I’ve just finished reading the design proposal of Eco, a new idea for a digital currency powered by a network of verified organization which would run the network nodes. The design paper is relatively short compared to the usual technical white papers I’ve seen flying around, but it’s actually full of good ideas.
First off, I’m glad that a digital currency is finally not stubbornly insisting on a hard limit of coins in distribution. I wrote briefly about this before, but the essence is that too small of a supply of money leads to nothing. In the Eco case, we have an initial supply of 1 trillion Eco coins, and the paper states that this will enable users to work with hundreds of Eco coins in their accounts, compared to the current trend of dealing with tiny fractions. I really like this idea and I think it improves usability a lot. In every transaction I’ve had so far with Bitcoin/Ethereum and the like, I’ve had to triple check the amount of zeroes and decimal places before a transaction – it’s really annoying and ruins the user experience.
Next, the distribution system seems to put a lot of emphasis on fairness.
Eco plans to distribute 50% of the token supply to the first 1 billion unique, verified human users on the platform (with equitable demographic and geographic representation) to allocate value created to a large community of users. 20% will be allocated to verified nodes (partner universities) and their network of researchers and developers. 10% will be held by the Eco Foundation to fund operations and community grants, and 10% to active contributors and advisors.
The remaining 10% will be allocated to strategic partners worldwide.
Of course these numbers are fairly arbitrary right now, and we’re not sure if this exact distribution will in reality result in a fair/equitable distribution of wealth, but it’s great that they are thinking about this issue, and that they want to prevent the Bitcoin scenario where a tiny amount of players in the market have seized control of the vast majority of coins. This distribution system is definitely a step in the right direction compared to the competition.
Now, where things get tricky is with governance. Eco proposes an iterative approach where governance becomes more decentralized over time, with the goal of achieving full system self-governance in a few years, using something called weighted-reputation voting. I’m not really sure what to think of this as I don’t really understand how it will work and if it will be successful in achieving desired outcomes and behaviors.
And that’s the thing – we need a better understanding of the desired behaviors of a global currency system. A focus on fairness and usability is nice, but in my opinion it’s not enough. If a system is truly meant to be global, it needs to be flexible enough to be able to react to tail risk events. Let’s imagine the following scenario – the year is 2050, and we have a global digital currency (maybe Eco won!). What happens if we have a global recession like in 2008? What happens in case of a giant climate catastrophe? Which monetary policies will the system be based on? How will credit and debt work under this system; will you have crypto-banks or not? For people who want to design a truly global system where money is not controlled by governments, these are the problems you need to solve, or your projects will fail. I’m not saying the projects will fail completely, just that they will fail in creating a global, non-government controlled currency.
We also need to think about the interaction of digital currency and governments. In my opinion digital currency wallets won’t stay anonymous for long. The risks of tax evasion, money laundering and other illegal transactions are too big. The goal of digital currencies should therefore be that they are more secure and easier to use than traditional banking, while at the same time keeping some flexibility of cash. It’s a tough ask and the incumbent players won’t give this space up without a fight. On the other hand, governments will remain better at providing and funding services like healthcare, infrastructure, science and research projects, and for this they will keep using fiat money, because they can get as much of it as they want and use it for whatever goals they seem fit. Therefore, I think we will have interesting discussions about exchange rates and crypto-fiats, that is officially authorized digital currencies that can be used in parallel with traditional fiat for most transactions.
Overall, I believe Eco is a step in the right direction. I’m excited to see how it’s implemented and how the ideas upon which it is based on will evolve and adapt. You can find the design paper here. Go read it and let me know what you think.