Grassroots Currencies: Foundations for Grassroots Digital Economies

TL;DR

The paper addresses how to bootstrap scalable local digital economies without external capital by formulating Grassroots Currencies as IOUs issued by any agent and redeemed 1:1 through a network of mutual trust. It introduces the Grassroots Currencies Protocol (GC), a formal digital realization that supports chain redemptions, 1:1 peg among liquid currencies, and privacy-preserving payments, while maintaining safety through reputational incentives against doublespending. It contributes a formal specification, security and privacy analysis, measurable liquidity and creditworthiness metrics, and economic scenarios for both natural and legal persons, along with a detailed relation to inside money, fiat currencies, and CBDC concepts. The work lays a foundation for grassroots digital economies and outlines steps toward proof-of-concept implementations, with potential for regional and global federation via central bank analogues (CBGC) and diverse governance models.

Abstract

Grassroots currencies are means for turning mutual trust into liquidity, with the goal of providing foundations for grassroots digital economies. Grassroots coins are units of debt that can be issued by anyone -- people, corporations, cooperatives, banks, municipalities and governments -- and traded by anyone. They are more similar to `inside money' (a medium of exchange backed by private credit) and to fiat currencies (for which the issuer controls scarcity) than to global cryptocurrencies such as Bitcoin or Ethereum, which are unbacked and for which scarcity is controlled by the protocol. In this paper we introduce the principles that underlie grassroots currencies; show that they naturally admit basic fiat currency measures regarding foreign trade such as foreign debt, trade balance, and velocity, and basic accounting measures such as cash ratio, quick ratio, and current ratio; elaborate economic scenarios enabled by these principles for grassroots currencies issued by natural and legal persons; relate grassroots currencies to extant work, including notions of personal currencies, community currencies, cryptocurrencies, and inside money; formally specify grassroots currencies as digital entities, governed by the Grassroots Currencies Protocol; discuss the security (safety, liveness, and privacy) of the protocol; and prove that the protocol is grassroots. An implementation of grassroots currencies via a blocklace-based payment system is described elsewhere.

Figures (4)

• Figure 1: Coin Redemption: The red person holds a blue coin and desires the green coin held by the blue person, and thus transfers the blue coin to the blue person and requests to redeem it against the green coin. The blue person settles the redemption claim by transferring the green coin in return.
• Figure 2: Demo of Grassroots Currencies: Issuing, pricing, mutual credit lines, purchase.A. Four persons, each with a pile of issued grassroots coins, each pricing their offerings in terms of their own coins. No trade can occur as no person holds another person's coins. B. Mutual credit lines have been established among neighbours via coin exchange. Trade can now commence. C. The result of the blue person purchasing from the green person a green tea bag using a green coin.
• Figure 5: A Grassroots Architecture for the Digital Realm. Figure numbers map to references as follows: [1]$\mapsto$shapiro2021multiagent, [2]$\mapsto$shapiro2023grassrootsshapiro2023grassrootsBA, [3]$\mapsto$shapiro2023grassrootsshapiro2023grassrootsBAshapiro2023gsnalmeida2024blocklace, [4]$\mapsto$lewispye2023flashlewis2023grassrootsalmeida2024blocklace, [5]$\mapsto$shapiro2023gsn[6]$\mapsto$keidar2023cordial, [7]$\mapsto$[this paper], lewis2023grassroots, [8]$\mapsto$cardelli2020digital, [9]$\mapsto$abramowitz2021democraticabramowitz2021beginningbulteau2021aggregationelkind2022complexityelkind2021unitedmeir2020sybilshahaf2019sybilshapiro2017realityshapiro2018incorporating, [10]$\mapsto$[this paper], [11]$\mapsto$halpern2024federated. The figure shows that grassroots currencies depend on grassroots social networking as well as on equivocation exclusion (not on on consensus); that a grassroots digital economy can operate directly on grassroots currencies; but that it can benefit from grassroots consensus, grassroots social contracts (the grassroots analogues of smart contract) and democratic governance (e.g. for the sovereign democratic analogues of DAOs, including the on-chain democratic governance of sovereign digital cooperatives).
• Figure 6: Demo of Grassroots Currencies: Insolvency. After having bought the pear, the blue person has only two yellow coins left (Figure \ref{['figure:demo3']}.G). H. Using the the two yellow coins to buy two bananas from the yellow person, the blue person is left with lots of fruits (and a tea bag), but no other person's coins, while still having 4 blue coins in circulation. This means that the yellow and green holders of blue coins cannot redeem them from the blue person against any other grassroots coin. Thus, the blue person is insolvent; but not bankrupt, as they could still try to sell some of their assets, if not consumed already, to regain liquidity.

Theorems & Definitions (20)

• definition 1: Grassroots Coin, History, Provenance
• definition 2: Consistency, Doublespending, Consistent and Complete Sets
• definition 3: Coin Holder
• definition 4: Valid Redemption Claim and it Settlement
• definition 5: $\mathcal{G}\mathcal{C}$: Grassroots Currencies Protocol
• theorem 1
• definition 6: Local States, $\prec$, Initial State
• definition 7: Configuration, Transition, $p$-Transition, $\prec$
• definition 8: Distributed Multiagent Transition System; Computation; Run
• definition 9: Safe, Live and Correct Run