I continue developing my ideas. Most people do, all the time, actually: they keep developing their own ideas, and other people’s ideas, and, on the whole, we just develop our ideas.
Good. Linguistic warm up done, I go to work. I continue what I started in my last update ( Steady inflow of assets and predictable rules ): a workable business concept for restarting local economies after COVID-19 lockdowns, and during the ongoing pandemic. Last time, I studied the early days of the Bitcoin, in the hope of understanding how a completely new economic scheme emerges. As hope crystalizes into something more structured, ideas emerge. I am going to make a quick sketch of what I have come up with, and then I will try give it some shine by using my observations as regards the early infancy of the Bitcoin.
As I observe the present situation, I can see that local communities both need and accumulate some typical goods and assets. The most immediately needed, and semi-instinctively accumulated goods are those serving personal protection and hygiene: gloves, facial protections (masks, covers, googles etc.), scrubs and aprons, bonnets, soap, ethanol-based sanitizers. I wonder, and, honestly, I would gladly do with the consultation of an epidemiologist, to what extent an abundant use of those hygienic goods can be substitute to social distancing. I mean, to what extent can we restart social interactions with adequate protection?
Anyway, I am quite confident that local communities will be accumulating what I provisionally call ‘epidemic assets’. The challenge consists in using that phenomenon, and those assets, so as to give some spin to economies brought down by lockdowns.
Now, I am using basic laws of economics. Whenever and wherever some stock of medical supplies will be accumulated, it will be inventories, i.e. circulating assets subject to storage and endowed with direct economic utility, but not to amortization. Sooner or later, substantial inventories of anything attract the company of some fixed assets, such as buildings, equipment, and intellectual property, on the one hand, as well as the company of other circulating assets (e.g. receivable claims on third parties), and, finally, the company of JOBS, which are the key point here.
Now, let’s imagine the following scenario. A local community, e.g. local hospital plus local city council, need to have a given amount of ‘epidemic assets’ stored and ready to use, just to keep the local epidemic situation under control. They need those epidemic assets, yet, as the local economy is stricken by epidemic lockdown, they don’t have enough money (or no money at all) to pay for those assets. Here starts the gamble. The local community offers the suppliers of epidemic assets to be paid in tokens of a virtual currency, where each token corresponds to a futures contract with claims on a future stock of epidemic assets.
The central idea is that with the virus around, everybody will have a keen interest in having enforceable claims on epidemic assets. That keen interest will be driven by two motives. In the first place, many people will need to use those epidemic assets like directly and personally. Secondly, those assets will be valuable, and futures contracts on them will have monetizable, financial value. It should be possible to create a circulation of those tokens (futures), where the direct supplier of epidemic assets can use those tokens to pay their own suppliers of intermediate goods, as well as to pay a part of the payroll. Those whom he pays will either consume those futures to grab some epidemic assets, or make those futures circulate further.
As those tokenized futures contracts on epidemic assets get developed and put in circulation, we can use the relatively recent invention called ‘smart contract’. A complex contract can be split into separate component parts, like LEGO blocks, each endowed with a different function. Users can experiment with each part separately, and the actual contracts they sign and trade are compound legal schemes. For now, I can see 3 principal LEGO blocks. The first one is the exact substance of the claim incorporated in the tokenized contracts. Futures contracts have this nuance in them: they can embody claims on a certain quantity of specified goods or assets, e.g. 100 kg of something, or on a nominal financial value of those goods or assets, like $100 worth of something. Maturity of the claim is another thing. Futures contracts have a time horizon in them: 1 month, 6 months, 12 months etc. In this specific case, maturity of claims is the same as the lifecycle of one tokenized contract, and, honestly, if this scheme is applied in real life, we will be sailing uncharted waters. Those tokens are supposed to keep local economies going, and therefore they’d better have a long lifecycle. Hardly anyone would trust quasi – monetary tokens with a lifespan of 3 months. On the other hand, the longest futures I have seen, like those on coffee or wheat, stretch over 6 months, rarely longer. Here comes the third building block, namely convertibility of the claim. If we want the system to work smoothly, i.e. inspire trust in exchange, and be realistic in the same time, we can make those tokens convertible into something else. They could convert into similar tokens, just valid over the next window of trade, or into something else, e.g. shares in the equity of newly built local hospitals. Yes, we are certainly going to build more of them, trust me.
Building blocks in hand, we start experimenting. Looking at the phases I distinguished in the early infancy of the Bitcoin (once again, you can look up Steady inflow of assets and predictable rules ), I see three essential steps in the development of this scheme. The first step would consist in creating a first, small batch of those tokenized contracts and test them in deals with whoever would like to try. The experience of the Bitcoin shows that once the thing catches on (and IF the thing catches on), i.e. once and if there are any businesspeople interested, it should spread pretty quickly. Then comes the second phase, that of building large portfolios of those tokenized contracts in a relatively small and select community, sort of Illuminati of medical supplies. In that phase, which is likely to be pretty long, like 1,5 year, said Illuminati will be experimenting with the exact smart structure those contracts, so as to come up with workable, massively reproducible patterns for the third phase, that of democratization. This is when the already hammered and hardened contractual patterns in those tokens will spread to a larger population. Individual balances of those tokens are likely to shrink in that third phase and become sort of standardized. This could be the moment, when our tokenized contracts can start being used as a vehicle for saving economic value over time, and it looks like a necessary condition for driving it out of its so-far autonomous, closed market into exchangeability against money.
That would be all for today. If you want to contact me directly, you can mail at: firstname.lastname@example.org . If anyone wants to bounce this ball off their bat, you are welcome. I am deeply convinced that we need to figure out some new s**t. Our world is changing, and we’d better make that change liveable.