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View Diary: The Problem with Crypto-Currencies and Why SolarCoin is Different (124 comments)

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  •  Excellent post! (3+ / 0-)
    Recommended by:
    Eric Stetson, linkage, nuketeacher

    I'm obviously a strong supporter of SolarCoin, I put a diary up about it here last month: in case you hadn't read it.

    I was also interviewed about it on the Bitcoins & Gravy podcast, it starts at the 33:30 mark, I urge anyone unfamiliar to listen to that too. Here is the link:

    The big thing for me with SolarCoin is that it CAN become a viable economic currency because of the fixed relationship of 1 SLR = 1MWh of electricity. Using electricity in such a manner to back a currency is far more effective than gold or debt. The paper written by two of the SolarCoin founders is a must read for anyone intrigued by the monetary/economic benefits of backing a currency with electricity. The link to that article is here:

    DeKo: An Electricity-Backed Currency Proposal

    From the paper, a couple quotes for you (please note that when the paper was written, SolarCoin did not exist and they referred to the unit as a DeKo in the paper):

    The DeKo can provide a more stable unit of value over time than gold or debt with greater socioeconomic benefit. Most people calling for alternatives to debt-backed currencies discuss gold-backed currencies. Gold is easily managed, measured and has historically been perceived as a store of value. Although limited in utilitarian value, the historical logic that gold has value across cultures has made it a store of value, a reflexive form of belief and associated behaviors. Gold is primarily a volatile scarcity-based asset contributing only marginally to social progress. Many who favor gold-backed currencies are articulating a desire for a stable independent central bank issued currency with a fixed reserve ratio. In this guise, gold is the fiscal and physical expression of a rational economic desire for price and monetary stability.

    The value of the deliverable assets representing DeKos can be more stable than highly concentrated domestic debt assets, which may be devalued due to inflation(overissuance). DeKo asset risk is based on electrical energy delivery, not on monetary or fiscal policy. The DeKo issuer could maintain callable assets to meet the capacity for delivery of outstanding DeKos.

    The assumption is that the utilitarian value of electricity can be a more stable store of value for a currency on a forward basis than gold or debt alone. DeKos offer more utilitarian advantages versus debt-backed currencies, since they are less subject to political spending whims. A kilowatt hour today has the same approximate functional utilitarian value as a kilowatt hour tomorrow. The same can’t be said for government bond interest payments that vary in value relative to fiscal and economic circumstances on a forward basis.

    Chart 5 compares the annual percentage change in real (CPI adjusted) average prices of U.S. Industrial Electricity to gold. Arguably, the greater price stability makes delivered electricity a more stable store of value than gold; and in addition, electricity delivers a functional utilitarian market price that drives directly economic activity.

    The goal of a DeKo-backed currency is long term stability in the asset base, so that the issued currency acts both as a store of value and as utility value. A store of value from a citizen’s perspective is best measured in purchasing power. Purchasing power is the number of goods/services that can be purchased with a unit of currency. Another way of measuring value is utility value, which in economics is a measure of relative satisfaction.

    The DeKo-backed currency forward asset value has two components: 1) the cost of producing delivered kilowatt hours relative to substitute offers and 2) the utility value of the delivered kilowatt hours. The dynamics of changes in electricity cost are driven by technology improvements, innovations and fuel costs. The future utility value of kilowatt hours delivered is a function of competing electrical suppliers and innovations related to consumption value.

    The historical price of electricity in real dollars has been fairly stable; while the social utility has improved as electricity based innovations provide added value for consumers. The yield or output of a debt-backed currency is more currency. In debt-backed currency regimes, the purchasing power of the currency tends to decline over time due to inflation. Inflation means the assets backing a debt-based currency have annual interest payments and future principal repayments with a declining utility value.

    From a monetary policy standpoint in the U.S., inflation adjusted electricity prices peaked at the same time that a strong interest rate policy was being used to shrink inflation during the Volker period at the Federal Reserve. The cost increases in real electricity rates would have acted as a signal, if not an actual curb, on money issuance of a DeKo-backed currency during the late 1970’s and early 1980’s (See Chart 6).

    •  One more thing (3+ / 0-)
      Recommended by:
      Eric Stetson, linkage, nuketeacher

      Climate change is already happening and we desperately need a way to quickly reduce CO2. We the people of this fine and beautiful planet have to be the ones to force that change. I see SolarCoin and its adoption over the coming years as a viable and rational attempt to make that happen, both economically and ecologically, through incentivizing solar generation.

      And the powers that be who don't want that to happen (Oil, Gas & Coal) can't do a damn thing to stop us.

      Imagine the current under-developed countries who are leapfrogging the traditional infrastructure of both electricity and communications. With their solar generation coming on, they can claim SolarCoins. If the coin retains a stable economic value over the coming years, that can provide a means for them to elevate themselves. I find that exciting and transformational at the same time.

      •  Great comments. n/t (2+ / 0-)
        Recommended by:
        linkage, nuketeacher

        The most serious problem in American politics today is that people with wrong ideas are uncompromising, and people with good ideas are submissive and unwilling to fight. Change that, and we might have a real democracy again.

        by Eric Stetson on Sun Apr 13, 2014 at 06:07:46 PM PDT

        [ Parent ]

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