credits at Wal-Mart.

There are probably others somewhere on the network who have Wal-Mart credits and want to shop at Gap. Or maybe someone has Wal-Mart credits and wants credits for Brand A. And someone else has credits for Brand A, but wants credits at Brand B. And someone else has credits for Brand B, but wants credits at Brand C. And someone else has credits for Brand C, but wants credits at Gap.

You get the idea. The software will scan the network, discover the pathway through these relationships and hopefully, find way for our friend to effectively trade her Gap credits for Wal-Mart credits. And if the demand is there, the trades can all be done for free, because everyone involved will benefit from the transaction.

But what if there is no such demand? This kind of trade imbalance can also happen as well. Ultimately, it is the result of a player whose credit is over-rated on the network. And this is where we will need our second type of money market.

Let’s take for example a retailer, we’ll call Blockbuster. Blockbuster has a bunch of employees and they all agree to work for credits. Life is great for a while. Not only can the Blockbuster employees use their credits to rent cool video tapes, whatever those are, but other people want to rent them too. So the Blockbuster CHIPs are in hot demand and the MyCHIPs network efficiently keeps all the employee’s CHIPs accounts traded out, and instead stocked with Wal-Mart and Home Depot credits.

But gradually, people start finding other ways to watch their movies. And Blockbuster does not effectively keep pace with the changes. So over time, their credits start to lose their appeal. And automated trades slowly lose their ability to solve the imbalances.

This is where a managed money market comes in. Any member of the MyCHIPs network can build his own money market. You just advertise on the network the CHIPs you have for sale, and the ones you want to buy. If no automated trades present themselves at par, you can begin to place and accept bids for discounted trades. And you can bid your own price for brokering the deal.

Imagine all those unwanted Blockbuster CHIPs sitting around getting less and less popular by the day. And some brilliant entrepreneur comes along and devises a way to strip out all the tape and use it for ribbons in the gift wrapping department at Gap, where business is booming. He makes a bid for the Blockbuster CHIPs at a discount, say 50% of nominal value. In other words, he will trade 50 Gap chips for every 100 Blockbuster chips.

He then shows up at Blockbuster and starts buying the old video tapes out of the discount bin, for money that is further discounted because of the great deal he just got on his Blockbuster credits. He then repackages the tape as ribbons and sells it to Gap for more fresh Gap credits, which he can use to buy more discounted Blockbuster videotapes.

This is an example of a free market correction. Blockbuster is slowly going out of business. And in the process, their credit is suffering.

Caught early, the devaluation will be much less extreme. For example, savvy traders may be able to make money on a 10% discount. But as the quality rating goes down, fewer people will accept the credit because it can not be equitably traded in the market. So eventually Blockbuster will lose its credibility for borrowing, just as it should.

Another, more likely scenario is, a strategic trader will buy up all the discounted Blockbuster credit at the right strategic time in the market cycle and then will foreclose on it. If the company still has positive equity, the shareholders and/or subordinate debt will find a way to redeem the debt before they can be foreclosed on. This will produce a quick and healthy return for the trader.

If they don’t, he will become the proud new owner of Blockbuster. He can then shrink it down to the size of a Coke machine, paint it red, and re-enter the market with a brand new model and strategy.

Finally, a managed money market doesn’t have to be limited just to CHIPs. A MyCHIPs node can, and should advertize its willingness to buy or sell traditional money as well.

There are bound to be plenty of people who want to use CHIPs to buy things from sellers who only accept national currencies like dollars or euros. Other people will be interested in trading central bank money for CHIPs. In this way, the network could conceivably be used to exchange any kind of currency for any other.

And because the job is distributed widely among so many different providers, the pricing and overhead will be the best the laws of economics can provide.

Financial Panics

One of the objectives of new money is to avoid bank failures and financial panics. Under our current system, most of us have a notion that money actually is a thing—and we store it in our bank.

Some of us still think we could go in there and find a bunch of money in the vault that is “our money.” But it doesn’t really work that way.

Banks do usually have some cash money in their vaults. But it is a small fraction of the total money supply. Instead, most money exists just as numbers in a computer—credits payable from one party to another.

So under the current system, much of it hinges on confidence and belief. As long as we think our money is safe in our bank, we feel just fine. But if our bank is managed badly, maybe they can “lose our money.” And then when we go to withdraw it, they won’t have anything to give us.

Under US federal regulatory management, the banks are watched pretty closely. And any time a bank gets close to insolvency, the government intervenes and shuts it down. Under this scenario, people could lose their deposits, except the federal government guarantees them.

Then, the remaining assets of the failed bank are sold to a hopefully fitter, already existing bank. The country ends up with one fewer small banks, and one of the big banks just got even bigger.

Under MyCHIPs, the system is de-centralized—the opposite of “too big to fail,” so the failures that do happen are more frequent, and on a much smaller and more manageable scale. And there really is no such thing as a bank failure or a financial panic. The closest thing would be a wide-scale, long-term power outage. And even then, we could use paper proxies for a while until we got the power turned back on.

Traditional bank failures happen because a bank’s liabilities outweigh its assets. The decision to shut it down and merge it with another bank is an arbitrary one—made by government. It would be just as possible instead, to liquidate the bank’s assets and give all depositors a fraction of their original value, for example 90 cents on every dollar.

Under MyCHIPs, there are potentially millions of different issuers of credit, or money. If one fails completely due to fraud or catastrophe, the impact on the entire system is quite small. If individual members resist the urge to accumulate credits from only a single issuer, the impact on them can be very small as well.

A more realistic scenario might be, a bundle of collateral, thought to be worth 1,000,000 CHIPs, is found instead to be worth only 900,000. This could be due to bad management, or improper underwriting of credit certifications. It might just be due to falling commodity prices say, in the construction industry.

Regardless, it affects the potential quality of the money issued against that collateral. But it doesn’t mean the holders of the money automatically lose everything. If the people and companies issuing the debt honor their obligations, it may never matter what the ratios are on the securing collateral. The credits will eventually be redeemed and everyone will be made whole.

If the debtors’ promises do fail and creditors have to resort to foreclosure, they still don’t have to lose everything. In fact they might lose very little, especially if the falling collateral values are detected and dealt with early.

For example, if a fault in a credit issuance is detected, the debtors would certainly have some time and an option to redeem the money, for example by selling the subject collateral themselves. They might also find a way to refinance the debt before getting foreclosed on. In any case, the incentive would be for them to honor the debt by whatever means possible rather than incur harm to their reputation.

And if that is a lost cause, the entity’s owner still has a strong interest in redeeming the debt in order to avoid losing all his equity.

Finally, if an asset is eventually foreclosed on, that doesn’t mean creditors automatically lose their value either. It just means they now own the asset and can liquidate it if, and when they so choose. Remember, assets can go up in value, as well as down. Foreclosure is not always a bad thing for a creditor, as it is for an owner.

In addition to individual bank failures, we also see occasional panics caused by a lack of liquidity in the system. There are debts to be paid, but not enough money to cover everything. This is a result of the inherent flaw in our central banking model that all money has to be issued from a single, independent monopoly. Not only does this create a potential bottleneck in the economy, but the dynamic also requires exponential growth of the money supply in order to prevent defaults.

Most official money in circulation is the result of borrowing from a bank which is part of the central banking system. And that money has to be paid back, along with some extra for interest. So there is never enough money in the system to fully satisfy the debt unless some more money is issued. And that means obtaining more debt through the same central banking system.

Some people believe the solution to this problem is to eliminate the concept of interest altogether. But that is not reasonable either—at least not in all circumstances. Capital has a value, just like labor, food or any other commodity. So it deserves a return on its value when it is productively deployed in an economy.

The real key is, we should never issue a currency (think debt), and then require repayment of that debt, with interest due in the same kind of currency, meaning more money from the same issuer. Otherwise, the debtor has to keep coming back to the same creditor to get more money to cover the original debt. Another way to say it is, we should avoid borrowing from a money monopoly.

MyCHIPs solves the problem by allowing people and companies to issue their own credit. No more monopoly. And interest on the mere issuance of debt may not be necessary because it is often in the best interest of both parties, as long as the debt can be trusted. But even where interest is appropriate, such as with a long term CHIP mortgage, there is still nothing to require exponential growth of the money supply.

You borrow CHIPs that are backed by real estate and used, to buy your house. But as you repay the debt, you use other CHIPs, which can be thought of as coming from your employer. These are the result of your work at your job. And the system can create as much of them as justified by its associated productivity. They are not limited by the size of the original issuance based on the real estate.

In other words, your work is what pays the loan off, and you are just required to return a certain number of hours, or their standardized equivalent. You work enough to pay off the principal. Then you work some more to pay the interest. And you are done. No more borrowing required from the original issuer of the credit.

When we truly understand that money is debt, and debt can be secured, it brings a whole new perspective to historical problems such as bank panics and liquidity crises. In our centralized model, large banks control most of the money in an economy, and are responsible for growing or shrinking the money supply as circumstances may demand. It then makes one wonder, when we do have financial breakdowns, is it because the central bank is too slow or ignorant to react properly? Or might some of these panics even have been caused on purpose?

While we can’t say for sure, it is instructive to note what happens during a monetary crisis: Small banks go out of business and big banks get bigger. Many people lose their homes and businesses. And the collateral assets end up being owned by others—either the banks themselves, or those who have the connections and capital necessary to purchase large bundles of distressed properties for a fraction of their original value.

Hmmm...

Current Barriers

The United States economy has been relatively friendly to the creation and enforcement of private debt. However, there are a number of existing regulations that could cause potential problems. For example, home mortgages are typically much more tightly regulated than are loans for commercial purposes. So questions arise about the extent to which you might be allowed to use your own home to create your own liquidity in a MyCHIPs network.

Historically, there have been exceptions to allow a private home seller to become a creditor on a home loan. One would expect there should be similar flexibility for the buyer, or new owner to create his own credit facility if he wants to. But the problem is whether the creditor can effectively collect on the debt created on an owner-occupied home. If the courts won’t support him, ultimately the credit of the borrower or issuer is what gets hurt.

Each state has its own unique rules meant to protect debtors from predatory creditors. This is a valid concern and should be thoughtfully considered in all jurisdictions. But a mistake too often made, is to simply prevent private or unlicensed parties from becoming rightful creditors. Another common error is to make it more difficult for creditors to collect or foreclose on certain kinds of debt.

Ironically, regulations like this are supposed to protect home owners and other debtors. But in the long run, they only restrict people from issuing their own private credit without going through a government sanctioned and licensed lender. It probably shouldn’t surprise us that these government regulations serve to protect the large, institutional providers of debt from smaller, would-be competitors.

Many countries have laws reserving the exclusive right to create currency for the government itself. But this is often misunderstood when considering the topic of new money. For example, in the United States, it would not be a good idea to mint a coin, or create a paper note which claims to be a dollar. The Constitution delegates that power exclusively to the federal government.

Interestingly, the Constitution also explicitly prohibits state governments from issuing their own debt. But nothing in the founding documents prohibits citizens, or groups of citizens, acting together as a corporation, from trading debts and obligations among themselves. These obligations can even be measured in dollars and cents. They just should not claim to be US currency, themselves.

Other current regulations we should consider have to do with employment law. Perhaps the most obvious case is a minimum wage requirement. If the law requires an employer to trade a specified number of dollars for each hour of work, this could certainly be interpreted to limit one’s ability to trade time credits instead. Furthermore, a number of increasingly onerous regulations define who can work by the hour, who can earn a salary or commission, and how these various types of pay are to be interpreted.

Clearly many believe these types of regulations protect working people from unfair practices by employers. More likely, they have evolved to facilitate and enhance the collection of taxes. And like lending regulations, they often end up hurting the very people who need protection the most.

For example, minimum wage laws effectively render certain people unemployable, such as those who are inexperienced, less productive, or mentally or physically challenged. They also create incentives for employers to use more automation such as robots and computers, rather than hiring people to do a job. They push companies to hire from cheaper foreign markets, rather than employing the citizens of their own country. And they make it difficult for new, emerging companies to hire at all, due to the complexity of complying with the intricate web of federal and state employment regulations.

In short, too many regulations on employment ultimately hurt employees and destroy jobs. They cost companies money, and that just means less money available to pay employees. And that is not a good thing whether you are working with old or new money.

Finally, legal tender laws are not helpful to the idea of a free, private money market. Such laws are intended as a way of forcing everyone to use the official, state-sanctioned currency.

But such force should not be necessary in a free economy. And it is even more objectionable when the issuer is not the government itself, but rather a private business, given the power to operate as a monopoly by the legal tender laws of a complicit government.

The only party that should be required to accept government notes is the government who issued the notes, itself. In other words, governments can and should issue their own money—just like everyone else. They can use it to buy the things they need. And their citizens can use it to pay their taxes, thus redeeming the original obligation.

If the government acts responsibly, its notes will become more valuable, and in demand. Likely, it will not have to pay any interest on its own debts because people will be willing to hold the money for free. But if the government spends beyond the ability of its citizens to redeem through taxation, the currency will fail—exactly as it should.

But with a healthy and robust MyCHIPs network in place, such failures do not have to harm the economy—even the economy of their own country! Rather, they will be more likely to stimulate a change in government, to a form more friendly to sound economic principles.

Certainly, if MyCHIPs is developed and begins to gain popularity, we can expect those with a vested interest in old money to resist the changes. We should expect to see a whole new set of laws and regulations meant to restrict the free exchange of private debt. But free people in free countries should ask themselves if they are really willing to let a big, government monopoly continue to dominate their economies by controlling their monetary policy.

They should consider whether they want to be free to engage in voluntary associations with people and companies of their own choosing—not only in their own country, but also other areas of the world. And they should insist on the best kind of government action: the fair and objective enforcement of private contracts freely made between competent and informed parties.

Social Consequences

Many different proposals have been made for implementing a variety of different kinds of new money. But very few have materialized in any serious way.

Perhaps the most successful so far is Bitcoin, a system that is based mostly on speculation, rewards early participants, and encourages hoarding rather than exchange. And that should teach us an important lesson: In the end, most people will make decisions they feel are in their best personal interest.

So in order to be successful, a new money system has to have some clear advantage for individual participants, over the present system. It is not enough to have only social benefits, unless you plan to implement the system by social force, or government regulation. When the basic economic decision points are made by individual parties, the benefits must also accrue at that same level.

Having said that, there are still a number of positive effects MyCHIPs will have at the societal level. One mentioned above, is by changing the units of money to represent our time, it reinforces our understanding that things, or assets don’t usually just pop into existence all by themselves. Rather, people have to work productively to make those things. Because of this, the value of those things is directly proportional to the amount of work required to produce them.

This leads us to a more clear understanding of what money truly is. In a very real sense, it is “blood, sweat, and tears.” In other words, it doesn’t come from nothing—it comes from people—yourself, and other people. So we should treat it with the reverence it deserves.

When we play with money, we are playing with the lives, or the living hours, of other human beings. We should not take that lightly.

The next social awareness comes when we recognize that money is debt. And that debt is either backed by the credit of individual working people, the net assets of corporations, or groups of people, or long term assets such as real estate, purchased and constructed by people. Therefore when money is issued against these different types of assets, it will have an accordingly different character.

Some will be very reliable in the short run, but less certain over a long period of time. Other kinds may not be as immediately accessible in the short term, but much more dependable into the future.

Furthermore, as people, we all have a similar life cycle we go through. At very early ages, we are totally dependent. Thankfully, nature causes most parents to want to care for their children until they become capable of taking care of themselves.

As maturing young adults enter society, they have usually not had a chance to accumulate much personal wealth. However, they have a great deal of future potential when considering the asset of their time, their mind and the possibility for combining the two productively.

Most people in middle age have had enough time to accumulate some wealth, assuming they have managed to consume less than they produced since entering the work force. And then later on, we begin to lose our ability for productivity. Eventually, we can become dependent again upon family or society for support, until the time we eventually die.

MyCHIPs lends itself well to the natural economic realities present in the normal life cycle. At an early age, the best asset we have is our future potential. But it would be preferable if we could still own a car and a home, even though we may not have lived long enough to produce what is necessary to have earned them. This makes young people good candidates for borrowing.

By taking on a reasonable debt load, a young person can own a home now, and enjoy all the benefits and pleasures that affords, while paying for the asset over the next 10 or 20 years. By mid life, if a person has worked hard, and managed to pay off a home and some other assets, he may also be at the peak of his capacity for productivity. He will have the ability to enjoy a larger proportion of his earning potential, give assistance to children and grand children. He will also have a greater capacity to give charitable contributions, and improve conditions in society.

As we enter old age, it would be well if we have accrued a number assets which can be leveraged, or gradually liquidated to support our needs for the balance of our lives. This makes older people good candidates to provide credit to the younger people who need it. The relationship is a win-win. In other words, it can form a natural synergy between the young and the old, as opposed to the current win-lose dynamic based on forced taxation and subsidy.

Younger people need credit and they are willing to produce income. Older people have the assets necessary to back credit but they need income. Both sectors can be well served by cooperating through the voluntary trading of credit.

So what happens when we combine the concepts of short term vs/ long term CHIPs, and balancing credit between the young and the old: People will naturally recognize, personal and corporate credit is more liquid in the short term but less reliable in the long term. This works as a new batch of human work value is produced each day with people showing up to their jobs. And we can redeem this work by consuming the goods and services those companies produce.

But people can, and do die. And companies eventually go out of business. So CHIPs based on those issuances would require some careful diversifications and a layer of insurance in order to have better long term security. But CHIPs based on real estate, precious metals, and other durable assets are much more reliable in the long term.

So the natural incentives in a CHIPs based economy is to spend credits of a short term nature, trading them for the goods and services we actually want and care about. This encourages commerce and allows more opportunity for others to also engage in profitable business activities—in other words, jobs. And when we do want to focus on long term savings, we will naturally be inclined to store long term CHIPs, or maybe just the assets themselves.

Said another way, if we are inclined to build wealth, we will tend to do it by gathering things, rather than necessarily money. As capital, those things have their own value, and can even earn us income during our less productive times of life. And in the appropriate time and way, they can be exchanged or leveraged for the money we will need later.

How to Get Started

The first step to implementing MyCHIPs is to gather a team.

This work has been introduced without restriction, other than the copyright of the website itself, and a requirement for proper attribution. There is no pending or issued patent for proprietary protocols or algorithms. There is no intent to monopolize the system or benefit from a …premium” reserved for early adopters.

Rather, MyCHIPs is intended as an open-source software, and real world project, which everyone can use, but no one can monopolize. A software license should be chosen which allows everyone to freely use the software and to modify it, but not to decommoditize it or monopolize it for their own gain. And the protocol should be completely free and open, so everyone can communicate effectively according to a known and predictable standard.

The team likely starts with software architects who understand money as credit, and also understand public/private key encryption, TLS, and a number of other network security methods. The team also needs financial minds and legal minds to help negotiate the many practical and regulatory challenges that will present themselves. And of course, the team needs talented and gifted programmers to implement the code in a robust and reliable way.

Once the software is ready, it can be freely adopted for clubs, and other intimate groups who already have their own existing real-world trust. As the system gets tested and debugged, it will become reliable enough for a few brave companies and individuals to begin to deploy in commerce.

Then, it goes one of two ways. Either it works so good, lots of people want to use it, and it begins to pick up a large user base. Or, it doesn’t. If it stays small, no one will care. But if it is done well, and it gets used, the forces of opposition will begin to rise up in defense of the status quo. The fight will begin.

If the user base is large enough, free money will eventually succeed in spite of the opposition. If too many people are too comfortable just laboring under the bondage of old money, then that is what they will get to live with.

If you want to be part of the team, head to the next section, a more detailed description of how the software should work.

And please make contact. Your input on these pages is welcome!