Something interesting is happening in the little corner of the crypto-world that is Freicoin

in freicoin •  2 years ago  (edited)

Looks like something interesting is happening in the little corner of the crypto-currency world called Freicoin. Back in 2013, Freicoin was considered the possible successor to Bitcoin, but, alas, that never happened. In fact, Freicoin almost died. Now, a combination of grass roots energy, the growing market of crypto-currencies, the developers returning to the coin, and the ending of the Foundation (a correction of a seismic significance to Freicoin policy), are creating considerable excitement within the Freicoin community.

If you remember, Freicoin is one of the oldest Bitcoin clones from way back in 2012—in the blockchain history that’s equivalent to a century. To this day, you still find Freicoin mentioned in most books and references on cryptocurrencies as being one of the most innovative coins. Its innovation was not in a new hashing algorithm or block time, but in incorporating special monetary policy. Consistent with the mood of the times, the post 2008 derivatives bubble, Freicoin proposed a zero-inflation coin with a demurrage fee (recirculate as mining rewards) to discourage speculation and ensure currency circulation. This remains significant since demurrage coins have appeared in history in the works of Silvio Gesell and FDR’s Stamp Scrip. That is, unlike other coins that are trying to find problems blockchain can solve, Freicoin added some real-world financial solutions to a blockchain.

The death of Freicoin:

There were three reasons why Freicoin died: (1) the Foundation; (2) the demurrage structure; and (3) the developers taking a hiatus from the coin (but to, in fact, work on something better).

The Freicoin Foundation was originally intended as a community engagment experiment in alternative methods to distribute the currency. Freicoin wanted to distribute 100 million coins in 3 years and not all through miners. The Foundation was supposed to distribute 80 million coins by sponsoring projects to promote Freicoin and crypto-currencies as well as various charitable organizations. It was hoped that the community would also develop an automated mechanism to distribute Foundation funds. Slowly, however, that idea died as the developers and community members were all volunteers. The optics of the Foundation were not very good either. Many saw it as a possible scam. In the end, most of Foundation funds had simply remained untouched.

At the beginning of the crypto-currency days, Freicoin’s 5% annual demurrage fee appeared very high compared to Bitcoin’s transaction fees. Users (speculators) did not see the purpose in discouraging speculation. The demurrage per block discounting also created difficulties for exchanges and block chain explorers based on the shareware that could not perform the appropriate calculations. Exchanges compensated by charging high fees which resulted in them abandoning Freicoin as its market share dropped.

The developers left Freicoin. The developers Mark Freidenbach and Jorge Timon left Freicoin to found BlockStream to do mind blowing code wizardry creating SegWit and Lightening etc. making Bitcoin history!

Fast forward to 2017.

The rebirth of Freicoin:

Over this last year, Bitcoin users have been paying on average (and this is a low estimate) of 175 BTC in fees per day. That’s about 4% per year. Also, mining rewards have increased the money supply by another 4% approximately. The crypt-currency trade exchanges are ripe with speculation. With this increasing use of Bitcoin and gross speculation around, most crypto currencies, Freicoin’s demurrage and zero-inflation features are being more appreciated. Remember it’s a real-world solution. Also, the Freicoin community members have created their own exchange and modified Abe (a database based program emulating an explorer) to account for the demurrage accounting.

Just recently, the developers have become more present in the Freicoin community, announcing a renewed commitment to the project. This commitment is in the old-school volunteer sort of way, so there are no ICOs etc. This commitment is about bringing the technology BlockStream invented into Freicoin, as well as features such as confidential assets from the Elements Project. Also, the developers suggested ending the Foundation.

Only about 6% of the Foundation funds were ever circulated and no basic income project was ever created. The Foundation just looked like a central bank ready to be robbed. The decision was made to end the Foundation. The community voted on and it was decided to honour its present commitments but destroy the remaining Foundation funds.

For more information on the future of Freicoin see here:
https://freicoinalliance.com/topic/178-future-of-freicoin/?do=findComment&comment=2929

For the exchange see here: http://www.freiexchange.com

Oh. Did I mention that Freicoin is underrated, siting at 631st place on CoinMarketCap? You see? That’s exciting. Yeah.

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I'm not an economist, but I've been thinking about basic income and Silvio Gesell's demurrage mechanism for years now. I've come up with a currency simulation that employs both basic income and demurrage. You can play with it here: https://democratic.money

Now, I think that Gesell meant demurrage as a companion mechanism to money creation. The main goal of demurrage was to encourage circulation in a real economy, running in a real place where people had no currency alternative whatsoever ("spend or watch your money rot"). A side-effect was that it also maintained a constant supply of the currency: if you create currency at a fixed rate (X units every T time interval), but destroy a percentage of it (a form of negative interest on the money itself, wherever it may be), then if you do the math you arrive at some constant total money amount in circulation. Which is essentially what Bitcoin arrives at, except Bitcoin has a 0% demurrage rate and a 0% money creation rate (the mining rewards are just one long-running airdrop that uses hashpower to identify recipients).

Freicoin is a tough sell, because why buy it when you can buy any one of thousands of other deflationary cryptocurrencies instead? The demurrage rate has no real function if you are not going to use it to move a real economy. The only thing Freicoin's demurrage does is to create a perpetual mining subsidy, that is, miners don't earn just transaction fees, that is, fees from accounts that are moving money, but also demurrage fees, that is, a fee or tax from money that is sitting still and not moving.

People who lived in that Austrian town where Gesell created the local currency with demurrage had no money whatsoever. They did not have to purchase the demurrage money with other money. Instead, they sold their idle work into the demurrage currency, which itself was created by the town. The key was the ability of the town hall to create money, and to use that money to bootstrap the exchange of efforts between the townspeople. Demurrage was a mechanism applied over that created money. Demurrage by itself makes no sense.

However, I have to say that, when Bitcoin runs out of block subsidies, it is not clear if miners will be able to continue operational. It may be the case that Bitcoin is actually an economic time bomb, and to survive, the Bitcoin network will have to change its block subsidy function to either demurrage (to regenerate the block subsidy indefinitely) or get rid of the fixed supply paradigm (e.g. Dogecoin, present Ethereum, etc). But so far the market cap of cryptocurrencies in general are still catching up to the fact that physical commodities such as gold are no longer the only game in town for "wealth storage." Current estimates go as far as assigning 100 trillion to the entire cryptocurrency market, which would give Bitcoin 50 trillion at its current market share. That ballooning in valuation is diverting attention from the economics of fees versus the economics of block subsidies (a 0.01-Bitcoin block-subsidy is worth 2.4 million dollars if the Bitcoin market cap reaches 50 trillion).

So, Freicoin's use of demurrage, when applied to the current crypto market of wealth storagem and not to a real economy which needs money creation to function, is actually a solution to the miner incentive problem. Freicoin's demurrage is actually a competitor to blocks giving a constant block subsidy such as Dogecoin, Ethereum or even things like Reddcoin (which gives percentages of stake balances, i.e. percentage-points inflation just like fiat currencies). By finding an ideal demurrage rate which is completely unrelated to the rates that Silvio Gesell developed (e.g. 12% a year), Freicoin can provide an unique solution to the miner incentive problem, and leave basic income--which relies on identification of individual people, which is a really messy and difficult problem--to other projects (such as the one I'm working on).

In my search for a demurrage-rate parameter for wealth-storage economies, I arrived at things like 0.1%, and 0.25%, 0.35% and even 0.5%, and at most 1%. The order of magnitude for that kind of fee is from the economics of "negative interest rate investments." They exist: some central banks and governments issue strange bonds that are worth a bit less than what you purchased for. You get a fixed negative interest rate. They have some purpose that I forget what it is all about (you can look it up on Wikipedia), but they do definitely exist. Moreover, the "robin hood tax", which is being considered in the US and that was already applied successfully in Brazil, hovers around .25% and .35%.

Hope this helps.

Good luck with your project. Also please check out $solidar if you haven't yet - it seems to be pretty close to yours - winc-ev.org

Well, yes, the idea was that Freicoin would be part of a real economy.

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