Freicoin

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= Freicoin is a peer-to-peer (P2P) currency based on the accounting concept of a proof-of-work block chain used by Satoshi Nakamoto in the creation of Bitcoin.

URL = http://freico.in/

Mining for Freicon started on December 21, 2012.


Contents

Description

"Freicoin is a decentralized, distributed electronic currency designed to address the grievances of the 99% movement and correct the excesses of the 1%. Whereas inflationary currency like the U.S. Dollar or Euro are controlled by central bankers under rules that benefit the establishment, Freicoin would be completely decentralized and self-regulating, with fees on stagnant or hoarded money (demurrage) paid in proportion to those community members who contribute work to secure the currency. It is an opt-in alternative currency to be used first by Occupy-supporting businesses and supply chains, then spread to the surrounding community across the globe. It includes a downloadable client for Mac OS X, Windows, and Linux, and an electronic network for transferring funds denominated in Freicoin world-wide." (http://www.indiegogo.com/freicoin)

"Unlike Bitcoin, Freicoin has a demurrage fee that ensures its circulation and bearers of the currency pay this fee automatically. This demurrage fee was proposed by Silvio Gesell to eliminate the privileged position held by money compared with capital goods, which is the underlying cause of the boom/bust business cycle and the entrenchment of the financial elite, and has been tested several times with positive results." (http://freico.in/)

Characteristics

0% interest, forever

Freicoin's parameters are carefully chosen to eliminate the basic interest component of investments, called the liquidity premium by economists. Usurious non-zero basic interest distorts the free market, incentivises poisonous greed, excess, and short-term thinking, and perpetuates a vicious cycle of boom/bust recessions.


Sustainable investments

Zero basic interest encourages sustainable investments, as long-term investments tend to be, by removing the time preference implicit inflationary (U.S. Dollar, Euro) or deflationary (Bitcoin) currencies. When business is conducted in Freicoin, participants value present and future holdings equally, and favor sustainable processes.


Stable long-term value

Demurrage forces freicoins to circulate at deliberately high rates. Separation of money's roles as store-of-value and medium-of-exchange allows money to flow when it is needed, in good times and bad. Our careful selection of governing parameters creates a currency whose value is stable with neither price inflation nor deflation." (http://freico.in/)

Discussion

Why use Freicoin?

"Demurrage currencies like Freicoin align incentives of bankers and financiers with the priorities of the working class, incentivising the wealthy through their own self-interest to invest in growth, jobs, and ventures with long-term thinking. An economy built on a demurrage currency as the essential foundation will also not fall victim to to the same usurious greed, excess, and short-term thinking that led to the 2008 crisis and financial collapse. Freicoin will continuously stimulate global growth through reinvestment, and dis-incentivize the type of actions which led to and furthered the paralysis that caused the “credit crunch.”

In fact, the unfair economic advantages of simply being wealthy are diminished with Freicoin. In the current system of money, including the U.S. Dollar, Euro, and other national currencies, money is and always has been used to store value–money seen from the point of view of the holders, the wealthy. Freicoin emphasizes instead the view to that of the producer, the proletariat, the 99%: money as a means of buying the goods and services necessary to sustain life, and the capital required to create improved living conditions. These are contrary purposes: money cannot function properly as, nor should it ever be both a means of saving and exchange; it cannot be both accelerator and brake at the same time. Indeed, this confusion and conflict over the purpose of money is central to explaining the financial collapse of 2008 and the extended recession that followed.


Demurrage forces the entire stock of money to circulate irrespective of the desires of the usurious money-holders to accumulate and store non-productive assets. Banks, financiers, and large corporations can no longer hoard money waiting for higher interest rates or a more favorable investment climate as the demurrage acts as a tax on stagnant money. Money-holders lose their privileged position at the negotiating table, and are instead given incentive to seek out productive investments in new ventures and real capital goods. Under demurrage money is eternally losing value, so the incentive is to spend or invest it as soon as possible on the necessities of life or in longer-term ventures that also provide stimulus for a growing economy, typically creating real jobs in the process. Demurrage money becomes a sort of “hot potato” that is passed around as quickly as possible, in a virtuous cycle of investment and consumption. No longer are there incentives for financiers to withhold credit from those in need simply to wait for fairer economic winds or a better negotiating position.


For the 99% who live paycheck-to-paycheck, the loss from demurrage is minimal and would be compensated for in wages and pricing. For those who manage to accumulate some savings and for the 1% who receive much more income than they reasonably spend, they can either save real wealth (gold, silver, bitcoins, real estate, artwork and fine wine, for example) and accept the obvious limitations of wealth saving (loss, storage, theft, rot, fire, insurance premiums, etc.), or they can loan it out to borrowers at what ends up being near-zero basic interest. With sustainable 0%-APR interest loans the order of the day, business will boom and the economy will grow in a virtuous cycle.

Freicoin provides a perpetual security subsidy. A somewhat esoteric technical argument in favor of Freicoin: a tragedy of the commons type of market failure when all bitcoins are issued and the block subsidy for miners ceases has been considered by the Bitcoin community. It assumes that the maximum number of transactions per block is removed or greatly increased, but Freicoin doesn’t have to fear such an event as there will be a perpetual reward for miners that comes from compensating for the coins “destroyed” by the demurrage fees. It is not clear how this situation could affect Bitcoin, but regardless Freicoin won’t suffer from this class of problem.

So far in this explanation we have dealt with the unique advantages of Freicoin specifically, but as a Bitcoin-derived crypto-currency, Freicoin shares with it many advantages over national currencies. Both digital currencies provide a predictable, limited and stable monetary supply and 24/7/365 operation (compared with banking), abolish centralized control over that money supply, dis-allow chargebacks or seizure of assets, provide fast transfers with low transaction costs (Freicoin’s are expected to be even lower than Bitcoin’s), and enable pseudo-anonymous use for private transactions." (http://freico.in/about/)


Based on Bitcoin

"You've based it on Bitcoin technology. Is this a competitor to Bitcoin?

Absolutely not! The two serve quite different purposes. The properties of Bitcoin make it analogous to precious commodities like gold or silver, and it will always function as a useful store of value. Freicoin, on the other hand, is meant to be used as a medium of exchange only, kept on hand just long enough to provide a cash-flow buffer. The demurrage fee encourages recipients of Freicoin to put their money to use as soon as possible in an exchange (even by buying bitcoins, for example), whereas the deflationary nature of Bitcoin rewards hoarding and serves a different purpose as a long-term store of value.


How is this different from that other Occupy currency?

There have been a couple of monetary reform ideas floated by members of the Occupy movement, but most likely you are referring to “OCCCU”, another demurrage currency created by students at the Vorarlberg University of Applied Sciences and presented to members of the Occupy movement at Davos in January, 2012.

OCCCU's provision of “basic income” and the assessing of demurrage fees is accomplished by means of centralized regulators, the currently faceless OCCCU “general assembly”. This is hardly an improvement over the current system of centralized banking; as the great poet Pete Townshend once said: “meet the new boss, same as the old boss”. It is our firm belief that real monetary reform will only come when the system does not require trust in any individual or organization, and when all operations are made transparent. Freicoin accomplishes these goals with distributed self-regulation and automatic distribution of the demurrage pool on a fair and proportional basis." (http://www.indiegogo.com/freicoin)


What is “Freicoin”, and how does it work, really?

"Freicoin--literally “free money” in German--is based on the principles of economist Silvio Gesell's Natural Economic Order. Freicoin is an electronic currency managed through a self-regulating, distributed electronic network based on Bitcoin technology. The network enforces a continuously assessed 4.4% APR fee on all account holders. This fee acts as a tax on stagnant money, driving up the rate at which money flows through the economy and acting as an economic stimulus, and discouraging unproductive hoarding by the 1%. The proceeds of the demurrage tax are repayed transparently and proportionally to the community members who donate computer time to running software that regulates and enforces the rules of the network.

Besides providing a virtuous cycle of rewarding positive long-term investments, demurrage currencies also reduce interest rates to near-zero (hence the “free money”), providing further job-creating stimulus and helping to reduce the magnitude of the boom-bust business cycle." (http://www.indiegogo.com/freicoin)


Why Demurrage

"Demurrage currencies like Freicoin align incentives of bankers and financiers with the priorities of working class, forcing the wealthy through their own self-interest to invest in growth, jobs, and ventures with long-term thinking. An economy based on demurrage currency would not fall victim to to the same greed, excess, and short-term thinking that led to the 2008 crisis and financial collapse. Freicoin would instead continuously stimulate global growth through reinvestment, and dis-incentivize the hoarding by the 1% that caused the “credit crunch”.

The current systems of money, including the U.S. Dollar or Euro, are and always have been used to store value--money seen from the point of view of the holders, the wealthy. Freicoin emphasizes instead the view to that of the producer, the proletariat, the 99%: money as a means of buying the goods and services necessary to sustain life. These are contrary purposes--money cannot function properly as, nor should it ever be both a means of saving and exchange; it cannot be both accelerator and brake at the same time. Indeed, this confusion and conflict over the purpose of money is what led to the financial collapse of 2008 and the extended recession that followed.

Demurrage forces the entire stock of money to circulate irrespective of the desire of the wealthy to accumulate and store; banks, financiers, and corporations can no longer hoard money waiting for higher interest rates or a more favorable investment climate as the demurrage acts as a tax on stagnant money. Money is eternally losing value, so the incentive is to spend it as quickly as possible on the necessities of life or to invest in longer-term ventures that also provide stimulus for a growing economy, typically creating real jobs in the process. Real money becomes a sort of “hot potato” that is passed around as quickly as possible, in a virtuous cycle of investment. No longer are there incentives for financiers to withhold credit from those in need simply to what for fairer economic winds.

For the 99% who live paycheck-to-paycheck, the loss from demurrage is minimal and would be compensated for in wages and pricing. For those who manage to accumulate some savings and for the 1% who receive much more income than they reasonably spend, they can either save real wealth (gold, silver, Bitcoins, real estate, artwork and fine wine, for example) and accept the obvious limitations of wealth saving (loss, storage, rot, fire, etc.), or they can loan it out to borrowers at what ends up being near-zero basic interest. With sustainable near-0% interest loans the order of the day, businesses will boom and the economy will grow in a virtuous cycle. How

For the past year we have been working in our free time to produce a proof-of-concept prototype based on improved and expanded Bitcoin technology. The prototype is a re-implementation of a generalized form of the Bitcoin protocol which makes possible advanced features like demurrage, multiple currencies existing side-by-side (Bitcoin and Freicoin), and other improvements for future scalability. Extensive unit tests demonstrate the validity of this core component." (http://www.indiegogo.com/freicoin)


Why Demurrage-based currencies work

"Examples of demurrage-money can be found throughout history, all the way back into antiquity. For a historical treatment of the subject, we suggest reading David Graeber’s anthropological work Debt: The First 5,000 Years.

Demurrage-money was re-introduced to the modern era in the early 20th century by the theoretical economist, social activist, and anarchist Silvio Gesell. Gesell discovered that interest rates aren’t based solely on the inflation rate and the risk of the loan. Called the liquidity premium by economists, the difference is due to money being nonperishable, scarce, and universally accepted, so rational actors tend to demand extra interest to make up for the opportunity cost of lending money.

Classical economic theory tells us that all economic profits tend to zero in perfect competition. So capital yields, the “selling price” of investments, should tend to zero as different production goods of the same type compete with each other. However basic interest impedes yields from dropping to zero, causing an economic rent that is trouble for not only money holders and lenders but for everyone who seeks to acquire or invest wealth. Gesell showed that this usurious premium, the economic rent of basic interest, is the root cause of the non-utilization of resources that leads to dysfunctional institutions, the stratification of society, and the inevitability of the boom/bust business cycle.

The goal of a demurrage currency is to suppress basic interest to zero, completely removing that economic distortion. Gesell’s proposed solution included Freigeld (“free-money”), a paper demurrage currency that suppressed this basic interest by making money perishable, like a consumer good. The basic idea has been tested several times with positive results.

Anything that is not perishable becomes much more valuable, as a consequence of having a perishable money supply. As you know, the world is in an economic depression or recession. Even with this condition, the risk-free interest rate is 3%! Even during the Great Depression these rates only decreased to two percent. When the economy gets hot these rates reach as high as 15%. Thus, consumable products are perpetually overvalued, and sustainable products are always undervalued.

Some Austrian-school economists claim that the basic interest can be explained by what they call “time preference.” They maintain that people always prefer to have things in the present over having them in the future. That is, short-term thinking is part of human nature. (This would only be true for items like money, for example, as you wouldn’t necessarily prefer 1000 fresh apples today over 1 fresh apple a day for the next 1000 days, even if that holds true for U.S. dollars.)

According to Bernard Lietaer, this short term thinking is not inherent to humans but caused by some existing monetary systems. He explains this with a tree metaphor. Say you plant a tree today and that tree will produce $100 USD in lumber after 10 years, what is that future $100 worth today? With 5% interest rates, $100 in 10 years are equivalent to $61.39 today. That’s why we value more things in the present, although this hasn’t always been the case.

As you can see, positive interest rates cause us to value short-term returns, and if there were negative interest rates the financial market would make us value things in the future more than in the present. With 0% interest rates we could value things in the future as much as we value them in the present: money wouldn’t have any effect on our “time preference,” which may change with the current circumstances of each person and his or her own priorities.

With positive interest rates it pays to be a vulture capitalist. Forests are clear-cut rather than sustainably harvested. Small businesses with real products are purchased, their machines are sold off to competitors, and the company is loaded down with impossible debts and left to die. Centuries old buildings are demolished for parking lots. Essentially high interest rates fund the destruction of capital. Freicoin enables a sustainable society by safely lowering basic interest rates to zero without price inflation by means of demurrage.

Demurrage currency can result in stable prices. According to the quantitive monetary theory, prices depend on money velocity. Demurrage encourages circulation and springs a higher and more stable velocity. So prices should be more stable for a currency with demurrage. The properties of Freicoin have been designed such that we expect overall price levels to remain mostly stable over time." (http://freico.in/about/)

Is Freicoin in competition with Bitcoin?

"Yes and no, but mostly no.

We are in favor of a free monetary market. We believe that there should be a free monetary market and monetary diversity. In this respect, yes, Freicoin and Bitcoin will compete with each other for users as currencies. But that doesn’t mean that you can’t use both for different reasons or that one of them has to necessarily disappear. In any case, that’s for you and the the marketplace of ideas to decide, not us, the bitcoin community or any coercive agency. Silvio Gesell wrote that money was a natural monopoly and thus the state should operate it, but we disagree with him on that point. Thousands of complementary currencies in circulation today are a living proof that this is not the case.

The Austrian school of economics underlies Bitcoin’s design. Most Austrian economists don’t support a monetary monopoly, even if such a money system were based on gold, which Bitcoin is designed to resemble. E.C. Riegel was a strong opponent of a state monopoly on money. Bernard Lietaer argues that both competition and diversity are important for the efficiency and resilience of a market economy. There are many other inspirations to defend a free monetary market inclusive of both Bitcoin and Freicoin.

Bitcoin and Freicoin support each other as collaborative free software. Free software is software that respects your freedom as a user and with a collaborative development model. Freicoin is a fork of Bitcoin because we don’t want to compete with it technically. The technical improvements we develop will be submitted “upstream” to the Bitcoin developers, and we will of course draw upon features and bug fixes applied to Bitcoin. Our software development relationship with the bitcoin community is based on collaboration, not competition.

We don’t compete with bitcoin for miners either. Merged mining allows network operators to secure both currencies simultaneously. The merged mining technology first developed for Namecoin allows miners to use their proof of work in several block chain networks simultaneously. We’re currently evaluating the tradeoff between security and the convenience of having merged mining included early-on, since some new chains have been attacked by bitcoin pools (even without the users of that pool knowing it) and merged mining makes new currencies vulnerable to such attacks. Even if Freicoin isn’t merged-mine capable at launch, it will be in the near future. The result is more security for both Freicoin and Bitcoin." (http://freico.in/about/)


Freicoin aims to be more energy-efficient than Bitcoin, through bypassing the miners

Excerpted from an interview with Jorge Timón, by Ferdinand Reyes.

Q: What is Freicoin’s stand about the never ending energy consumption’s run for currency generation?

Jorge Timón: We tried to separate the miner’s function as the way to make the system secure and, on the other hand, as a way to generate the initial units. Bitcoin joins them but we believe that while security is important, to issue all the money through miners is an energetic waste.

For this reason we are creating Freicoin Foundation in order to issue the currency at a lower cost than with mining; in our view currency shouldn’t have a production cost.

SCIP technology is also interesting. It was spoken about in the last Bitcoin conference at San José. Is a technique that allows one to trust an untrusted computer executed a program properly with zero knowledge. This can be mining’s future: instead of working out random hashes, all this computation power can be used for useful projects like volunteer computing. For instance, there is a group in Bitcoin’s community, Curecoin, dedicated to collecting rewards for solving work units from Folding@home, a research project dedicated to finding cures to diseases.

We also support “merged mining”, namely, mining multiple chains at once, instead of chains competing for proof-of-work, they can reuse the same work. Namecoin does that with Bitcoin already and Freicoin will too because they share the same SHA256 algorithm as proof-of-work in Bitcoin. Others like Litecoin replaced it with Scrypt and can’t be merged mined." (http://thinkship.cc/en/an-interview-with-jorge-timon-leader-of-freicoin-project/)

Interview

Interview conducted by BENSON SAMUEL:

"JT: Apart from being involved in the ripple project and helping to spread the word, I proposed freicoin (not much technical value, but an economic improvement compared to bitcoin IMO). Mark is making most of the development for now, but I hope to help soon.

Here’s a summary of my near future plans I’ll reuse (after Jeff Garzik’s quote “if people are interested”): https://bitcointalk.org/index.php?topic=117800.msg1293663#msg1293663

Ben: What projects are you currently undertaking with your participation in Bitcoin & Ripple?

JTimon: Only discussion (design) for now and proposing many crazy ideas. But I’ll finish university this Friday and I hope to contribute with something soon. Maybe find a less time consuming job too (and more interesting, hopefully related with some of this).

A lot of diffusion too. I gave a virtual conference for the 5th spanish conference on complementary currencies.

Ben: What are a few ways that Bitcoin & Ripple can integrate?

JTimon:

Two-phase distributed Ripple can make commits atomic using a blockchain: http://ripple-project.org/Protocol/BlockChainCommitMethod Implementing ripple through coloured coins (discussion with Jeff Garzik) There’s more discussions on coloured coins on bitcointalk. I make some examples of ripple transaction using coloured coins here: https://bitcointalk.org/index.php?topic=92421.msg1217467#msg1217467

Modify the Bitcoin protocol to enable ripple without the need of underlying Satoshi is (1 Satoshi is the smallest denomination in Bitcoin, is 0.00000001 btc). I call this one RippleCoin. https://bitcointalk.org/index.php?topic=3557.0

Ryan Fugger’s commit blockchain which only acts as a timestamping system without making the payments public. http://ripple-project.org/Protocol/CommitBlockChain

That conversation with Jeff is pretty technical, but the basic concept is to use Satoshis to represent ripple IOUs. We must agree outside the chain that those Satoshis represent credit and not only Bitcoins

Ben: What is your Vision on the future of money?

JTimon: Ideally, everyone would issue his own credit money (through an implementation of Ripple). Probably local and/or specialized communities will have their own LETS-like currencies too. Cash monies will be digital, like Bitcoin and Freicoin. Hopefully gold will be demonetized (because people has chosen not to use it anymore, not by decree). Ideally all cash monies will have demurrage and interest rates will be near zero without any authority manipulating it, just the free market with demurrage cash and abundant credit (anyone can issue money through credit instead of only the banks).

Probably the various levels of the state will issue cash too. They will create it directly by spending it and it will be “backed” by nothing but taxes. Ideally the state will stop borrowing and the peoples will suffer the excesses of politicians fast trough taxes increases and inflation. We won’t be as vulnerable to inflation as we are today anyway.

Credit won’t be denominated in cash units, but in indexes defined as non-existent basket of commodities (see Bernard Lieater’s Terra) or CPI’s. After all, debts are contracts.

Take into account that this is a very personal view." (http://bensonsamuel.com/2012/10/27/jorge-timon-an-interesting-involved-bitcoiner/)

More Information

More resources on freicoin:

  1. http://freico.in
  2. http://www.freicoin.org/
  3. https://github.com/freicoin/freicoin
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