Friday, January 22, 2010

virtual money developments for telcos

Recently I was asked (by a telco) some questions about likely directions for virtual money development, and even paid a nominal fee for my views. It's said you should never offer advice to anyone who isn't paying for it, but since those who did pay don't seem to be paying much attention, I thought to see if others who aren't, might.

Current attempts at creating community currencies are of little real value in terms of making a change, or having any real impact in how people perceive currencies and value. How are they going to change to a model where they are successful in driving change and making a real difference?

At present, most effort is badly misdirected. Most effort, by far, is presently going into devising something to sell to users - different channels for different settlements of conventional money, or moneys based on a different backing, phone credits for instance. While a more convenient or efficient or stylish wallet / payment system will attract users, and make a business case, the user is not fundamentally much better off. They don't have any more money, just other ways with whatever money they already have.

In addition, most "virtual money" in design is generally intended to be a token of value in itself, easily transferrable. That's generally seen as the core capacity of a money, that is has a stable value, independent of the buyer and vendor. It's the money that is valuable, the users just get to use it.

Such systems tend to form and perpetuate patterns of competition, extraction, retention and scarcity. In short, business as usual. Money will be made, perhaps, but with much competition and confusion, and the users, who will (or will not) ultimately drive adoption, don't get a lot of real value. For instance, this - - is good, but it remains merely a convenience, or an improvement in security.


“Coins and cash are cumbersome, but it takes only seconds to pay with Visa payWave and I don’t have to wait for change anymore,” said cardholder Lara Peng. “I work more than 12 hours a day so I need the extra time on my hands. Visa payWave makes payment faster and more convenient. It’s also safer as I don’t have to hand over my card to the cashier when I pay. I just wave it. The card stays in my hand. I’m in control.”

While this is obviously an attractive and valuable proposition in its objectives - improved service, capture of market share - it's still the same old money, and nothing of significance changes in the economic process.

By contrast, in a true network currency the idea of the money as a thing of value in itself doesn't apply. Network money only buys inside the network, is only as good the relationships and exchanges it enables and records. This money just marks the relative positions of the users. Clearly, any future value lies in the actions generated between users, a matter of what they are doing and who they are. The value for the group as a whole comes from the interplay and that, in its persistence, a form of common wealth is realised.

The benefit to the individual user is even more specific - access to new money that stays in the community when it is spent, and is always easy to earn. (Conventional money doesn't stay, and isn't easy to earn.) A network money has a "money-back" guarantee, it is, almost literally, a "money-go-round".

Network money of this form is a commons, an open context in which users can create and operate their own currencies, in principle, as easily as email subscribers can start and moderate email discussion lists.Network currencies can start from nothing, with no assets, and generally will. As transactions take place, account balances spread positive and negative, and quantify the total financial energy the system is at any time commited to provide. This may be an unstructured form of aggregate liquidity, the momentum in this sector of the community economy. However, where the system is initiated, for instance as at, with charitable commitments by the opening business accounts, the new community capital created is readily quantified.

The critical factor is the general satisfaction of the "what's in it for me?" condition - users realise clear benefit in self interest, and there are no particular politics, ethics, theories or agendas required. It's just money that goes round, it just works, and the users needn't know or care about anyone but themselves.

As these game changers emerge, there will be many substantial opportunities in this for carriers, operators, developers, but these will not be financed by the usual business model. There are no territories to be enclosed, no tariffs are applicable, but there are many profit opportunities. However, success in this sector will come not from seeking to maximise extraction, but rather from clear support for and participation in the empowerment of the users and the community they create.

What needs to happen for community currencies to come of age, make a real difference and be sustainable?
Nothing is particularly "needed". Enabling users to create useful money (apparently from nothing) has its own compelling logic, it contains and develops its own drivers. We are confident clear evidence of bootstrap economic development will encourage replication. Open money "mycelium" is already well deployed globally.

However, there are many possible "nudges" that will be very productive, and one that will be particularly effective in global and cross-cultural adoption is an open money phone based point of sale system. Something of this nature must already be in your plans in some form, but quite likely your form needs some review. If you aren't anticipating at least a million free standing independent currency systems, you need to adjust your sights.

The telecommunications industry, almost as a whole, are ideally positioned to influence and prosper in this field. The first major corporation to come out with open money can associate their brand with the new economy as firmly as Xerox with copying, Hoover with cleaning, Apple with style and performance.

We anticipate joint development ventures - initially in NA or EU, and then rapidly expanding into 3rd world markets.

What are the major barriers and how will these challenges be overcome?

It's not at all difficult to communicate the basic benefits - they are generally understood well enough. The problem is merely credibility, but that's a major problem. Perception is the major barrier, and since our perception is our reality, it has to be addressed. People (and most business) find it hard to believe they can create money - "too good to be true, there must be a catch." Some worry more because they can't see a catch. Business worries more than people, which is natural since a business can die very quickly if it makes a mistake.

So we provide entry level zero-risk programs, and games, and education - like beginner slopes at the ski hill, the shallow end of the pool, training wheels for the bike - and we find perceptions can change with experience. The core questions are - why not have another money? what are the risks? how are they avoided? if you do it this way, how can you lose?

When people are unable to place these ideas in their scale of importance or priority, we can try the 10% proposition - "you'll be 10% better off with open money, and sooner than you think." This tends to draw focus to useful questions - is yield of that scale really possible? do I want to know? how much do I want to know?

For a business turning over $500k pa, the proposition of a $50k pa virtual carrot will merit perhaps $50 of attention, maybe this year, if the prospect assesses it as 1,000:1 unlikely. And the incentive to explore is progressively less at higher odds. At 1,000,000:1 it might rate a nickel. It's not the proposition per se, but the presumptions of probability that matter most. And as so often, it's not what you don't know, but what you think you know that's actually not so that causes the problems.

However, this variant of Pascal's wager (risk of cost of inaction) gets more interesting with scale. While the cost of discovery - mainly time and attention - is much the same for a large organization as for any individual, or small or medium business, the possible outcomes are not.

Nota bene. (Not a lot of attention from the client at this point - the possibility of adding $5 billion to income was seemingly too improbable to merit picking up the phone)

Looking to the future, in the next 3-5 years, what role will community currencies play?

Leading. Our present culture and economy is desperately lacking in tools for intelligent growth and direction. For central banking systems, power is either on or off, and steering is left to invisible hands in a market mainly driven by the greedy and the blind. The effect of common community currency systems in our economy will be much like the effect of lasers in our technology. The effects of the application of pattern and information to otherwise incoherent mass and energy aren't easily predicted from the incoherence.

Three projections:

The transition from carbon based fuels is critically dependent on perceptions of equitable sharing - internationally, nationally, regionally, locally and by neighbourhood. Carbon counting, carbon costing and carbon rationing require the variety of open money. See for example.

With considerable local and regional variations, and at various rates of development, the part of GDP transacted in virtual money (not legal tender but entirely legal) will generally reach 30-40%.

The rapid and permanent elimination of monetary poverty. Poverty of materials, skills, time, space, awareness and spirit are other issues of course, but there's no reason why anyone on the planet need be short of money.

Who will be at the centre of them in terms of driving them?
  • in general- people who use money and could use some more. The "un-moneyed" are far more numerous than the "unbanked".
  • in cities - restaurants, high margin retail, entertainment for the discretionary spenders. Community supported agriculture, housing, car sharing, childcare for the socially / ecologically conscious Infrastructure for local governments.
  • in business - newer generations of owners / managers / staff & customers. Old thinking won't see this for some time.
  • in adoption - youth and women
  • in 3rd world - women
  • in delivery - first in gets the inside track

What other examples that point to the future of community currencies?

There are many instances that confirm the basic viability of the parts of the total package. There's the Irish Answer and some confirmation here -

For another instance, "commercial barter" operations in 1984 claimed to be transacting around $3 billion pa and currently report $20-30 billion pa. These and like operations bear much the same relationship to open money as did early on-line networks (CompuServe, AOL etc) to the internet - they demonstrate a little of the potential, but hardly indicate the full range, variety and consequence of an open protocol.

It has been said that developing the internet would have been easier if the internet had already been there at the time. The emergence of open money networks will benefit from that advantage.