Complementary Currencies on the Blockchain

The Perfect Technological Complement for Complementary Currencies

Despite their great potential, many complementary currency systems show a number of difficulties and cannot yet achieve high levels of utilization. On the one hand, these schemes usually lack reliable mechanisms to ensure safety and transparency in the administration of the currencies. To be successful, networks need a certain degree of trust among the participants that can only be achieved in small communities. As they grow, the strength of these bonds becomes threatened, and as a result, many communities decide to keep their currencies small to avoid failure. However, even when there is technology available to support systems with many members, the existence of a central administrator that guarantees the legitimacy of transactions seems unavoidable. As in traditional financial systems, the administrator receives the trust of users, and communities as a whole end up lacking the tools required for a truly autonomous audit and government of the system.

Blockchain is the technology complementary currencies need to face their challenges and achieve much-needed scalability. Blockchain can enable all members of a community to see absolutely everything that happens on the system, tracking sources of imbalances or dishonest behaviors. But most importantly, the open, transparent and inviolable features of blockchain allow for the emergence of trustless complementary currencies, i.e. systems that work without requiring any trusted third-party in their operation (Dunkley, 2017). There is no need for all users to know each other or to trust a central administrator. Trust can in turn be based on reputation systems and the incorruptible records of the blockchain. As a result, networks can scale without fear of losing reliability. This point is essential: the bigger a system is, the more sustainable it becomes because the supply of products is more diverse and the currency becomes easier to spend. A high number of participants implies more transactions and a more significant impact on communities.

But besides providing transparency, security and scalability, Blockchain’s decentralized nature allows for the successful design of governing structures aligned with the spirit of complementary currencies, namely, that power is built through consensus rather than centralized actors, and that reputation is given by participation in the community rather than wealth.  Specifically, blockchain-based smart contracts can be used to create sets of rules about the organization of communities and their currencies. These rules would be defined and agreed by all the members of a given community, and, thanks to the structure of smart contracts, no one would have the power to change them unilaterally. It would also be guaranteed that rules are being observed at all times. Ultimately, blockchain provides the possibility of organizing a community and its own currency in such a way that the common will (however the community defines it) is being pursued at all times.

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