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Tag: Federal Reserve

So, What’s The Deal With FedCoin?

Federal Reserve Announces Digital Currency

Federal Reserve Announces Digital Currency

This week brought the announcement that the Federal Reserve will study the possibility of issuing a digital currency. If the government builds it correctly, the result could be the greatest advancement in human civilization since the invention of the wheel. If the government builds it incorrectly, they may just validate every other crypto more than their own. Neither outcome is trivial.

We are engineers — the type that makes airplanes that plane, bridges that bridge, and elevators that elevate. The type of engineers that supply electricity to people and their Bitcoin – which was likewise created by engineers on an interface platform that was (you guessed it!) created by engineers. No offense to bankers, lawyers, and politicians, but they can’t do what engineers can do for an economy. So let’s leave them out of this discussion for now, and work with what’s obvious to engineers.

Yes absolutely, a Central Bank Digital Currency (CBDG) is a great idea

But like anything in engineering, the devil is in the details. First, the dollar is already digital so any improvement would need to be less centralized and that means blockchain. We also know that the proof-of-work consensus algorithm is too energy intensive so it must be proof-of-stake, or equivalent.

No intrinsic value equals no value, period. The CBDG must represent something real and useful, otherwise nobody will produce stuff in exchange for it. The Federal Reserve needs to figure out what tangible metric will bring the digital currency into existence. For example, the dollar represents aggregate US human productivity.

Aggregate Technological Change (ATC)

The new CBDC should not be issued as a function of Gross Domestic Product (GDP). The dollar already does this. Rather, the new CBDC should be issued against a new metric called Aggregate Technological Change (ATC). Technological change is a fancy word for “innovation” resulting in an increase of human productivity. This is the domain of Engineers and Scientists.

With this arrangement, the dollar and the CBDC would be fully convertible because they both represent the same asset class i.e., human productivity. The two currencies would be supplemental and complementary to each other. They would check and balance the other. At some point they will become the intrinsic basis for the other. A condition can then emerge where it becomes more profitable for Digital Capitalists to preserve the underlying asset rather than consume it. Ultimately, that underlying asset is the continued productivity and preservation of Planet Earth and her inhabitants.

The missing piece:

We need to come up with a reliable system to identify and measure the fact of innovation before it happens. The Ingenesist Project is developing a novel business method and platform combining game theory, actuarial math and blockchain technology to convert intangible assets into tangible assets. The issuance of each unit of CBDC can then represent the intrinsic value of this new asset class.

We are not bankers and we are not saying that this is final answer. However, we are certainly early pioneers in the topic of a supplemental US digital currency long before the Federal Bank Announcement. Our work in this area has been published (juried) by the NSPE, ASCE, ASME, NAIC/CIPR, NSF, and many others.

A few key points:

  • If built correctly, a CBDC is a great idea
  • If not, the CBDC may be no better or worse than a digital dollar.
  • No intrinsic value means no value. Period.
  • Money must represent human productivity. Otherwise, no one will produce stuff in exchange for it.
  • The underlying asset is Earth and her inhabitants – and must be preserved, not consumed.

Conclusion

So there you have it — an engineer’s interpretation of the new Central Bank Digital Currency.

The next time you’re sitting on an aircraft separated from instant death by .040 inches of aluminum skin, please feel free to disagree with your engineers and scientists. Now that I think of it, what is a perfect analogy for the state of the world!

Predictions for 2010 and Beyond – Nothing is Sacred

transparentIt looks like everyone is buffing up their predictions for another year of astonishing growth by social media. The last several years have brought so many surprises that the next several are promising to yield a bumper crop of “I told you so” fodder from the “pithier than thou” crowd.

My prediction for 2010 is that nothing is sacred, including the onslaught 2010 predictions. Therefore, I’ll will go way out on a limb and make my 2011 predictions in 2009.

In General:

The interest coming due on our national debt will consume increasingly more of the money that institutions need to provide basic services. As these institutions weaken, they will increasingly be replaced by social media enterprise. These structurally weakened institutions will drive social media innovation more than any other factor.

Specifically:

  1. Social vetting will catch everyone by surprise. Google buying Yelp is the game changer that will shake markets to the core. A market can only be as efficient as its vetting mechanism. To control vetting is to control a market – ask any despot. Where the vetting institutions of the old paradigm break down, they will be replaces by social media vetting. Nothing is sacred – the SEC, AMA, Federal Reserve – everything is vulnerable. Google knows this and will usher in an era of social media applications that will completely disrupt the gatekeepers.
  2. Everyone says that social media will monetize. It will, but not like anyone expects. 2011 is the year of the Deep Web; the deep web is the vast universe of unprocessed data that exists like dark matter in the Google-verse. Social media will monetize around data because data is the only thing that corporation, governments, and other people are willing to pay for. Google created economic initiatives for legions of entrepreneurs to create information content. The new Deep Web Search engines will create economic incentives for legions of entrepreneurs to create databases.
  3. The convergence of data will create the “new monetized innovation economy” defined by the way people interact with data. Highly localized data that will reflect the knowledge inventory of a community and will be represented by a virtual currency.
  4. It will become increasingly apparent that many of the functions of a corporation can be duplicated outside a corporation by new vetted social media applications. Networks of people will become “corporations” and trade knowledge assets through the trade of virtual currency contracts.
  5. Corporations will become technology centric rather than industry centric with open source architecture liberated to armies of diverse entrepreneurs. For example, breakthoughs in one industry will shoot across all industries like iphone apps – especially effective in environmental and “community organization” innovations. Nothing is sacred.

So there it is and be assured that 2012 will not disappoint even the hardiest eschatologist!

Sorry for not repeating the “real-time is king” mantra or singing the “people will finally pay for content” tune, or reciting the “every department is the marketing department” manifesto. Something much bigger is about to happen. The evolution away from the current financial system will drive social media more than any other factor.

Dollar Pressures Force Talk of New Currency

I am heavily quoting an article below from the DOW JONES NEWSWIRES written By Tom Barkley because this situation leads us into a discussion about alternate currencies in which Conversational Currency is applicable.

We predict that the structure for an innovation economy will be built on a platform of Social Media where conversational Currency is the currency of trade.  We admit that this is a far cry from a declaration of government foreign or domestic, sorry about that.  We also admit this is a far cry from what Corporations, Banks, Insurance Companies and traditional media barons would espouse, Ooops.

The best management policy is to accommodate what people are already doing.  People are ADOPTING Social Media in a frenzy of applications which were not even predicted by those who developed the platforms – this is a reality, not a fantasy or a blip in the radar screen.  Social Media will have an extraordinary role in the value of currency – if people don’t like it, they won’t trade it; Game over.  The next Global Currency will be represented by human productivity traded in social media.  The most productive country will hold the most currency – this is a game that the US can still win.

WASHINGTON (Dow Jones)–U.S. Federal Reserve Chairman Ben Bernanke waded into the international debate over the fate of the dollar Thursday, pledging to do his part to avoid what he sees as a longer-term risk to the dollar’s status as the world’s predominant reserve currency.

[China and Russia have been the major drivers behind calls for an alternative reserve currency, blaming the U.S. for the global crisis and worried that its growing debt load could pose a further threat to stability. That view gained some additional force this week when World Bank President Robert Zoellick predicted that the dollar would face increasing as a reserve currency and its status would depend on how well the U.S. can manage its debt.]

Here is the Social Media Pitch:

[The G-20’s plan to reinforce country measures to address imbalances through peer reviews “would perhaps strengthen the mechanism” for enforcement, he said.]

Social Currency?

At the end of the day PEER REVIEW will be the global vetting mechanism that supports the value of a currency.  What part of Social Currency are we not understanding here?

What is the Current of Currency?

There is not much more ‘federal’ about the “Federal Reserve” than there is about Federal Express. Except, the Fed is a private company for whom the US government is the “Legal Tender”; literally and figuratively.

We could analyze this cozy relationship or we can realize that the value of any currency is a social agreement among people who trade it for goods and services. There is nothing keeping each and every one of us from “legally tending” a currency in communities to exchange for goods and services – as long as there is a social agreement.

The Semantic Web:

The word “currency” has several meanings. It can mean a “medium of exchange” such as “bank currency”; or it can mean a placement in time such as a “current edition”; or it can mean the flow of something such as the “river’s current”.  Money is, in fact, all three; it is exchanged, it changes with time, and it moves things. Therefore, anything that does these three things can be used as currency.

Social Media space has awarded civilization with an extraordinary capacity to create, maintain, and design social agreements. Social agreements are founded on conversations between people.  Conversation is the medium of exchange for the trade of goods and services long before the money is distributed (or not).

The Value of Value:

The value of the dollar is not changing, but the value of the social agreement is. Conversations about Land, Labor, and Capital are transcended by conversations about environment, health care, social justice, human rights, and global freedom. The social agreement that once supported the value of a dollar is now supporting something else. The value that the dollar once contained is being transferred someplace else. The people that once controlled the value of currency are being replaced other people. The social agreement is being replaced by another one.

To understand the new social agreement is to understand the currency of currency. To support the conversations that define the new social agreement is to support the value of social currency. To support the value of social currency is to support the value of money.

Humility: The New Economic Paradigm

In order to intersect the flow of money people need to be trading a conversational currency.  In today’s economy, in order to find value, we need to ask someone else where it is. In order to create value, we need to tell someone else where it is. In order to stay “current” we must engage with others. In order to preserve value, we need to preserve the value in others.

Most importantly, especially for those who want to hold a great deal of money or power or control: in order to hold value, they must give it away. In order to hold power, they must empower others. In order to hold control, they must give up control to others.

Conversely, Humility is the new gold standard and the bad guys will always try to steal it. Does this sound familiar?

Social Media; the Integrator of the Innovation Economy

Where are the gray suited diplomats holding each others forearms against a world map backdrop vowing to correct the world’s innovation system?  Where are the politicians joining across party lines about how to inject 700 billion dollars to fix the nation’s innovation system?  When will the Federal Reserve Chairman find the flaw in our national innovation system?  Hey, when will someone notice that we don’t have a national innovation system?

Schumpeterian Economics argues that corporations represent our nation’s innovation endowment. However, the primary function of a corporation is to make money, not explicitly to innovate.  Sure, they innovate if they must – most likely to beat down a more innovative competitor.  But, as soon as bad times hit, most will shift money from R&D to marketing.

If we look back only 400 hundred years, everyone on Earth lived on an average of about 500 dollars per year.  Then the innovations from the prior 2,000,000 years started to converge.  Counting backwards; the knowledge economy was “derived” from the information revolution, which was derived from the manufacturing revolution which was “derived” the Industrial revolution which was “derived” from the scientific revolution, which was “derived” from the agrarian economy.  Each revolution “Integrated” the tools of the prior revolution; The Knowledge economy integrated the tools of the information age and the information age integrated the tools of the manufacturing economy, etc.  By the way, the term “derived” is related to the term “derivative” – the primary hedging tool integrated in our current financial system.

Each economic revolution was marked by a tremendous increase in human productivity – we no longer need to milk our own cow. Victoria trades a dollar’s worth of her time as an airplane engineer for a dollar’s worth of the Robert’s time as an agricultural engineer.  Bill Gates is worth 50 billion dollars because he increased the productivity of a minimum of a billion people by a minimum of 50 dollars each.  I save 5 dollars in gas by not driving to the library when I can just search Google or Wikipedia.

The only way to “make” more money is to increase human productivity and the only sustainable way to increase human productivity is to find better ways of doing things.  Anything else is simply a transfer or redistribution of money.  Both are important – but often we confuse them under the same terminology: “making money”.  Or, we reverse the two by literally making (printing) money and then transferring it to corporations under the assumption that they will innovate enough to support everyone else plus the debt.  This system worked great for many years and in many political forms – it brought us from living in caves to a 65 trillion dollar global economy.  But like the economic revolutions before it, the current economic structure will soon give way to a new paradigm as we are forced to reach for higher productivity.

What the brilliant economist, Joseph Schumpeter did not have in his time was the technological breakthrough of Computer Enabled Society.  Taking a hint from the past; the new economic paradigm will be derived from the knowledge economy by integrating the tools developed during the knowledge economy. That is why we now have Linkedin, Facebook, YouTube – and all the rest.

Everyone agrees that information, knowledge, and innovation are profoundly related.  In fact, we can say that knowledge is derived from information and that innovation is derived from knowledge.  The new paradigm will be called the Innovation Economy and it will arise from the integration of the tools of the knowledge economy using social media. We see terms like open-sourcing, crowd sourcing, social networking, groundswells, innovation exchanges and a host of new Social Media Internet applications.  All of these have one thing in common; the tangibility of human knowledge.  This is the Holy Grail of modern finance and it is not a coincidence – it is now within our grasp.

In the past, human knowledge was only tangible inside the construct of a corporation – the corporate structure integrated knowledge assets to make things people want and need. However, with Social Media, knowledge assets will become tangible outside the corporate structure and integrated by knowledge communities, social networks, crowds, groundswells, etc. Knowledge communities will mix, combine, interact, and share knowledge; inevitably the end result is innovation – to make things that people want and need. These knowledge communities will become the next “corporation” acting directly as the integrator of human knowledge.  Ironically, Social Media “outsources” management.  Traditional corporations will not disappear as the agrarian economy never disappeared – they will just integrate.

Ideally, Wall Street is a simply a horse race where money is bet on corporations to fund innovation.  There is nothing wrong with that.  We don’t need a new financial system; we need a new and improved innovation system.  We have the technology; all we need now is the “integrator”.  The Ingenesist Project is the only viable comprehensive integrator now being proposed.  Perhaps it is not perfect, but the next economic paradigm will be certainly be derived from its improvement.

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