In recent times, blockchain technology has generated a lot of interest worldwide, and its implementations are being tested in various industries, including economics, power, social utilities, and sharing platforms. Even though the technology has not yet matured enough to be used in all domains and is still undergoing numerous tests, the potential for a wide range of benefits and opportunities stemming from its decentralised and open-to-innovation nature is garnering a lot of interest from scientists and investors. Its general acceptance will take time and will necessitate a certain amount of novelty as well as technological, social, and regulatory coordination.
Bitcoin was the first and most well-known implementation of the blockchain. Thousands of other crypto-currencies have sprung out as a result of its introduction, each with its own set of goals and attributes. The blockchain has been touted as one of the hallmarks of a globalised market without seats or borders, which allows speculation and fosters anonymous methods and unethical behaviour, owing to the contentious success of crypto-currencies. Local complementary currencies are payment methods that work in conjunction with legal cash in a certain area. We examine the possibilities of a technology solution in addressing these difficulties, given the increasing digitisation of local currencies and the existing challenges affecting their management and operation.
What is complement currency?
Any currency that is not a national currency but is accepted for use in specified circumstances in a country is referred to as a complementary currency. A complementary currency is created by private persons, advocacy groups, or government regulatory authorities to create alternative marketplaces for specific commodities and services or within a specific geographic location. It is not meant to be used as the principal means of transaction in an economy.
What is the potential of blockchain in local currencies?
One of the fundamental concepts behind Bitcoin is that it allows people to send money to one another without the use of a bank or, to put it another way, a third-party financial intermediary, contributing to blockchain’s bright future scope. Since this is made feasible by the blockchain’s characteristics, the technology can also be used to free isolated communities from banks and third-party IT companies by permitting transactions to take place without requiring confirmation from a bank and setting up a direct relationship between both the managers of local currencies and the customers for technical details.
- It is becoming a cost-competitive alternative: In comparison to other digital solutions now available in the complementary currencies sector, the blockchain may appear to be a more cost-effective option. Many major banks have started using blockchain technology. Cyclos, a digital banking programme, is a well-known alternative for community currency administration. The annual cost of employing a proprietary programme like Cyclos might be as high as 8000 euros. For tiny communities, this might be an extraordinarily significant investment. Considering the cost, third-party centralised systems are prone to cyber-attacks, and domestic currency communities rely significantly on them if they want to add certain features (at an additional cost) or have technical concerns. The e-Leman local currency is being managed in France and Switzerland by Com’Chain16, a proprietary blockchain-based solution based on Ethereum. As per Pinos, the Eusko company provides their service at a price of up to 20 000 euros a month if the whole service is outsourced to the company. This demonstrates that the blockchain application has already permeated local currency communities, even though the e-Leman money also survives in the form of QR-coded notes17 and the digitisation is profitably administered by a private firm.
- Enhancing the credibility and legitimacy for the stakeholders: The lack of benefit measuring methods to promote local currencies’ credibility among stakeholders and the general public is one of the numerous issues they confront. Due to many elements that are somewhat embedded in the methods the project is handled, it was always difficult to quantify the efficacy, much alone the real impact, of a local currency programme on the community. For several local currencies, digital technologies can automate certain chores and make record-keeping easier, but they usually come at the expense of third-party reliance and transparency difficulties. Documentation of transactions are publically available with a blockchain-based local currency, and due to its immutability, stakeholders may completely trust what they’re seeing to act appropriately. The open-access aspect also implies open cooperation from possible stakeholders who want to contribute to the local currency community and develop it.
A framework of blockchain-based currency
The regular interactions of the community’s stakeholders: the currency’s admin, its consumers, and its membership shops, with whom mining communities interact, present a blockchain connected with a local currency. For the most part, the interests in this community are inherent, and there is no cause for them to shift dramatically with the introduction of the blockchain.
Individuals or local governments are typically in charge of administering local currencies. With the establishment of a blockchain, this sort of governance might be continued. The operator issues local money in exchange for legal tender at a fixed rate. It also handles the transformation of complementary money into legal tender for member businesses that desire to do so. the I.T. specialists support the administrative team by ensuring the technological and scientific components of digitization. Similarly, the administrator establishes and, if necessary, updates the terms of entrance for community member stores.
Community members affiliated with the local currency initiative may or may not be miners or validators. They usually have intrinsic incentives as members, such as increasing the system’s reliability. They are akin to Open Source community developers in this case: their contributions are driven by signalling impacts on employment markets or their involvement in other local government initiatives. They might even be physically separated from the specific complementary currency ecosystem and act as miners or validators for other blockchains at the same time.
Citizens who live in or around the geographical area where the local currency is accepted are called users. They have the option of using the local money on a regular or irregular basis, depending on their beliefs in the values that the local currency conveys, supports, and defends. They are driven by the community’s goals, which could include developing short distribution networks, fair trade, and organic productions. They are unable to change local cash into legal tender and must pay a minor transaction fee. This charge is included in the payouts to miners and validators.
Member shops are found in regions where the local currency is in circulation and embrace the local currency as a form of payment. If they subscribe and adhere to a table of values specified by the local currency association, they are permitted to transform the local money into legal tender. Users are intrinsically motivated by this commitment. A minor charge percentage is added to the conversion from local money to legal tender, which will be combined with transaction fees from users to finance validators’ compensation. The fee is intended to stimulate B2B transactions to keep the currency flowing in the community.
Incentives are only relevant when miners/validators’ motivations are intrinsic. Once they are extrinsic, they must be modified to the type of consensus procedure. Randomization or a contest, paired with another criterion, selects which miner/validator would be rewarded in the PoW or PoS protocol. The entire validation price, i.e. the community’s financial commitment to the validation activity, is determined by the number of transactions/blocks to validate rather than the number of miners/validators. However, when the overall number of miners/validators grows, the expected reward for each miner/validator drops because their chance of winning the lottery or contest is determined by the total number of users in the system.
Common misconceptions regarding blockchain
- The blockchain is frequently viewed as a disruptive technology that will fundamentally alter the way we do business. In reality, rather than being disruptive, it should be viewed as a foundational technology that, rather than attacking established business models, lays the groundwork for our economic systems. Judging from several blockchain jobs available on the market and the types of blockchain companies created, the blockchain can be viewed as a stepping stone toward addressing concerns that previous solutions have failed to address, such as immutability and decentralisation.
- The next, and most widespread, misperception is that the blockchain is inextricably linked to high electricity use and environmental concerns. The PoW consensus protocol, which is utilised by Bitcoin and a few other crypto-currencies, is the source of this issue. Whenever the blockchain is discussed, people immediately conjure up images of Bitcoin and all of its offshoots. In practice, a blockchain can function without the PoW protocol because other consensus mechanisms such as PoS and the Byzantine Fault Tolerance (BFT) protocol can provide the same safety and validation functions as the PoW protocol.
The study of blockchain applications in local complementary currency systems is a new topic that is drawing practitioners and researchers from all around the world. Since complementary currency systems are becoming digital, blockchains could give significant benefits to societies, including the elimination of bank and financial middleman intervention.
Erna Clayton is a technology enthusiast who loves following and writing about the latest technology trends and innovation. She is fascinated by latest developments in e-Learning apps, Blockchain technology, and automation. In her free time, she loves reading and writing.