Currency Life Cycles: Token & System

currency life cycles.

This is a fundamental design principle

that is critical to understanding how to design

currencies

that in particular. There are two separate life cycles that you need to design for

the

level of the tokens are units of a currency

and the level of the currency system itself

going to start with the token layer.

Because that's the part that we're most familiar with and in particular

the part we're familiar with is transactions

we know how to transact a currency, how to transact money

and we often don't really think about some of the other aspects of

token lifecycle, how the units of a currency

come into being and how they go out of being and all that kind of thing.

So when we're talking about transactions there are

certain things you have to think about like

are the transactions taxable.

Are there any limits to the transactions? Are there

things that may trigger a transaction being available to you?

Who can transact in what currencies?

Mhm.

And

one of the fundamental questions is

our transactions allowed at all. It's a completely valid rule of a currency

especially of a reputation currency to say that

there are no transactions allowed. We can't trade college degrees.

That is a transaction rule.

So transaction we're familiar with,

we're less familiar with the issuance of a currency,

how units of a currency come into being,

who gets to create it

then there's the questions of how and when under

what conditions are you allowed to issue a currency?

What methods are used for issuing a currency.

These are really critical

and by the way the Cryptocurrency space has

basically taken these two things transaction and Issuance

and

kind of said, okay,

we've come up with some strategies to decentralize them and the

accounting for these two things and

therefore we've got decentralized currencies.

Right?

But what I'm suggesting is this is really only a small part of the picture because

it's only the first half of the life cycle

after transaction.

We also have interplay.

What is the relationship between this currency to other currencies?

How does it inter operate with other currencies?

How does it need to integrate with other currencies? Can it be converted

to other currencies? So for example,

even reputation currencies have interplay right. Your

high school diploma is part of what allows you to get into college and

earning the right stacks of credits as a unit of account currency

as part of how you get your college degree.

And there's a reputation currency, right?

And when you transfer between schools, sometimes

some credits are able to transfer and others aren't.

There's all sorts of rules around

interplay and inter operation

for currencies.

And there's also

the end of the life life cycle of units

units come into being and they go out of being,

Most people don't realize for example that dollars are issued as debt

when you get a loan from a bank, even on a credit card,

a mortgage, that kind of thing.

Money is being created from nothing. The bank is creating money from nothing.

They put it into your bank account. You transact to pay off

to buy the car or to pay off the mortgage

or whatever the thing is that you got the loan for

right. You knew how to do the transaction part.

But what many people don't realize is when you're making loan payments,

the payments on principle

are actually going back to the bank and being retired.

The payments on interest is money that the bank gets to

keep and they get to continue to transact and spend.

But just like they created the debt from nothing

as you pay back the principal of the debt

that money goes away, it's being retired.

It is

leaving circulation.

And so

the question is, can you design currencies if you don't

even understand the ones we currently use, how,

how units come into being and how they go out of being

and you know many people also don't realize

that these rules exist for reputation currencies.

You can be stripped of your college degree if

we find out that you plagiarized your

dissertation or your exams or whatever. That

um, there are rules for being able to expire, retire.

Redeem different types of currencies and they change form of the units

go away at that point and a life cycle isn't complete.

The token life cycle isn't complete if you haven't actually

figured out what the rules are for all of these

parts of the life cycle,

but this is only the token lifecycle.

What we don't realize is that the system life cycle is even more fundamental,

right? And this is where you conceive of the

currency system, you design it, build it, launch it,

and then you enter into a stage of adoption and

management of it

and hopefully are evaluating how well it's functioning

and being able to actually take in feedback about how it's going.

And from that feedback you can redesign

and rebuild and re launch and have this cycle continue

of being able to tune the currency a bit.

Um when these currencies are sort of hard coded into smart contracts and

such that can often be very hard to do the redesign and rebuild.

So think about that up front that you need to be

thinking about how to steward the whole life cycle of a currency

and really it tends to be revolving around a particular vision

or purpose that's holding the center of that life cycle.

But just as this came into being, if you're doing responsible currency design,

you need to think about how it will go out of being.

You need to think about how a currency can do a responsible wind down

and

close the system

just like you opened the system and in fact

sometimes there are

times that you would create a currency that's truly a temporary currency.

It actually is

designed really to bring something into being

and set up a pattern of behaviors among its users

and then you may long no longer need the currency after that

point and you could actually wind it down and close it.

And you've established a particular pattern or culture

in a community

that the currency was designed to establish.

Also the system level.

This part of the lifecycle is where governance and

decision making happens about the functioning of the currency.

This part this level is what changes the rules

on the token level because systems don't run themselves.

This is the level that's wielding the real power.

And so the dirty little secret is really that controlling the way a currency system

is governed

actually enables you to change and manipulate the token level.

It allows you to make it a more even or

less even playing field on the token level for example.

Right.

And so given that we tend to not even see the system level

of

currencies,

only be paying attention to the token level and only be

paying attention to the transaction part of the token level.

Right.

We we really need to expand our our capacity to see the whole system and

we also when building a currency need to steward both of these life cycles.

So

what does that look like? Well the design process

we've actually created created a little decision tree map here that has,

its organized on one side,

the left side by the system life cycle and on the right side by the token lifecycle.

And you can see there's like rules about issuance

many different options for how things could be issued.

Rules about transaction and accounting including

being able to do you know,

decentralized approaches to accounting.

This is one of the things I would really like to draw people's attention to is

the formalization method.

Most people assume that a currency is monetary and numeric

but they don't have to be that's the rational bottom

Bottom one here in the list

but also interval, whole units, orginal ranking units,

nominal named units and thresholds

are all valid. Part of currency design and how you actually

structure this

changes the relationship that your user base has to the currency so much

that this is

like a frighteningly overlooked portion of the currency design

Process.

Anyway,

you can see this is a large map with about like 600 different decision points on here.

Um

this will be available to you

and is also available online.

So

I think what I want to bring out here just

underscore this last point is the impact on currency design.

So like for Blockchain and cryptocurrencies, I want to point out that the

the power is much more than about token speculative units getting rich quick.

It's really about intrinsic data integrity.

It's about being able to separate

the data integrity from the

physical security of the data who owns it, what computers it's on

and so being able to truly decentralized currencies is a pretty new phenomenon,

I also want to again underscore this concept of current,

see like the ability to see the flows, the shared symbol systems

that we use

for shaping and enabling and measuring flows.

And so again, just some examples college degree as a reputation, currency

credits by unit of account for tracking the hours of coursework grades

for measuring your

learning of the coursework

transcripts

are sort of like your balance sheet.

And if you build them in a decentralized way, you could become an authority

for your own transcript because you'd have the signed credits

and grades and degree from the university digitally signed.

You know as an example.

So this this is actually an opportunity to

look at how all of these currencies work on the different

layers of the

currency life cycles, the token level and the system level of currency life cycles.

And remember one valid rule

for transactions is

maybe they can't be done for this currency.

So again,

fundamental design principle,

currency life cycles, the token lifecycle and the system life cycle

Currency Life Cycles: Token & System

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