Virtual Money

With every new age has come a new form of money.  As we enter the Information Age money will change from the fiat currency of the Industrial Age into a new form.  To a degree, this has already happened in that most transactions are recorded as electronic notations representing currency rather than being an actual exchange of currency.  However, these electronic notations are still treated as if they actually are currency.

The current excitement over cryptocurrency is not warranted.  It is essentially just a new way to electronically record currency-like transactions and, in truth, is an Information Age atavism, reprising the private currencies of the 19th Century.  The 21st Century will see the emergence of a completely new method of economic exchange.  I call it Virtual Currency.  It is best understood by example, beginning with a simple one and with each new example adding a new level of complexity.

Suppose Enterprise A (A) buys something from Enterprise B (B) for $200.  A will debit (Dr) Inventory (for example) for $200 and credit (Cr) Accounts Payable for $200.  B will Dr Accounts Receivable for $200 and Cr Sales for $200.  Later A will Dr Accounts Payable and Cr Cash.  When the payment is received, whether as currency, check or electronic transfer,  B will Dr Cash and Cr Accounts Receivable.

Now suppose that B buys something from C for $200 and C buys something from A for $200.  Now A, B & C can all cancel their $200 AR and AP against the AR and AP residing on each other's ledgers and dispense with currency or their Cash Accounts entirely. 

This is why I refer to it as 'virtual currency'.  Like the virtual particles in Physics, virtual currency comes into existence, essentially out of nothing, when the sale and purchase are transacted and then disappears when the offset entry is recorded.

There is no definite limit to the number of enterprises that can be involved in an elimination entry.  In fact, as the number of enterprises in the system increase, the number of AR and AP balances that will be eliminated rather than paid will increase.

There is also the matter of the time value of money.  This, however, is not a significant deviation from the current situation where there are typically discounts for early payments and accrued interest for late payment.  The existing convention will be elaborated in order to suit the expanded needs of the offset system.

As is often discussed with regard to cryptocurrency, there is the matter of secure payment processing.  This will be done through contract offset processors.  A duplicate detail of your AP and AR will reside on their secure servers.  Web spiders will search all offset processors' DUPE lists.  They will verify that AP and AR balances agree.  They will then create a list of all possible offsets.

Each party then will receive their offset entry which they will apply to their set of books.  Once completed, they will  transmit their new AR and AP balances and the process repeats.  The system is secure because AR and AP balances are matched and reconciled before offsets are made.

If an enterprise is profitable its AR will be greater than its aggregate AP, with the offset residing as a credit in the Owners' Equity account.  This may be retained or it may be distributed as dividends to the equity holders.

If it is dividended, the enterprise will Dr Equity and Cr a due to shareholders liability.  Because individuals use single entry bookkeeping, generally, they will simply record the Dr.  

Because most individuals will not retain an offset service, most will purchase a Dr card whose issuer will take the Dr into the offset system.  Enterprises will enter their retained earnings into the offset system through capital or other non-P&L purchases.  If they do not wish to discharge the excess AR immediately, they will purchase enterprise equivalents to Dr cards.

The Dr system will be financed in several ways.  In the case of enterprise debits, the balances will carry an interest rate somewhat less what the debit earns from the carried credit.  In this way the service will function as an Information Age equivalent of a factor.  

In the case of consumer debit cards, they will charge a transaction fee to the merchant.  They also will earn interest on carried balances.

While the offset system will begin as an augmentation to currency, it has the capacity to replace currency entirely.  While the offset system can replace nearly all functions of currency, one will remain.  That is denominating transactions.  In other words, if a deal is to be struck, a mutually understood unit of measurement of economic value must exist.

It might be something as simple as a very stable valued commodity.  In the past, that has been gold.  In the future, it might be something like DRAM.  It is also probable that an international unit of exchange will be established based upon a 'bushel basket of commodities' as currently done to measure the PPP currency values.  This would most likely be undertaken by a consortium of governments.

This system actually exists already to a degree within large corporations in that intercompany transactions are eliminated in consolidation.  The difference is that they are eliminated against the sales and expense entries, while in virtual money, only AR and AP balances are eliminated.  While substantially different, the similarities demonstrate that the technology that needs to exist is well within the current state of the art.

The offset system will begin within Enterprise Networks such as the one we are building for Polymathica.  By instituting an offset system within the Enterprise Network, the member enterprises will improve their liquidity, lower their working capital requirements and, thereby, improve their return on equity.  




7 comments:

  1. When the payment is received, whether as currency, check or electronic transfer, B will Dr Cash and Cr Accounts Receivable.
    My Big Coin

    ReplyDelete
  2. Shawn, in this system, there is no cash account for these transactions. Accounts Receivable and Accounts Payable are cleared directly against each other. Most companies will still have a Cash account for 'off system' transactions, but this account will sort of wither away as the virtual money system becomes more nearly universal.

    ReplyDelete
  3. You have covered many things in this post, thanks for sharing.

    Gunbot trading bot

    ReplyDelete
  4. Loving this blog, great content and will be coming back to find out more for sure!

    Buy Gold Coins In San Francisco

    ReplyDelete
  5. Please do you have a contac emial. I am a wrter and find your work valuable expecially on how people with high IQ excluded in so many ways. I just discovered this on Quora today. Someone wrote an article last name starting with S in his blog on you and your discovery. And I cannot find it, that Quora article has disapeared off my pc, can you tlell me his name. I need that for my writing. esther.kletski@gmail.com

    ReplyDelete
  6. There is still the coincidence of wants issue for the shared monetary valuation of the said transactions. Your liquidity proposal (which may be a restatement of the prior art Real Bills doctrine) does not absolve the monetary conundrum of the power-law distribution of fungible resources. I suggest Anna von Reitz’s website(s) for your edification on the Constitution.

    ReplyDelete
  7. I’m sorry but you ostensibly don’t comprehend the significance of the block chain.

    > “I agree with the overwhelming majority of the comments you post, but perhaps there will always be one stumbling block, inasmuch as I think people need to be led by someone with integrity and moral fibre and in that way, having a “leader” of a sort is always paramount to a functional society, irrespective of whether that contradicts one’s hermeneutics.”

    Leadership is dysfunctional because:

    1. a moral leader will always be overthrown (undermined, overpowered) by a more ruthless one because the more ruthless one can capture more power from the power vacuum. It is thus impossible to have a moral democracy, which is why I renamed it democrazy. People will refuse to understand this. The only way to teach them is by implementing decentralization thus obviating the power vacuums thus forcing them to stop being dependent on statism. The Lord told them this in 1 Samuel 8 but they refused to listen.

    2. leadership doesn’t anneal as per the analogy of cracks in ice frozen too quickly because the individual molecules aren’t able to arrange themselves optimally trapped by the rapid temperature gradient. Decentralized actors are more resilient with more optimal outcomes than centralized management. This is also why the concept of Dunbar limited “one mind” as proposed to apply tribalism to the entire society as Asians do, is going to end in abject failure. CoinCube and I had debated this on Bitcointalk.org and we agreed that centralized systems are expedient but ultimately collapse under their lack of expanding entropy.

    What would be optimal is to obviate the power vacuum itself so that individuals are forced to manage themselves or perish. Then all those those are capable survive and all those who are incapable perish. Varying hermeneutics could become a boon to resiliency instead of feeding the status quo divide-and-conquer power vacuum.

    Obviating the power vacuums is an incredibly difficult problem. I have been thinking about how to do it at least for a block chain for the past ~7 years. And with a truly decentralized block chain, other facets of the societal power vacuum could be possibly disintermediated.

    ReplyDelete