Thread by @buchmanster

I'm starting to think the Store of Value func of money is a hedge for the failure of sustainable credit networks. Like maybe the best Medium of Exchange money is that which doesn't even materialize - it's just clearing (why checks took off!). Cue rough train of thought 🧵👇

Money should probably be understood as an externalization of the cognitive processes behind tit-for-tat social dynamics. It allows us to represent and track more than we can do with our Dunbar limited monkey brains

To that extent, the most pure money is that which doesn't even materialize in physical form - it's the tit for tat with friends, I scratch your back you scratch mine. In some sense, the best money is the friends we made along the way

You can expand this into credit clearing coops and mutual credit coops - these institutions are clear about money's role in representing real world trade. Money as a tool for exchange, not a store of wealth - this is well understood by eg Henry George and Silvio Gesel

You also see this in the Free Banking school - good money is money that responds responsibly to demand for it, which is effectively demand to settle trades with strangers. And then it disappears again through redemption.

Money is a kind of way to extend the trust network, and Free Banking is a pattern for doing that at scale

Of course the crypto world in general does not understand that, which isn't surprising given the Austrian roots and the "Sound Money" chants and the trauma around fractional reserve. But their chant is actually important!

Our credit and trust networks today are so busted, and our measures of wealth and ability to store value so corrupted and financialized, that we have almost no choice in the matter but to seek a monetary alternative that can resolutely Store Value again.

But it's obvious Bitcoin and most crypto are not designed to be particularly great means of exchange. They show no responsiveness to the demand for clearing real exchanges and they have a long road towards becoming a unit of account (if ever).

People who've thought about units of account for more than a couple minutes seem to conclude that the best one is some kind of representative basket of goods. Bitcoin is a really crude approximation of this in the sense that access to energy and compute (PoW) is ...

... a low resolution proxy for a basket of basic goods. But Bitcoin's violent "price discovery" will surely take time to settle, and even then, it's not clear that it will ever be a suitable numeraire

But I'm not sure that matters. So long as our societies are broadly economic, we will need to hedge the failure of our credit and trust networks with internationally "sound" stores of value. And while ideally value is stored in the physical world as productive capacity

(ie the capacity to sustain your society), it will inevitably seek a monetary representation as well, and Bitcoin is about as good as we know how to do this (especially given its physical grounding)

But it's important to remember that our goal can't be to store value in some monetary form, that's not what money is for. Money is for externalizing trust relationships and extending the mechanisms of tit-for-tat in friendship to strangers.

The SoV function is a hedge against your inability to do that. But the MoE function is the real crux - it's where we build sustainability as a society

Credit clearing coops let businesses reduce their net liquidity requirements by clearing any cyclic loops of obligations - they provide the MoE function without ever materializing a currency! And they help build sustainable economic patterns as they go

There's a wonderful paper about this from earlier this year here: mdpi.com/1911-8074/13/1…

I've also written more about this kind of thing in ebuchman.github.io/posts/local-mo… and ebuchman.github.io/posts/2019-01-…

This framing is still somewhat new to me, and I'm still working through it, and these thoughts are far from sufficiently rigorous, but I thought I'd share the WIP.

Of course it all lines up well with my general crypto thesis around Monetary Localism:

https://twitter.com/buchmanster/status/1330600004419989518