Snark aside, I wish you lots of luck, have thought about this model a lot, think there is probably a small place for it in the world.
Two suggestions from random stranger on the internet, take them for what they're worth:
* don't use the word "money." This is a private credit network, not money. Private credit networks sometimes become money, but they don't start out that way. Stick to that language.
* don't solve for "inflation." There is a lot more to say here but fundamentally there is a tension between store of value and medium of exchange. Be a private credit network/medium of exchange, not a store of value.
Good luck!
Because all credit is also money creation! (Broad money). Anyone with a pen can create money by writing an IOU. This is one of the things the goldbugs don't seem to understand properly.
Also, if this is some form of geek "hawala banking", how does it avoid running into the need for money transmitter licenses that has plagued attempts to legitimse bitcoin?
My understanding is it would have the trust aspects of Hawala banking, but for goods transmission, not actual money as occurs in Hawala. I don't think there is a money transmission problem.
I am sure were this to be real that there would be a tax problem. There would need to be reporting of sales and so forth, in fiat equivalent.
I don't know that there needs per se to be connectivity to real payment systems, though there do need to be real identities.
Anyway, just guesses. Glad to see it.
I cannot do fractional reserve banking. And if I can't do that then I can't really create money. A bank can have a fraction of the real hard currency that others can spend in "reserve" (physical or electronic). I cannot do that, I cannot borrow you $50 and some other guy $50 if I only had $50.
So I dunno, depends on what you mean by money creation, but writing an IOU is different from what money creation is in the sense that most people mean. It is closer to issuing a bond, which is not really money creation.
What is the tension?
There is also a tension between those two aspects from a product perspective. The various aspects of money are slowly getting decomplected and decoupled. BTC does a perfectly fine job in the market solving for the store of value feature, and in particular for the inflation-hedge subfeature. It is a terrible medium of exchange.
As a product, Offset should leave store of value be and just solve for medium of exchange. From store of value perspective, touting Offset as an inflation hedge is going to turn out to be wrong, because their toy world understanding of inflation is wrong. But there is opportunity in medium of exchange, and plenty to do there. Focus on getting users, transactions, dealing with fraud, liquidity issues. Get trains running on those payment rails.
This kind of private credit network has existed for thousands of years. Find the specific ecosystems today in which this sort of private trust/credit machinery is compatible, ergonomic, and automating it meets a need. There are potentially lots of them!
This tension only exists under Keynesian reasoning. It goes away when you use a theory that does a better job handling equilibria.
The Keynesian claim is that if you have a deflationary medium of exchange, people won’t spend it. This isn’t actually true - the end result of a predictable deflationary asset (e.g. something with a fixed or essentially fixed supply) is similar to the situation we have now, but more efficient. Instead of having, say, 10% of your money in cash and 90% in spoos to avoid getting screwed by inflation, you can just keep 100% of your money in cash. You will have the same exposure to global capital growth, people too poor to have a brokerage account will have exposure to growth as well, and you don’t have to deal with converting between spoos and cash when you spend money.
Here, prices in the offset ecosystem are going to float because goods are exposed to/sources from the actual money ecosystem. There will be aspects of inflation, both colloquial and technical. It doesn't sound like they understand the claim anyway. Just let it go. Focus on liquidity, fraud, utilization, ergonomics. Get trains riding on those payment rails.
It feels like it’s easy to create identities, establish credit lines with no intent to repay, and propagate bad money into this system. It only takes one bad actor to corrupt the chain of mutual credit. From the documentation on the website it’s not clear at all how it handles even simple adversarial conditions like this. The fallback seems to be that you can limit what you are willing to lose by only establishing mutual credit up to a certain amount with each trusted party.
If a store doesn’t have a direct relationship with me it has to initiate a payment between an arbitrary number of intermediaries in order to fulfill the credit. Anyone have more insight into the practical application of mutual transitive credit?
> I’d really kind to see a much more concrete specification
The best I can show you at this point is here: https://docs.offsetcredit.org/en/latest/theory/mutual_credit... This document is far from a full mathematical proof of safety, but it shows how things work. I expect the protocol to change in the next months, so I didn't want to be too detailed about the current protocol. Just to be sure it is known, Offset is open source, and you can find the full schema of communication here: https://github.com/freedomlayer/offset/tree/master/component...
> It feels like it’s easy to create identities, establish credit lines with no intent to repay
You can in fact create as many new identities as you wish with Offset, however, an identity doesn't worth much without established credit lines. Establishing a credit line requires human intervention. You will not be able to trick your human friend into adding your multiple identities of yourself as new credit lines to his Offset client. In other words, what protects you from Sybil attacks here is real world relationships with people.
If you ever decide to open your own "hub" or "bank" with Offset, giving credit lines to many strangers, you might want to have extra security, like maybe asking for their id card, or asking for some kind of collateral. But if the people you arrange credit line with aren't strangers, I don't think you have a real issue here.
> It only takes one bad actor to corrupt the chain of mutual credit
A bad actor can only compromise his direct "Offset friends", not a whole chain. When you set up your Offset node and add credit lines to your direct "Offset friends", you have to set up credit limits. Those credit limits limit how much money you can lose if any of your friends defaults. You can never lose more money than what you set up as your credit limits. If a friend of your friend defaults, your friend loses the money, not you.
> If a store doesn’t have a direct relationship with me it has to initiate a payment between an arbitrary number of intermediaries in order to fulfill the credit
Offset does this automatically for you. You don't really need to worry about this during the payment.
I might have missed something with my answers. Please tell me if you think something is missing!
If I buy a good, from someone accepting offset do they pay me back in credit the value of the good that they deliver? Thus netting us back to zero?
Thanks for answering my questions.
The current banking system doesn't suck because people are greedy or bankers are bad people. It sucks because it is closed and no one can join.
(If you're tempted to say: "no, anyone can join, they just have to fulfill the regulations blablabla", then this is your answer.)
Playing the devil’s advocate, limiting the number of bankers may make it easier* to regulate their behavior as a whole, because there are fewer of them to monitor/investigate. Predatory or exclusionary lending can be difficult to detect and curb already: increasing the number of actors to regulate may make it near-impossible. What are your thoughts on protecting borrowers in a web-scale marketplace of lenders?
* independent of other variables, such as the ability of the wealthy to influence policy in their favor
Banking regulations are hard won protections for the consumer or investor applied after years of misadventure and (usually) large-scale fraud. They aren't perfect but the idea that it would be great to just throw those out so anyone can start being a bank is one of the crazier things I've heard recently.
> why wouldn't this model eventually end up with banker-type people managing the credit for everyone?
I thought about this question for a long time myself. As a first note, I don't think Offset should completely replace the traditional banking system. Everything has its place in the world. I admit that I still use my bank account daily.
If I understand correctly, your concern is that Offset might eventually become centralized, and therefore will return to the starting point: the banking system that we have today. I have some thoughts about this:
1. I believe that technology like Offset gives very convenient tools to make payments work in a decentralized way. It takes about three "bash" lines to set up an Offset node in the cloud, and you have your own credit hub. I agree that it takes a certain amount of credibility to open a credit hub, but I still believe it makes things much easier than opening your own bank nowdays.
2. There is this idea of 6 degrees of separation, where every two people in the world probably have a chain of friends between them that is of length no more than 6. If things actually work this may, it might be possible to pay using Offset without relying on central hubs.
There are two caveats to this idea though: (a) Currently Offset clients on mobile phones will eat your battery if you keep them open for too long. (b) You might not be able to make very large payments through the credit limits you set with your friends. Most people will trust their bank with $50000, but most people will not trust their friends with this amount of money.
About issue (a): Maybe it is temporary, and in 5 years we won't have these kind of battery limitations. For (b), I'm not sure yet myself. Maybe you will always need credible credit hubs to be able to make large payments.
3. Even if Offset becomes more centralized, based on a few credit hubs, I think that it is still better in some ways than the current ways banks work. (though note that I might be biased here).
a. Your money will be protected from inflation caused by state money printing.
b. Not much regulation is required, because the nature of Offset doesn't allow the "credit hubs" to do things like play with your money, generate new money through loans and more. More than that: Offset always provides the end user with a cryptographic proof about the amount of money in his account.
c. I expect that fees with Offset will be much lower than what you get with your banks.
d. It is easy to create Offset hubs, so there will always be competition.
e. Money will move through an auditable open protocol.
Offset is still pretty young and I am very far from having answers to everything. If you think something is still missing, please send a message.
For p2p loans this makes sense. For credit card, my bank currently pays me 1.5% of the money they extort from businesses. I'm paying the same to the business whether I use cc or not, so I take the kickback (my refusal to participate will not hurt the system, since debit cards are the only other option since cash is not viable for online commerce). So advertising 'low fees' really means that I'm going to have to pay money to do things I currently get paid to do.
> It takes about three "bash" lines to set up an Offset node in the cloud, and you have your own credit hub.
This seems insecure in the same way as bitcoin - if a guy gets your private key number thing, you lose everything. Whereas with real CCs your bank will make you whole if fraud happens, since instead of an algorithm being the law we have humans who can can revoke transactions. With friends loaning to each other this is a lesser issue since your algorithm can allow reverting transactions, unlike bitcoin where everything has to be final for the currency to be usable. I guess i can set my credit limit with a merchant to the exact amount i owe for each transaction? But still feels a bit unsafe.
The big issue I see with this is that poor people will always be seeking money and rich/financially reponsible people will never need to get money through this. Aside from rare events like buying a house or extended job loss, in which case they'll end up getting money through rich/financially responsible friends instead of the poor ones they always loan to. So the system will get split into a few 'providers' and many 'leeches.' What do you think about that?
Still not entirely sure what problem this solves. As a consumer, I don't really have an issue with current payment systems. I can buy everything I need in seconds, and banks compete for my business by (as stated elsewhere in this thread) giving me kickbacks from the fees they take from merchants.
As a merchant, you're not going to trust your customers/suppliers at the level that would justify extending an unsecured line of credit to all of them. Not going to happen. Yes, perhaps payment systems suck, but honestly payments are an incredibly hard problem. A robust legal system which enforces contracts solves the hardest problems, I suppose, but legal action is slow and expensive so it's still pretty hard.
Congrats on the work.
Now this is something I'd be willing to use. I've never used cryptocurrencies before because of POW (I believe it is a fad). But trust based crypto is something that will likely change the world like the internet, and this or something like this is gonna be it. No more banking gatekeepers. No more private credit scores.
I appreciate that Offset is not spawning a cryptocurrency where it doesn't need one. There are other projects influenced by Ripple and Ripplepay which are also not their own currency. For example Synchronized Network Accounting Protocol (https://michielbdejong.com/blog/20.html) and Interledger Protocol (https://interledger.org/).
One of the thought provoking ideas in interledger is that a single payment can be delivered in packets. Meaning that if Alice is making a payment to Bob, some of that payment might go through an intermediary Ivan and some of that same payment might go through Isaac. I haven't read much about Offset, but I saw that it described payments as atomic. Interledger specifically decides not to be atomic. This is not what most people expect with payments, but giving up atomicity gets other nice qualities. For example, if Alice is making a large payment to Bob, they are not limited by the liquidity of any one intermediary. Like data finding an efficient route on the internet, a payment can find an efficient route over interledger.
Glad to know about Offset. I'll add it to my list of interesting network money projects.
This sort of system is particularly useful in communities where there is a lack of money. For instance say everybody is unemployed and nobody as money to buy anything, but people would be happy to trade services/goods with each other if there was a way to do it efficiently. They could barter but that is inefficient and it is difficult to match services/goods of different value.
Because the system allows monetary creation, it enables people to start trading even when nobody has money.
It may be useful to check out the circumstances in which LETS were/are used, as it may be a good indication as to which types of community may be most interested in using Offset.
[1] https://en.wikipedia.org/wiki/Local_exchange_trading_system
You can only transact as long as miners choose to mine. If miners stop mining for any reason bitcoin is unusable. There’s also no risk of 51% attacks and hard forks.
You could also run offset off the Internet on local networks.
That's like saying "if your heart stops beating for any reason you're dead". True, but meaningless. Miners mine while bitcoins have value, and bitcoins have value while miners mine. In fact bitcoins had zero value when they were first created, and yet someone still mined them.
Once some entities in the network become big enough, and transactions large enough to warrant credit checks and so on, what do you have? A bank. This is nothing more than an unregulated settlement system.
A "credit card" has negative connotations for many people.
Watching the "setting up" video here: https://docs.offsetcredit.org/en/latest/intro/app_manual.htm... it's too convoluted. Everything that needs turning on should be turned on by default. The default servers should be used unless you go into settings before you start and turn them off. When you add a friend, the default currency should be selected, and a default amount put in ($50 seems a reasonable starting amount that I'd be prepared for a friend to owe me, but the default should go in settings).
It would be good if the names of your friends copied over automatically.
About the default servers, I always have the fear the system will become too centralized, so I tried to force the user to understand he can pick any server he wants. Maybe I am wrong here, this needs some extra consideration.
About the other defaults that seem convoluted: I picked those due to security considerations, but maybe you are correct, and it is better to leave things open by default there.
If you are interested in reviewing the next versions before they are published, please stay in touch. You can send me an email directly or join the mailing list if you like.
Most of the time, if a friend asks for a loan (unless it's a really trivial amount), my response will be along the lines of "Sure, what do you need it for?" If my sister asks me to lend her 500 euros because she's short on rent, I'd say "Yes, of course!" But if she asked me to lend her 50 euros because her smack-addict downstairs neighbour really needs it to fix their sink (my sister's a soft touch who likes to help people and always gives folks the benefit of the doubt), I'd say hell no.
David Graeber went into a lot of the issues around this in his book "Debt: The First 5000 Years". The element of debt that's monetary and recorded in ledgers is only half of the story. Most of the truth of how we relate to debt is much more socially intertwined.
Offset's model of relays, nodes, transactions encoding, routing, multi-path payments could very well share a lot with the Lightning Network's model of nodes, gossip protocol, onion routing, and so on. I could even see both systems work together.
I am still going to try Offset with my friends, could be a good experiment!
This alternative blockchain would work for accounting purposes so it can be entirely local (i.e. each node has its own local blockchain).
Incentives: Blockchain: Rewards first adopters. Offset: Early and late adopters have the same money creation power.
Does this mean there's a negative incentive for early adopters? I.e we take on more risk with an untested technology but late adopters get the same benefits at lower risk, once the technology is mature.
Questions from me:
If someone wishes to make a payment, Offset will find the best path via friendships to facilitate the transaction. What if a bunch of people are offline and no path can be found? Does this require the creation of a direct friendship?
Do you imagine certain nodes trying to become "hyperconnected" so that they may connect as many people as possible, and earn fees from providing this service?
What algorithm do you use to compute the shortest/cheapest be path between two counterparties? Does this scale well in a distributed, self-hosted system?
How does one establish a friendship/trust with another party, and who sets the credit limits for the relationship?
What do you think happens when Visanet is down?
My experience is people either delay their purchase, or they find some other medium to exchange.
> What algorithm do you use to compute the shortest/cheapest be path between two counterparties? Does this scale well in a distributed, self-hosted system?
That seems to be answered here; looks like it's not distributed.
https://docs.offsetcredit.org/en/latest/theory/network.html
> How does one establish a friendship/trust with another party, and who sets the credit limits for the relationship?
That seems to be answered by the demonstration videos; each party sets the credit limit they offer to all of their friends separately.
For your questions:
> What if a bunch of people are offline and no path can be found?
If no path can be found, the transaction will fail. This is truly a weak point of Offset. I have been thinking about this for a while myself, here are the possible solutions:
1. Currently Offset takes a lot of battery to use (because of communication). Maybe in the future battery won't be a problem for mobile phones. In that case people will stay online and connected most of the time. The incentive might be to make money through fees.
2. Maybe some people will decide to be "hubs", and always be online. Offset has a desktop application too (though a CLI based at this time). You can run it as a server, so that it always online.
> Do you imagine certain nodes trying to become "hyperconnected" so that they may connect as many people as possible, and earn fees from providing this service?
Maybe. But I hope that there will always be enough competition, so that people will be able to find cheap enough routes.
> What algorithm do you use to compute the shortest/cheapest be path between two counterparties?
Currently, a very lousy algorithm, the most basic thing that works. This part really needs some work. My idea is that every index server could implement his own magic thing, and you could pick whatever index server you like.
> Does this scale well in a distributed, self-hosted system?
I think it does. Not sure that with the current implementation, but it might with some improvements.
> How does one establish a friendship/trust with another party,
Check the video, I show this one!
> and who sets the credit limits for the relationship?
Each party gets to pick one credit limit. If A and B have a relationship, A gets to choose how much B can ever owe A, and B can choose how much A can ever owe B. To summarize: You get the choose how a maximum cap for your fortune.
Gerbil wheel economics (debt until infinity) doesn't take into account low-cost, low-labor 24/7 manufacturing, so don't invest too much logic in antiquated theories that require libor-rate'esqe techniques to make it believable.
- What happens with fraud? I can reverse my cc transaction, but here there's no insurance. (Just in case someone answers with trust - see how many finance SE questions go like "brother asked me to guarantee a loan and disappeared, what do I do")
- How is this usable for people working in online services? I'm never going to be paid in OUSD, or by local people, so it looks like I'd either have to continuously exchange money with a person I know, or some banker-equivalent online. That gives me no benefit over CC.
It is mostly used for thinks like days out and group holidays, and allows you to share expenses as well. Still, I have heard some people never settle their balance and just have an ongoing list. Whoever owes the most picks up the tab the next outing.
I thought it was a neat idea when I read about it then, but never got around to looking into it further. I’ll have to make some time soon to try it out.
Having a flexible money supply that can be manipulated by a central authority for the benefit of the economy as a whole seems to me like a good thing.
I like this aspect - "You will not get rich by joining early", but I fear that without get-rich-quick mania, adoption will be limited.
This means that Bob can "pay" Dan through Charli, run off without paying, and now Charli somehow owes Dan? Does Charli consent to being in the middle of this transaction? This seems like it's ripe for abuse.
In practice, I’d expect that if Offset (or another p2p mutual credit system) catches on, you’d see mostly two main ways of using it: friends and maybe local businesses giving small amounts of credit to each other (think splitting the bill for lunch, or a local plumber and a bakery) based on mutual trust, and writing off the occasional bad debt the same way they do now; and larger “commercial” lenders who work like present-day credit card companies, tracking credit scores and the like and with the force of law behind them if you don’t pay your overdue bill.
One thing you can do is open two Offset cards on your own mobile phone, and try to pay with one card to the other (:
I guess actually though, you could do this with the real thing, just use a TEST currency that has no value and let people sell imaginary things for that. Then random people would be happy to be lose this fake currncy for something they didn't know.
"Offset’s algorithm for discovering routes for payment generally prefers routes with lower fees over routes with higher fees. This allows open competition for fees."
any ideas how to use it for ...anything..?
A - B - C - D
Lets say 100usd transaction amount.
For the sake of arguement, lets consider every node has 100usd credit one way (reverse path)
So if A want to send 100usd to D.
A gets 100usd credit from B, B gets from C and C gets from D.
Until D spends money, system is locking 300usd credit for 100 usd transaction?
Also, I trust very few people. People are scumbags when it comes to money. I’ll take a regular credit card thanks.
Money in Offset is created and destroyed by users. Offset is designed so that the money supply changes to match the market. As the market expands, the money supply increases. When the market shrinks, money is destroyed. Therefore, You will not become rich by joining Offset early.
The total sum of balances in Offset is always zero. Consider two Offset friends: Bob and Charli. If Bob’s balance with respect to Charli is x, then Charli’s balance with respect to Bob is -x. The sum of those two balances is always 0.
We count the amount of money in an Offset network by summing all the positive balances. For example purposes, consider again the two Offset friends: Bob and Charli. Suppose that initially the balance between Bob and Charli is 0.
Next, assume that Bob buys a chocolate bar from Charli for the price of $2. Now the balance between Bob and Charli is -$2 from Bob’s point of view, and +$2 from Charli’s point of view. In the moment of purchase, new money was created by Bob. In this case we can say that the total amount of money in the market is $2.
The money created by Bob’s purchase will be destroyed when a complete buying cycle is complete: For example, Charli will use the newly created money to buy something from Dan, which will use the money to buy something from Eve, which will eventually buy services from Bob. When Eve buys from Bob, the money is destroyed."
A lot of good and interesting ideas, but what about the Infinite Hotel Paradox, as applied to money?
https://en.wikipedia.org/wiki/Hilbert%27s_paradox_of_the_Gra...
That is, consider users as hotel rooms, and money as guests for those hotel rooms...
That value, as it approaches infinity, is sort of the theoretical upper limit of Milton Friedman's "Velocity Of Money" theory...
Also, as a side note, you'd probably find economic islands, that is, users who were corporations, where they produce much more than they consume, where, without taxation or other depletion, money would gel and pool and basically be prevented from circulating...
And, what about the people that borrowed, on credit, and never replenished from society what they took? If there's no limit, no "credit limit", then what prevents them from continuing to take, and what prevents everyone from doing this, resulting in a crashed economy?
Also, if there's no limitation on what constitutes an identity, then what prevents someone from signing up multiple times as different users, and giving themselves extra "credit" (ability to take) and taking, that way?
This being said, I think you have a lot of good ideas, and perhaps the only way to know if/when/where/how users "game the system" would be to deploy it -- and see what happens.
Does it succeed? If so why? Does it fail? If so why?
Either way, information could be gained to determine how to create more robust systems in the future.
Your system could work, and I hope it does!
Wishing you well in your endeavors!
There is a limit. It's the limit set by your friends.
> If there's no limitation on what constitutes an identity, then what prevents someone from signing up multiple times as different users
Nothing, but it doesn't matter:
> .. and giving themselves extra "credit" (ability to take) and taking, that way?
They'd only be able to give extra credit to themselves. No one would give credit to any of the extra users they have created, so the extra users would not be able to pay anyone anything.
The comment disappeared, but I wanted to illuminate ...
Banks do have reasons for delaying account closures:
- good reason - delay closing until statements arrive and are paid. This is also commonly done with checking accounts in the US, which has delayed final settlement for inter-bank transactions.
- bad reason - employees get rewards for signups and face consequences for cancellations. See Wells Fargo scandals.
They should cancel the card being able to make further payments, but keep the account open for repayments until it is settled.
At best this honestly is a solution looking for a problem.
At worst it's yet another ico scam.
I don't know why anyone would be interested in this. Sorry to be harsh but I worked in payment processing. This is a project going nowhere because it doesn't do anything new or useful
