

Freicoin: a P2P digital currency delivering freedom from usury - maaku
http://freico.in/

======
jamespitts
While technically interesting, this project is riddled with fallacious
economic ideas that undermines its credibility. I do appreciate it that new
kinds of money are being developed though!

A few particularly ridiculous notions from the about page:

\- that money-hoarding is the primary cause of wealth disparity

\- that the role of money as both a savings instrument and a transactional
instrument is problematic and leads to financial crises

\- that demurrage would benefit working class people

If governments adopted a currency like this (or if it otherwise became forced
upon us), banks or other institutions would issue alternatives and people
would flock to them.

<http://freico.in/about/>

~~~
DennisP
Apparently it worked for Worgl, Austria during the Great Depression.

~~~
Steko
Demurrage, not freicoin mind you, worked over a very short term in Worgl, and
there are questions about whether the success there was sustainable[1].
Demurrage on it's own doesn't operate very differently than the mildly
inflationary currencies used in the real world (dollars, euros, etc.).
Freicoin on the other hand is promising all sorts of other things.

[1] Quoting at length from:

[http://bionicmosquito.blogspot.co.uk/2012/11/more-on-
worgl-v...](http://bionicmosquito.blogspot.co.uk/2012/11/more-on-worgl-
velocity-of-money.html)

" _So, would this be sustainable? If not, why not?

I believe the activity would not have been sustainable. I believe that once
the taxes in arrears were completely paid and once the people paid in advance
to the degree they felt sufficient (one year in advance? Five years in
advance? I don’t know, but at some point they would stop), the scrip would
lose a key part of its attractiveness.

One way a government can ensure the demand for its currency is to demand (or
accept) that taxes are paid in the subject currency. The other way is through
monopoly legal tender laws. Wörgl obviously could not legislate or enforce
monopoly legal tender, so the demand for the scrip could certainly be
attributed to the need to pay taxes.

The demand could certainly not be attributed to the demurrage – not when there
was the national schilling available – paying interest, and at a one-for-one
exchange (setting aside the conversion fee).

Once this tax need was satisfied, what would happen to the desirability of a
depreciating-value scrip vs. currency that did not come with a 1% monthly
penalty? The answer to me is clear, not that we have to agree. I suspect the
depreciating scrip would begin trading at a discount, and sooner than later
would be regularly returned to the bank for the national currency, even with
the 2% loss. Two percent might be too big a loss when one owes taxes and can
satisfy these taxes with the depreciating scrip at full face value. However,
when there is no benefit to holding a depreciating currency to the national
one, I suspect many would eat the one-time 2% charge to avoid paying the
recurring 1% charge.

In my opinion, this is exactly the situation that was immediately in front of
Wörgl when the national government put an end to the experiment. Depending on
which estimate of taxes in arrears used (see the discrepancy as pointed out in
my first article), within one month, but not more than six, all taxes in
arrears would have been paid. At that point, I suspect demand for the scrip
would have fallen – resulting in the exchange for national currency that I
described above."_

------
acslater00
Someone has invented a digital currency based on EVEN more dubious economic
ideas than bitcoin itself!

We did it!

~~~
redegg
Theres a lot more where that's coming from:

<https://bitcointalk.org/index.php?board=67.0>

------
ef4
Time-preference (and therefore a non-zero interest rate) is an inherent
feature of being a human being, for the simple reason that we all have a
limited amount of time to live.

Present goods really are worth more than future goods, and interest is just a
reflection of that difference.

Anybody who really "value[s] present and future holdings equally" is advised
to try eating next year's crops this year.

~~~
maaku
But that is precisely the point - we each have our own time preferences. I'd
rather have 1 apple a day for 1,000 days than 1,000 right now, but if I was a
baker making apple pie, I don't know what I would do with just one fresh apple
a day.

However both inflationary (USD) and deflationary (BTC) currencies force an
external influence on our time valuations. With inflation I'd rather buy
things now if possible because the price could go up at any time, whereas
deflation results in the opposite: exchanges are delayed as you can get a
better price in the future.

Demurrage allows interest rates to drop to zero, which eliminates the
influence monetary policy has on time preference, allowing me to be free to
choose when and how much I buy without penalty.

------
Giszmo
Ok, so I am a Bitcoin fan and I am a demurrage fan but I couldn't figure out
how you could combine these two.

5% of all coins disappear per year. (BTW: Gesell's Wörgl had a much much
higher demurrage.) I read this would be equal to the block reward which I
guess is the asymptotic value and not the truth from day one (constant block
reward as opposed to halfing block reward like bitcoin with 5% demurrage will
lead to an equilibrium).

Proof of work: Approximately the amount of money goes into mining that newly
mined coins are worth. If the client shows me that I have less in my wallet
every day, the block reward is simply worth more. The proposed system means
that 5% of the freicoin's money reserve is spent on mining per year. Today's
banks most likely burn the same order of magnitude of world's money supply.
Hmm, might work but it's a waste of resources to burn 5% of the world economy
to keep book of transactions.

Proof of stake: As mining might get excessively expensive if the value of Ƀ
rises faster than the reward halves, proof of stake is an option to bring this
waste of resources to an end. In Freicoin this would directly reverse the
demurrage.

I assume the developers of Freicoin picked 5% exactly because of these issues.
Else 25% would be much more reasonable. 5% is the average weekly volatility of
bitcoin and was the average daily volatility last year. $ vs € have this
volatility yearly. Calling this demurrage is a joke.

[My approach was to have - high - demurrage be cashed out evenly to people as
a basic income. Only problem is that you would have to qualify as a natural
person to get such a cash-out address which would lead to very very
schizophrenic scammers or to total control if governments pick up the idea.]

~~~
maaku
Ok, quite a bit to tackle. Here we go:

 _5% of all coins disappear per year. (BTW: Gesell's Wörgl had a much much
higher demurrage.) I read this would be equal to the block reward which I
guess is the asymptotic value and not the truth from day one (constant block
reward as opposed to halfing block reward like bitcoin with 5% demurrage will
lead to an equilibrium)._

The initial distribution is split 20% to miners and 80% through foundation
grants via an open, transparent, competitive selection process. The 20% miner
subsidy started at approximately ~255frc per block, and linearly decreases to
~95frc per block over 3 years of block time, at which point it will
perpetually sustain a monetary base of 100MM freicoins.

 _Proof of work: Approximately the amount of money goes into mining that newly
mined coins are worth. If the client shows me that I have less in my wallet
every day, the block reward is simply worth more. The proposed system means
that 5% of the freicoin's money reserve is spent on mining per year. Today's
banks most likely burn the same order of magnitude of world's money supply.
Hmm, might work but it's a waste of resources to burn 5% of the world economy
to keep book of transactions._

It is excessive in the long-run; the 5% value was chosen for other reasons.
However we have ideas for fixing this, but would require a hard-fork (and
therefore community acceptance).

 _Proof of stake: As mining might get excessively expensive if the value of Ƀ
rises faster than the reward halves, proof of stake is an option to bring this
waste of resources to an end. In Freicoin this would directly reverse the
demurrage._

And here you get to the meat of the issue, although I'm not sure what you mean
by "directly reversing the demurrage". With proof-of-stake along the lines of
Meni Rosenfeld's proposal ( _not_ PPCoin), proof-of-stake voting could be used
by a plurality of stakeholders to mandate that a portion of the perpetual
subsidy go to groups other than the miners. On the freicoin.org forums we've
put together an outline of a proof-of-stake proposal nicknamed "republicoin"
that would resemble parliamentarian system of proxy-voting for parties which
enter majority-vote governments giving them to right to claim budgetary
control over a portion of the perpetual subsidy, the amount of which would be
negotiated with the proof-of-work voters. Government-by-protocol, if you will.

This would obviously represent a hard fork. There are a lot of issues to sort
out first, which is why it's been shelved for the moment.

Baby steps :)

 _I assume the developers of Freicoin picked 5% exactly because of these
issues. Else 25% would be much more reasonable. 5% is the average weekly
volatility of bitcoin and was the average daily volatility last year. $ vs €
have this volatility yearly. Calling this demurrage is a joke._

To be pedantic, it's closer to 4.89% per annum (1 __-20 per block), but 4-5%
was the design goal. The reason has to do with interest rates, specifically
what Gesell calls "basic interest" and what modern economists call the
"liquidity premium." The reasons why demurrage should equal the liquidity
premium of money is outlined on our about page and covered in detail in
Gesell's manuscript, Natural Economic Order
(<http://www.ces.org.za/docs/Gesell/en/neo/index.htm>).

------
tptacek
I'm confused. Why would anyone hold assets in a currency designed to penalize
people who hold assets in that currency?

~~~
socmoth
When I was five I asked this question and got a simple answer. I'm not an
economist so it is probably incompletely or completely wrong.

If you notice that your money is worth more tomorrow, you are going to save
your money and spend it tomorrow. This is true in situations of "deflation".

This sounds good to you, because all you have to do is wait and you'll be
better off tomorrow. You don't even have to work to get more stuff.

However, you aren't the only person with this idea. Everyone saves their money
in the bank. The people who sell goods and services, sell fewer goods, and
maybe go out of business.

The economy slows down.

On the other side, if you design an economy so that inflation exists. People
want to spend because in the future their money will be worth (a little bit)
less.

Money flows around a lot. People who sells things make money and stay in
business. People have jobs and the money is still worth something.

Remember money isn't worth something, trading good fluidly and efficiently is
worth something. Money lets us do that. So a currency that lets us do that is
good.

If anyone knows more about the situation, please add it. I don't know any
economists so this story is probably pretty incomplete.

~~~
tptacek
I'm not asking a deep economic question. I'm saying, why would any real
business accept payments in a currency that overtly and deliberately penalizes
them for holding that currency when alternatives that don't do that are even
more available? It just makes no sense to me.

~~~
maaku
Because the customer wants to pay in freicoins, and tools exist (or will exist
- I'm talking from the future) to make acceptance hassle-free, and the value
will be stable long enough to convert into the currency of your choice.

(Of course the macroeconomic recession-proof nature of demurrage currency
makes it desirable for merchants as well, and the zero-interest loans are a
boon for entrepreneurship. I'm just saying even if you're skeptical, that
shouldn't be a barrier to acceptance.)

~~~
fleitz
Why would anyone want to make an interest free loan with an arms length party?
I understand that from time to time these things happen, like KIVA, but
seriously why would I lend out my money for the opportunity of not getting it
back?

~~~
maaku
Then add appropriate interest representative of the risk you are taking on.

When we say zero-interest, we're talking about basic interest/liquidity
premium: the interest which is attached to loans simply because of the
opportunity cost of lending, not the risk taken on.

------
maaku
Original discussion on HN during it's Indiegogo campaign:

<http://news.ycombinator.com/item?id=4157456>

------
rdl
As long as we're in the business of building cryptographic financial systems
to test out the theories of economics -- I want a "market basket of
commodities" currency to test out Hayek's theories.

(I am not sure if I could make a sustainable business out of it, or even a
fundable business, but a chaumian blinded digital token system (software and
then multiple hosting options) where people got to then run their own
arbitrary currencies, with a lot of them choosing to do commodity or
equity/debt currencies, would be a pretty awesome thing. It would probably
cost $2-5mm to do, though, and while I think you could avoid most legal
challenges by separating out the software dev vs. hosting mints vs. hosting
exchange vs. currency underwriting vs. marketing vs. wallets vs. merchant
services vs. end users, I'm not sure how you could realistically make money
doing it.)

~~~
maaku
You might want to look into Open-Transactions [1], which is a Chaumian blinded
token system supporting basket currencies out of the box. You'd presumably
have a list of reliable issuers that mint their own tokens backed by real-
world assets, then do a basket currency over all of them together.

[1] <https://github.com/FellowTraveler/Open-Transactions>

~~~
rdl
I wonder who that is (is he public?)

~~~
maaku
Chris Odom:

<http://monetas.net/team>

------
mooneater
5% fixed seems pretty arbitrary. Would be nice if this could be variable to
get the desired liquidity properties, in some kind of feedback control system.
I doubt there is one permanent ideal depreciation rate that could be
determined ahead of time.

I realize that would be harder to design but isnt a fixed depreciation just a
hacky band aid solution compared to a properly designed "control system"?

The ideal target variable might be: what % of existing money that was
transacted per month perhaps? Make 50% the target and adjust the depreciation
to track this target. Then we get into a debate about that 50% number, but at
least we are getting closer to measuring the effect we want.

~~~
Giszmo
Demurrage's value is equal to miners' reward. This greatly limits Freicoin to
not set a too high percentage. Imagine 50% of the existing money reserve going
into bookkeeping of Freicoin transactions. To put 5% into perspective consider
exchange rate changes between well established currencies. 5% per year is
nothing.

------
andylei
this entire thing is nonsense. seriously.

> Freicoin's parameters are carefully chosen to eliminate the basic interest
> component of investments, called the liquidity premium by economists

Liquidity is a real thing, not a product of currency "parameters" (whatever
that means). I prefer to hold dollars over gold because I can go to McDonalds
and buy a cheeseburger with dollars, but I cant do that with gold. Thus, if
someone was like, would you rather have a dollar bill, or $1.01 worth of a
gold bar, most people would probably say the dollar bill. If you wanted to
eliminate the liquidity premium of a currency, you would have make the
currency super illiquid. (Ironically, they've already achieved this because
nobody accepts Freicoin right now)

> Usurious non-zero basic interest distorts the free market, incentivises
> poisonous greed, excess, and short-term thinking, and perpetuates a vicious
> cycle of boom/bust recessions

No they don't. Maybe if this "argument" had some reasons behind it, I could
refute it.

> When business is conducted in Freicoin, participants value present and
> future holdings equally, and favor sustainable processes.

This sounds pretty magical. Do YOU value present and future holdings equally?
Would you rather that I give you a iPhone now, or in 1 year? Okay, now let's
say that iPhone is denominated in Freicoin, what now?

> Separation of money's roles as store-of-value and medium-of-exchange allows
> money to flow when it is needed, in good times and bad

Is money flow an issue? In the modern era, has the quantity of cash available
ever deterred anyone from spending money?

------
Tichy
Congrats to the "Freigeld" proponents to actually put something in motion. I
wish this would see some adaption so that they could finally get a reality
check of their theory (which I personally think wouldn't be very positive)

------
tree_of_item
If there's anything on this Earth that's subject to network effects it's
currency. If the creators of Freicoin appreciate Bitcoin enough to name their
efforts after it, why would they even try to fragment it in the first place?
Does demurrage make it _that_ much better?

~~~
jerguismi
I would argue that the network effects belong to cryptocurrencies in general.
Since there can't be any barriers of entry to implementing cryptocurrency
exchanges, exchanging them from one to another will always be trivial and
cheap, if they have any kind of market.

In fact, it is possible to make a hosted bitcoin wallet, which can be
integrated with an exchange, and users can pay in any cryptocurrency the
merchant requests.

So I believe that the more different cryptocurrencies, the better.

------
thingylab
Don't you fuel asset bubbles by targetting 0% interest at all times ?

If your incentive is to just get rid of your money because of the inherent
penalty, aren't you tempted to, say, buy overpriced houses, to use a recent
example ?

~~~
maaku
It's too lengthy an explanation to get into, but it's the combination of
inflation plus low interest plus the usurious liquidity premium that leads to
asset bubbles. Gesell covers this in great depth in his work, Natural Economic
Order (<http://www.ces.org.za/docs/Gesell/en/neo/index.htm>).

With Freicoin we're talking about counter-balancing that liquidity premium
(which, historically, has always been around 5%), thereby eliminating basic
interest and keeping price levels stable.

------
andrewcooke
does it require an external port to listen on? i started the client but it
doesn't seem very happy (i am behind a firewall with no way to open a port).

~~~
maaku
It listens on port 8639, but a firewall rule is not required (it does help).
You should be able to connect to other clients that are port forwarding.

There's a small chance that you might have connected to a bad peer and
therefore have a limited view of the network. Try restarting the client if the
block chain doesn't start downloading within 30 seconds.

~~~
andrewcooke
ok, so i tried again and have the same result (still says "out of sync") and
there's what looks like an error icon with a red x bottom right (this is the
QT client).

if you want i can file a bug report? if not, no problem (i was just curious,
don't have any plans to use it, particularly since it doesn't contain a miner
so i'd need to buy something just to play around).

~~~
maaku
A bug report would be helpful if you include the debug.log file in your
Freicoin data directory (~/.freicoin on UNIX, Library/Application
Settings/Freicoin on Mac OS X, %APPDATA%\Freicoin on windows).

There's a couple of faucets popping up where you can get some free starter
coins: Here's one: <http://endlessfreico.in>

