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MyCHIPs Digital Money

Content Illustration

Alternating Currency

On this page, we use an electrical analogy to illustrate the MyCHIPs credit lift.

Our existing money has a quality we will call being “tokenized.” Even though behind the scenes, it is based on credit, still it feels more like a tangible thing. This is because it can be passed along from one person to another.

Think of a token, like you might use at an amusement park, an arcade, or a car wash. It is like a coin, a bill, or a coupon that has value to someone, somewhere. You hold onto it until you are ready to use it. Then you can exchange it for something else you want.

This idea of money as a thing of inherent value seems natural to us. After all, what good is the money you earn if you can’t exchange it with a merchant for food, clothing and the other supplies you want and need? And we all see how money gets passed along from one person to the next, continually recognized as something of value by each person along the chain.

But believe it or not, money doesn’t always have to work this way—as a passable token. That’s just what we have become used to.

To understand how it might function differently, let us consider the electrical energy that powers our modern technological world.

When electricity was first being developed, two brilliant inventors struggled over the best way to bring it to the public. Thomas Edison believed the best system was DC, or Direct Current.

Under this system, electricity flows continuously, and only in one direction. For example, current flows out the positive terminal of your car battery. From there, it keeps flowing, through a switch, and then on to power your headlights. After doing its work, the current continues through another wire back to the negative side of the battery to complete the circuit.

Edison believed our electrical distribution should work this way, including the power you use in your home and work. But another inventor, Nikola Tesla, had a different approach.

Instead of generating power that flowed continuously in only one direction, he advocated AC power, or Alternating Current. With AC, the electrons flow for only a short time in one direction, and then they reverse direction and flow right back again. This seemed confusing and unnecessarily complicated to Edison and others. Why would we want such chaotic power, always changing directions many times each second?

But even though Tesla’s AC power was not as intuitive as DC, it had several important advantages. First, Tesla’s AC generators were simpler, less expensive, and more reliable. It also turned out, AC power was much easier to transform to different voltage levels, so it could be transmitted more efficiently over long distances.

There was a long and bitter battle over whether our electric systems should use DC or AC. But eventually Tesla and his Alternating Current won out.

Our existing, tokenized money works much like DC current. It generally flows in just one direction, much like the electrons that physically move along a wire, from one part of the circuit to the next. We might call it “Direct Currency,” or “DC money.”

Dollars, or money tokens, are lent into the economy by banks, much like the electrons flowing out of your car battery. Companies spend some of this “credit money” paying employees, just like you. Then you pass those same dollars along to the next recipient in the chain—maybe a grocery store, or a gas station. The dollars continue to flow around the economy until they are used to pay back a bank loan somewhere in the system. Then the circuit is complete—much as it happens in your car’s electrical system.

But what if it were possible to have AC money, or Alternating Currency, just as Tesla’s AC power differed from Edison’s more intuitive DC power? And what kind of advantages might such an Alternative Currency system have over the DC money we use today?

First, we mentioned that today’s direct currency is tokenized. This means dollars can be transferred, literally moved along from one person to another. This seems like a pretty important feature. Money, received by one person, can easily be re-spent, or passed along the chain to other different parties until it is eventually redeemed back into the banking system.

But tokenized money also has its problems. Transferability means that whoever holds the money, at any given time, effectively owns it and has control of it. So if someone takes your wallet and gets your dollars, they are lost to you and can now be spent by the thief.

A second disadvantage of tokenized money is, it is more difficult to implement without some kind of central authority to manage it. If the system is centralized, it generally must be managed by a national bank or a government so everyone will know a particular token is official and can be trusted. If instead, it is based on a private credit model, this can result in many different issuances of credit from many different sources. This can make it more confusing for a normal consumer to accurately evaluate how trustworthy any particular issuer might be.

Putting trust into a central banking system is not a fool-proof solution. It extracts a cost on the system, just like your credit card makes everything you buy a little more expensive than it might otherwise be. And just like any other monopoly, a centralized issuer of credit can can become vulnerable to misuse, exploitation and corruption.

So how could we best implement a money system that doesn’t depend on a centralized authority? Cryptocurrencies like Bitcoin have attempted to solve this problem. Block-chain technology allows people to exchange tokenized digital money without the need for a government sanctioned central bank.

But even Bitcoin still suffers from some of the problems of existing old money. It is still tokenized, so it can be lost or stolen. And even though it is not managed by a centralized bank, it still does issue from a single, finite generation source. That can make it more difficult to obtain money, or liquidity, when you need it. And the decentralized management function of the network also extracts a significant cost, possibly even more than our present banking system.

So how could we make a kind of money that works better than what we have today? It turns out, one solution comes by abandoning the notion that money has to be tokenized. Strange as it sounds, money that can’t be passed along can actually work better than money that can. You just have to think like Tesla—outside the conventional box.

It seems intuitive that money always has to flow in a single direction. For example, you do a service for your employer, and he pays you money in return. Why would you ever give money back to your boss?

Likewise, when you buy things, you usually give money to a store in exchange for goods and services coming back to you. These businesses supply things to you, in much the same way as you supply labor to your employer. Why would a store be passing money back to you?

To understand, let us quickly review one other important concept, also not very intuitive: that most modern money is credit. Credit is a form of money—the most common form of money we use today.

Credit is just another word for debt, or more accurately, the other half of a debt.

Our current money is just a kind of debt that has been certified, or made official, by a central banking system. This is what makes it easy to pass around the economy in exchange for goods and services.

So to design our system for Alternating Currency we will make two important changes. First, instead of requiring a central intermediary to certify everyone’s credit, we will assume certain trustworthy trading partners can deal directly with each other. Then, we will remove the banks from the system.

Remember to use the word “credit” instead of “money” to remind us what our money really is. Then, let’s see how things could happen in the course of our normal transactions.

Traditionally, your employer would pay you with central bank money. But in our revised system, he would pay you with his own privately issued credit. For now, think of it as an IOU.

Every pay-day, rather than getting Federal Reserve notes, or IOU’s certified by the central bank, you would instead get IOU’s backed by your employer. Now let’s expand the model.

In addition to supplying labor to your employer, you have your own suppliers too. These are the stores and shops that provide you with the goods and services you like to buy.

They also have employees and suppliers of their own. And those suppliers have other employees and suppliers.

If we follow this chain far enough, we can eventually find loops where these relationships form a complete circle, just like an electrical circuit. In other words, someone works for a company somewhere down-stream of one of your suppliers, who is also a customer of the company you work for.

In the model, we can imagine the natural flow of credit in the clock-wise direction around a circle. If a central bank were involved, this would just be regular money flowing around the loop. But in our modified system, it consists of private promises, credits, or IOU’s between trusted parties who know each other, like your employer or the stores where you buy things.

Remember, we want to envision how Alternating Currency might work. But so far, the currency is still flowing only in a single direction. We need a reason why the credit might reverse and move in the opposite direction.

If the money were tokenized, or issued from a centralized third party, there would really be no good reason why it should. It would just keep flowing around the circle as needed.

But the money in our system consists of privately issued credits, or IOU’s. So if you think about that, the answer may become a little more clear.

You might be comfortable accepting IOU’s directly from your employer, but only to a point. Eventually you will want to exchange those credits for other things you really need to get from your own suppliers.

In other words, after your employer has issued all the IOU’s you are comfortable holding, you both would benefit from a way to move some of those credits back in the opposite direction. But you’re not going to just give up those hard earned credits for free. You need equal consideration.

What you really need is a way to trade your employer’s credits for some credits with your own suppliers. This will allow you to buy the things you really want and need. After all, that’s why you are working at your job in the first place.

We have just discovered a natural demand for reversing the Currency to move in the counter-clock-wise direction—at least until the buildup of excess credits has been relieved. As this process is performed in a complete circular loop, all parties involved in the transaction will benefit. The built up credits will be relieved and we can repeat the cycle of normal currency flow again.

In MyCHIPs, this process of momentarily reversing the currency in the circuit is called a “credit lift.” In a central bank model, we effectively pay a commission on all our transactions just so the banks will certify our credit for each other. But with MyCHIPs, a credit lift can be done for free, because everyone around the circle gains a benefit.

From your own perspective, a lift appears like you are passing credits back to your employer while, coincidentally, you are getting exactly the same value back in credits from one or more of your suppliers.

In more conventional terms, you might think of a credit lift as “paying your bills.” You use up some of your assets to get rid of some of your liabilities. You use some money to get the things you really want to buy.

And just like that, we have a monetary system based on private credit! Now we just need a technological solution to execute these transactions safely, accurately and securely, and we have our new Alternating Currency money system!

When the Federal Reserve was instituted in 1913, there was no such technology available. Perhaps the central banking model was as good as we could do at the time. But today, we have the Internet, cryptographic algorithms, and mobile computing devices that can make Alternating Currency a reality.

The benefits are clear: Imagine stable money that neither inflates nor deflates, but always holds its intended value. Think of money that is resistant to being stolen or counterfeited. Imagine how much you would save if you could transact all your purchases without the cost overhead of a central banking system or a credit card company.

What if you could delay income until you actually need to use your money, much like a 401K program, but without caps or limits? And imagine borrowing money to start a new business without having to beg for a loan from a bank. This is where MyCHIPs comes in.

To learn more, keep reading!
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