Loans and New Type of Capital

This is the fifth part in a five part series of posts that lay out the basics of what we are trying to build with Catallax.  The series will follow the following schedule and I’ll update the list with links as the articles go live:
 
Demurrage, Catch Up, and Pref Dividends
Passthroughs, Legacy, and Folding the Blockchain
Privacy, Accounts, and Transparency 
Voluntary Organization and Citizen Override
Loans and a new kind of Capitalist (today)
 
One way to offload the responsibility of paying a decay fee is to loan your cash to someone else so that they pay the fee instead.  Loans under the Catallax system have some important properties that are important to discuss and that make apparent the power of this new economic system.
 
When a loan is made in the Catallax system it is done via a particular kind of loan smart contract.  This contract has the unique ability to remove prefs from circulation when a borrower pays cash back to a lender.  This is important because we don’t want symbiotic small circles forming in our economic ecosystems.
 
Lenders will lend a borrower cash and in return get prefs in that borrower's account.  They hold onto these prefs (as well as the loan amount) until payments start coming back the other way.  When a borrower pays back some of the loan the prefs will be removed from the lender’s ledger.  During the length of the loan the lender will benefit not only from the interest charged but from the pref payments coming from the borrower.  If the borrower is using the the cash for building a business it may become prudent for the lender to forgive the loan balance to maintain a pref balance with the borrower.
 
This turns lenders into a new kind pseudo banker/venture capitalist.  We believe that a large number of balances will be forgiven and that this will form a new, more personal, relationship between bankers and borrowers.  Bankers now can find a long term benefit by helping their clients become more profitable and driving revenue to their accounts.
 
Another effect this should have is driving interest rates to very low levels.  When people are wanting to loan out cash instead of having it decay the amount of capital available should increase and form a very competitive market for rates.

If this is interesting to you and you'd like to see where we are going with Catallax, please pick up my book Immortality (Purchase of a physical or kindle copy helps support this project).

Donations always accepted at:

BTC: 1AAfkhg1NEQwGmwW36dwDZjSAvNLtKECas

ETH and Tokens: 0x148311c647ec8a584d896c04f6492b5d9cb3a9b0

If you would like more code articles like this please consider becoming a patron on patreon.

You can discuss this article and more at our reddit page r/Catallax.

Get to know Catallax: Selective Citizenship and Citizen Override

This is the fourth part in a five part series of posts that lay out the basics of what we are trying to build with Catallax.  The series will follow the following schedule and I’ll update the list with links as the articles go live:

1. Demurrage, Catch Up, and Pref Dividends
2. Passthroughs, Legacy, and Folding the Blockchain
3. Privacy, Accounts, and Transparency  
4. Selective Citizenship and Citizen Override (today)
5. Loans and a new kind of Capitalist

The Catallax system requires some ‘central’ authority to exist to set decay rates and pull the levers of the economy to keep the economic piston pumping.  A huge benefit of cryptocurrencies is the ability to do away with centralization.  In the same way that we took a long / short position on privacy, we will also take a long / short position on centralization.
 
In our opinion, the world is not ready to overthrow the nation state. There may be a day in the distant future where we can reach this kind of reality but we believe that there needs to be a bridge between now and then.  In order to neutralize too much authority, we propose a scenario of Selective Citizenship and the Citizen Override.
 
Selective Citizenship allows for citizen accounts to elect to pay a tax out of their pref flows that go to an institution that they want to be a part of.  These institutions can be State level institutions or something smaller like a local utility district or school system.  We contend that one of the killer apps of ethereum and other cryptocurrencies is taxation.  Once municipalities realize that by issuing their own form of crypto they can make taxation automagical you will begin to see a lot more municipalities issuing crypto.  Catallax seeks to speed this revolution by adding a taxation layer into our system.
 
We are also short authority and believe that citizens should maintain control over the ruling authority.  Therefore we put forward the idea of the citizen override.  The citizen override provides the opportunity for citizens to give an authority the right of easy taxation, but give the citizens an easy way to turn off the faucet and override the ability of the account to operate.
 
An example of how this would work on the largest scale would be the US nationalizing a Catallax currency and enforcing that all citizens elect the USA tax.  This tax mechanism replaces the IRS.  In return citizens now have a method to turn off the faucet by voting.  If Congress reaches a 23% approval rating like they have now, the citizens that pay the tax can turn off the government's access to pay representatives their salaries.
 
In a more realistic scenario, the first Catallax system will start in a state of benevolent dictatorship, evolve an authoritative court system, establish a legislative council that will turn into an elected body and then eventually pass to a form of constitutional organization where citizens have significantly more control over their governments than they currently do.
 
Our civic institutions have taken a serious hit in the last few decades as capitalistic organizations have found profit avenues that have made us less dependent on those civic organizations.  The Selective Citizenship system seeks to restore that civic infrastructure by giving grassroots organizations a dead simple way to generate revenue.  Because the money that is taxed is money that is already flowing away from citizens it is much easier to convince someone to elect the tax. They are going to be losing the money anyway, so why not have it go to a group seeking to improve the local street infrastructure or establish new green spaces?
 
This governance may be one of the last parts of the system to come online, but it is one of the most important pieces and any of our supporters should demand that these items stay central to the conversation of Catallax and its future.

If this is interesting to you and you'd like to see where we are going with Catallax, please pick up my book Immortality (Purchase of a physical or kindle copy helps support this project).

Donations always accepted at:

BTC: 1AAfkhg1NEQwGmwW36dwDZjSAvNLtKECas

ETH and Tokens: 0x148311c647ec8a584d896c04f6492b5d9cb3a9b0

If you would like more code articles like this please consider becoming a patron on patreon.

Privacy, Accounts, and Transparency

This is the third part in a five part series of posts that lay out the basics of what we are trying to build with Catallax.  The series will follow the following schedule and I’ll update the list with links as the articles go live:

1. Demurrage, Catch Up, and Pref Dividends
2. Passthroughs, Legacy, and Folding the Blockchain
3. Privacy, Accounts, and Transparency  (today)
4. Selective Citizenship and Citizen Override
5. Loans and a new kind of Capitalist

 Privacy is a very important issue.  It is also an issue that is very hard to predict.  It is possible that in the future we will have a very hard time maintaining privacy for anyone when computers and data are involved.  This has caused me to think about a few questions in regards to Catallax and how to move forward with privacy in mind.

 
How can we be long privacy in the places we want it?
How can we be short privacy in the places we don’t want it?
How can we reduce the need for privacy by increasing the value of transparency?
 
Let’s first talk about the elephant in the room.  Catallax in its rawest form lacks any kind of privacy.  It tracks who you spend money with, who spends money with you, and publishes that info on a public blockchain. Yikes.  This is a privacy nightmare.
 
So let’s unpack this and see how it isn’t that bad.
 
The first step we take is by making transparency really valuable.  The scenarios given in part 1 show how by making your transactions open you can reap varying levels of financial reward for the sacrifice in privacy.
 
A scenario that I regularly compare this to is the ownership of stock.  Chances are that if you own stocks you don’t own them anonymously. You want your name(or at least your account number) next to those certificates so that they well send you dividends when they pay out.
 
Catallax’s first step in addressing these issues is by making it more valuable give up some privacy than to keep it.
 
With that in mind, there are still situations where you do NOT want to forfeit your privacy.  For example, there may be a medicine you need for an undisclosed medical condition and you don’t want the public to know you are buying it.  For those situations, we propose a system of privacy pools.  The privacy pools will allow you to send cash into a vague account and have it anonymously end up in the account you want it to go to.  This is a technical challenge but I think is achievable by using zkSnarks. This is a core feature coming to a future version of ethereum.  These pools will still operate in a catallaxy way where cash will flow from receivers into the pools and out to payers via a pass through, but the payments will be less associated with the payer’s ability to spend money wisely.
 
We further address privacy by splitting accounts into contexts, each of which has a specific privacy profile:
 
Citizen Accounts:  real people can send and receive private payment
 
Legal Entity Accounts: businesses with limited liability must sacrifice some privacy for the right to limited liability.  They can receive private payments, but cannot send them.
 
Government and Institutional Accounts:  These accounts can collect taxation from the system and as a consequence must be completely transparent.  They cannot make or receive private payments.
 
These accounts and their subtypes are discussed more in the Form Language section of my book Immortality (buying a physical or kindle copy helps support this project).
 
This privacy signature is currently a proposal and I’m very interested in speaking with experts on the gaps I’ve left.  I think that the current proposal address privacy where it is important and adds significant anti-corruption infrastructure where it is needed for a free and open society to develop.

If this is interesting to you and you'd like to see where we are going with Catallax, please pick up my book Immortality (Purchase of a physical or kindle copy helps support this project).

Donations always accepted at:

BTC: 1AAfkhg1NEQwGmwW36dwDZjSAvNLtKECas

ETH and Tokens: 0x148311c647ec8a584d896c04f6492b5d9cb3a9b0

If you would like more code articles like this please consider becoming a patron on patreon.

Next: Selective Citizenship and Citizen Override
 

Happy Birthday, Catallax!

“Note: The Dev Log will return next week and we’ll be looking at testing time in truffle + testrpc. I’m on vacation this week. Enjoy this brief history post in its stead.”

This week is the three year anniversary of the concept behind Catallax.  Every year my family and I take a retreat into the east Texas woods to relax and rejuvenate. This place is great and there is a ton of child care so that parents can reconnect and have some time to step away from the children.
 
Three years ago I had a really great confluence of influencers. We had just found out that our third child was on the way and I was deep in the weeds with Piketty, Fukuyama, and wrestling them through the lenses of Alexander.
 
I had been thinking for a long time about how money fell short of all that I thought it could be. I distinctly remember drawing a dollar with arrows over it going both directions in the early 2000s. I was introduced to Kevin Phillips’ History of the American Rich and I banged my head against the problem a good bit, but never came up with much.
 
In 2009 I discovered Gesell and his natural money concept. That discovery really clicked a few things into place and there was something about the 0% interest assumptions that I knew was going to be important. I wrote a piece of fan fiction about one of the big cell phone makers launching a natural money to fix the economic crisis. It never really went anywhere.
 
It wasn't until June of 2014 that Bitcoin and the Blockchain came into the picture and clicked all the pieces into place.
 
Lessig's mayday PAC was flailing and the prospect of never being able to fix money in politics led to a deeper question of how can we fix money.  Piketty showing the data of capital concentration magnified many of the principles that I'd been ruminating on since I'd read Phillips a decade and a half earlier. On a morning walk, a number of ideas were elevated into RAM out of the cold storage of my brain. Bitcoin's idea of a public ledger of all transactions was a key piece in the puzzle. Before seeing and understanding that this was a tech that could actually live in the world Catallax would not have been possible.
 
It wasn't until later that year that I got into the meat of the Bitcoin tech and realized that all the pieces I needed were already there, but the summer of 2014 caused me to start writing the pattern language found in my book Immortality. 
 
I tried to soft launch in 2015 with a talk at the Texas Bitcoin Conference and flying to NYC to demo at the Singularity Institute's Exponential Finance.  The feedback was ok, but not what I wanted. In that same season, a colleague brought a business opportunity to me that was too good to pass up. We bought a company in an unrelated field and we've been fighting the good fight trying to apply new technologies to the world of organ donation for the last two years.  It has been a fun ride and we are starting to see enough light at the end of the tunnel that I can start to hand some of my responsibilities over to new employees. 
 
I haven't been completely idle. As I've been crisscrossing the country installing software at organ centers I've been piecing together the book Immortality that lays out why I think we need this new kind of money. "Why?" Was the biggest question I received when I had tried to launch previously.  Somewhere around early 2016 Robert Pirsig helped me answer that question in his amazing book Lila.  I hope that if you have the “Why?” question and that the intersection of moral philosophy and economics piques your interest that will check out Immortality and that it will answers that question.
 
During the last two years, ethereum has really matured and now seems to be the platform that I needed all along. Now we are here in the summer of 2017 and people are paying me to write solidity contracts. The pieces of the puzzle for how Catallax can be a real thing now are starting to fall in place and the last few hurdles of regulatory compliance are being arranged.  Please follow us on twitter, medium, rss, Facebook, or Reddit and come along for the ride.
 
Let's fix money.
 

Happy Birthday, Catallax!

If this is interesting to you and you'd like to see where we are going with Catallax, please pick up my book Immortality.

Donations always accepted at:

BTC: 1AAfkhg1NEQwGmwW36dwDZjSAvNLtKECas

ETH and Tokens: 0x148311c647ec8a584d896c04f6492b5d9cb3a9b0

If you would like more code articles like this please consider becoming a patron on patreon.

Get to know Catallax: Passthroughs, Legacy, and Folding the Blockchain

This is the second part in a five-part series of posts that lay out the basics of what we are trying to build with Catallax.  The series will follow the following schedule and I’ll update the list with links as the articles go live:

1. Demurrage, Catch Up, and Pref Dividends

2. Passthroughs, Legacy, and Folding the Blockchain (today)

3. Privacy, Accounts, and Transparency

4. Selective Citizenship and Citizen Override

5. Loans and a new kind of Capitalist

The blockchain is really an amazing invention.  We’ve had public books and public ledgers for a while, but having one that is unchangeable is a really amazing evolution.  Catallax will use this ledger to help reduce the risk of investment.  We anticipate this will accelerate the flow of capital to riskier ventures than the market will currently bear. 

The mechanism is to do this is called ‘folding the blockchain’.  As we mentioned in part 1, we are going to have a backwards flow of pref payments going from accounts that have received cash to those that have paid in cash.  Because we want this money to flow efficiently we need to handle a couple of scenarios so that our cash doesn’t get ‘stuck’ in the system.

The first situation to handle is the death of an account holder.  To handle this we can mark an account as a ‘passthrough’  account.  This has a couple of effects.  The first is that any pref payments that come into this account will pass through directly to pref owners in the account without having to wait around for Catch Up.  The second is that this passthrough will avoid any sort of taxation.  We will talk more about taxation in part 4 of this series, but for now just know that it is possible for these pref payment flows to be taxed.  By marking an account as passthrough we are creating a temporary ‘folding of the blockchain’ that keeps our cash flowing efficiently.  For individuals, pass-through will be a temporary feature while an account is in the probate process.

Eventually, these accounts can be completely dissolved via a legacy platform that is just in the beginning stages of development.  The guiding principle is to hold a long/short position on becoming wealthy.  We want to reward the legacy of individuals while guarding against capital concentration.  I will not go into much more detail about this here but you read more in the Legacy chapters in my book Immortality (Buying a physical/kindle copy helps support this project). 

A similar process of passthrough/probate legacy can be implemented for legal entities in a way that drastically reduces the risk of investment in new ventures.  To understand how this works let’s look at the following scenario:

Susan wants to start a company to compete with facebook.  She has a great mvp and some sort of unfair advantage that makes it a possibility that she could compete. It is still a risky venture and Susan is only able to find one Venture Capital firm that will fund her. Venture Co. agrees to invest $1 million catallaxian bucks in Susan Co.  Susan takes the cash infusion and spends the money on:

Bob, a developer: $100,000

Amazon Web Services $500,000

Real Co., An office leasing company $50,000

PR Co., A PR firm that handles their advertising, $350,000

After a year Susan Co. decides that they had a failed proposition. They have yet to earn a dime and are out of cash.  Poor Susan Co.  And Poor Venture Co. Their investment is now worth nothing except what they can get for the tech that Bob developed.  But in a Catallaxian economy, their downside is somewhat limited.

By dissolving Susan Co and ‘folding the blockchain’ over the company, the prefs that Susan Co. owned in Bob, AWS, Real Co., and PR Co. can be given to Venture Co.  All of that cash went somewhere, and because of the blockchain, we know exactly where it went.  Venture Co. has their risk reduced by the cash that flows back to them from these four organization over the next X years.  X is dictated by how fast their pref position in these organizations is diluted. 

If PR Co. goes on to be a billion dollar PR firm, Venture Co. could end up making back their entire investment.

In a traditional economy, when the money is gone it is just gone.  As a result, investors tend to look for a certain risk profile.  Innovation is driven in some proportion by the risk investors are willing to take.  By reducing the risk profile of investments we should be able to accelerate the rate of innovation.

If this is interesting to you and you'd like to see where we are going with Catallax, please pick up my book Immortality.

Donations always accepted at:

BTC: 1AAfkhg1NEQwGmwW36dwDZjSAvNLtKECas

ETH and Tokens: 0x148311c647ec8a584d896c04f6492b5d9cb3a9b0

If you would like more code articles like this please consider becoming a patron on patreon.

To Part 3:  Privacy, Accounts, and Transparency

Get to know Catallax: Demurrage, Catch Up, and Pref Dividends

This is the first part in a five-part series of posts that lay out the basics of what we are trying to build with Catallax.  The series will follow the following schedule and I’ll update the list with links as the articles go live: 

1. Demurrage, Catch Up, and Pref Dividends (today)

2. Passthroughs, Legacy, and Folding the Blockchain

3. Privacy, Accounts, and Transparency

4. Selective Citizenship and Citizen Override

5. Loans and a new kind of Capitalist

Demurrage, Catch Up, and Pref Dividends

The hook of this system is built on Silvio Gesell’s concept of Natural Money as described in his book ‘The natural economic Order.'

Natural money is ‘natural’ because it decays like all kinds of real capital. Historically, this kind of money was implemented using stamped money.  With stamped money you would have to buy a stamp(say for 1 cents) and affix it to your physical $1 bill once a month(thus having a 12% decay rate).  At the end of each year, all bills would be turned in for new bills. Stamps are a bit impractical in the real world and we are able to do away with them because of the blockchain.  Instead of charging for a stamp, we just track the decay rate and make sure that each account that uses the system pays the correct fee before they are able to transfer money.  We call this the Catch-Up.  I’ve laid out a simple way to do this in solidity in a dev log post.

This is a decent system for accelerating the flow of cash through an economy.  If you cash is going to decay you want to quickly find a place to spend/invest it so that someone else takes on the burden of paying the decay fee.  You will typically find people willing to pay the fee in exchange for reducing risk elsewhere.  As a result, your cash ends up being more efficient as a liquidity tool. 

Implementing a decaying currency is all well and good, but what to do with the decay?  Other blockchains have tried allocating this a miner reward friecoin.  In other stamped money systems the decay fee was used to provide government services and treated like a tax.  We are going to do something different with our decay fees.  We are going to treat the blockchain as a time machine and pass the decay backward through the blockchain to the people that paid into an account.  We call these Pref Dividends.  By doing this we not only incentivise the application of cash so one does not have to pay the decay fee, but we incentivise the application of cash to destinations that the cash holder anticipates will be good at attracting more cash in the future.

Let's take a look at a couple of examples of how this system would work.

Scenario 1 - The Wine Heiress:

A wine merchant produces a bottle of stunning wine.  I think this bottle of wine is worth $20 and the merchant agrees.  This is her first catallaxian transaction so when I give her $20 for the wine, I get 20 pref shares in her account.  I own 100% of the pref shares at this point.  The next day she finds out that a Catallaxian great uncle has passed away and she has inherited a cool $1 million.  She idles the day away dreaming of what she is going to spend this money on.  When she goes to start spending it the next day she has to ‘Catch Up’.  She held $1,000,020 for 1 day at a 12% per year decay rate.  Her first transaction will have a $328 decay fee tacked onto it.  That $328 will go straight into my account because I’m the only one who has ever put cash into her account. Not a bad return on spending $20...and I get to keep the wine.

This is a far-fetched scenario, but it shows the power of betting right.

Scenario 2:  The Established Merchant.

Like the last scenario, I’m going to buy a bottle of wine for $20. But this time I’m buying it from a wine merchant who has been growing their operation for a while and is established in the business.  I get the same 20 pref points in the account, but in this scenario, the merchant has already had revenues of $3,000,000 over the course of her operation.  As a result, my $20 only makes up 0.00000666666 of the total 3,000,020 prefs.  If this merchant likes to keep $100,000 in their account to mitigate risk, my one day's worth of pref payments(at a 12% decay rate) would only be $0.0002.  What a tiny sum!  Over a year that is only $.073 cents.

From this scenario, we learn that one shouldn’t expect grand riches from this setup, but if one were to buy a bottle of wine a week for 20 years you’d end up with a stipend of $75 / year for your participation in the Wine Economy. (This is a rough calculation and doesn’t take into account reduction in percentage of the wine merchant's account).  This is not a great ROI, but don’t forget, you still have all that wine.

The moral of these two stories is that over a lifetime of spending money with accounts that range in return between these two scenarios one can build up a nice recurring pref payment that can act as a form of earned basic income.

In addition, we have some new levers on the economy that we can pull to try to accelerate the velocity of money, combat inflation, and increase redistribution of wealth while maintaining the market incentives of capitalism.

Statutory Theft

One principle must be put in place for this all to work properly and that is the principle of the inalienable right to pref ownership.  This means that you cannot sell your prefs anymore than you can sell yourself into slavery.  I propose the concept of statutory theft as a legal guiding principle of how handle scams and inappropriate attempts to confiscate the value of future pref payments.  This is a difficult thing to implement in code and will be an important reason that we will need to look at rule of law in relation to deploying the Catallax system.

You can read more and explore the economic model I’ve built showing how this system can lead to increases in GDP and reduction in poverty in one of my other articles:  http://catallax.info/news/2015/4/19/a-published-model-of-hypercapitalism

If this is interesting to you and you'd like to see where we are going with Catallax, please pick up my book Immortality.

Donations always accepted at:

BTC: 1AAfkhg1NEQwGmwW36dwDZjSAvNLtKECas

ETH and Tokens: 0x148311c647ec8a584d896c04f6492b5d9cb3a9b0

To Part 2:  Pass Through, Legacy, and Folding the Blockchain