On Contractual Money

EasyChair Preprint 1351

Abstract

It is common to consider functions of money as a medium of exchange, store of value and unit of account. 
In this work we highlight yet another function of money, namely as a unit of contract execution. Historically, there has always been an implicit paper contract behind money. However, with the rise of cryptocurrencies, we now have `programmable money', where it is easy to bind digital assets to an explicit contract. We use the term {\em contractual money} to refer to digital money with a usage contract in the form of executable code. In the first and still the most popular cryptocurrency, Bitcoin, a coin is bound to a contract that combines statements about secrets and predicates on the blockchain. We note that with certain context extensions, including the spending transaction itself, it becomes possible to implement contractual money. We demonstrate this via two examples using Ergo, a cryptocurrency like Bitcoin. 
In the first example, a private scrip is issued for a microcredit use-case and a contract enforces the borrower to spend the money only as described in the contract (for instance, at least 50\% of the money should be used for buying equipment). 
In the second example, money is issued by a local government to promote local economy. To achieve this, the government pays for communal works at the rate of one token per hour, with each token backed by a fixed amount of national currency. The tokens can be spent in arbitrary ways, but can only be exchanged for national currency by a local producer. 
We also review the famous Woergl experiment of 1934, where according to data published, the main reason for success was not the demurrage component of the Woergl money. Rather, the experiment was a scheme to convert local tax debts into communal works, with demurrage speeding up~(and, to some degree, enforcing) the process.

Keyphrases: Blockchain, Cryptocurrency, LETS, Microcredit, Woergl experiment, local currency, local exchange trade system

@booklet{EasyChair:1351,
  author    = {Alexander Chepurnoy and Amitabh Saxena},
  title     = {On Contractual Money},
  howpublished = {EasyChair Preprint 1351},
  year      = {EasyChair, 2019}}