What is Solidar?
Solidar is an independent, decentralized, distributed, peer-to-peer electronic currency designed to create an economic system based on stability and well-being of all the people. It's an implementation of the accounting concept of a proof-of-work blockchain used by Satoshi Nakamoto in the creation of Bitcoin. Unlike Bitcoin, Solidar has a demurrage fee that ensures its circulation and bearers of the currency pay this fee automatically. In modern times the 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. Solidar is a fork of Freicoin, that firstly adopted this feature. To Freicoin features Solidar adds the universal basic income (UBI) feature, to redistribute the wealth created into the network to all participants.
Solidar is transparent: open protocol and open development. Solidar is decentralized: every node is completely equal. Solidar is independent: nobody owns the network. Solidar is secure: only the owner of a wallet has access to its funds. Solidar is privacy aware: personal information is required only for an UBI. Solidar is fair: maintenance costs shared across all accounts. Solidar is simplified: sending money is as easy as sending an email. Solidar is fast: average transaction times of less than 10 minutes. Solidar is cheap: negligible or (usually) zero transaction costs. The Solidar bot even provides immediate and zero cost transactions between users.
Why use Solidar?
Demurrage currencies like Solidar 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 the same usurious greed, excess, and short-term thinking that led to the 2008 crisis and financial collapse. Solidar 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 insurmountable economic advantages of simply being wealthy are diminished with Solidar. 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 of value to store, seen from the point of view of the holders, the wealth. Solidar emphasizes instead the view of the 99% of people: money is the medium of exchange for 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 to the economy 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 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.
Solidar provides a perpetual security subsidy. A somewhat esoteric technical argument in favor of Solidar: 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 Solidar doesn’t have to fear such an event as there will be a perpetual reward as universal basic income for all network members that comes from compensating for the coins “destroyed” by the demurrage fees. It is not clear how this situation could affect Bitcoin, but regardless Solidar won’t suffer from this class of problem.
So far in this explanation we have dealt with the unique advantages of Solidar specifically, but as a Bitcoin-derived crypto-currency, Solidar shares with it many advantages over national currencies. Both digital currencies provide a predictable 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 (Solidar coin’s are expected to be even lower than Bitcoin’s), and enable pseudo-anonymous use for private transactions.
How does it work?
Solidar is a fork of Freicoin, an implementation of Bitcoin, which loses approximately 20% of its value per year. The destroyed money simply vanishes, being permanently taken out of circulation. However to keep prices stable an equal-valued batch of freshly minted coins is created and distributed to the diligent accountants (the “miners”) who maintain at their own cost the global ledger of electronic transactions. It's a minimal percentuage of the total amount of coins: only 0.1% is given to miners. The economics of mining are such that most of this is spent on the real capital required to secure the network, thus forcing the newly minted coins to flow back into the economy. The subsidized mining incentive drives participation, making it very difficult, both technologically and economically, to manipulate Solidar as has been done with the legacy systems of money in use today.
What is Bitcoin?
- Bitcoin is a decentralized, peer-to-peer internet currency secured by strong cryptography and an open-source development process, and the foundational technology underlying Solidar. Bitcoin enables anyone in the world to send funds to anyone else with minimal, fair fees on both consumers and merchants. Bitcoin is democratic in that everyone who uses the currency takes part in securing it (making sure the rules are followed and there is no fraud) by running a software program on their computers; they are proportionally compensated for this effort by collecting transaction fees, and in the case of Solidar, demurrage. For more information about the benefits that come from basing Solidar on Bitcoin technology, see the Bitcoin advocacy site We Use Coins.
Why does it 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.
In Europe demurrage was called "renovatio monetae" during the Middle Age. From 1150 to 1450 in Mid-Europe Bactreates' landlords released a currency that was legal only one year. At the end of the year the coins were "recalled" and holders get 80 new coins for 100 old ones, while 20 new coins were used as a tax payment. This currency was the first known demurrage currency and created wealth and peace for 300 years in many parts of Mid-Europe.
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. The following table completes his example:
|Risk-Free Rate||Est. Value in 10 years||Est. Value in 100 years|
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 Solidar have been designed such that we expect overall price levels to remain mostly stable over time.
Is Solidar 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, Solidar 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 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 Solidar.
Bitcoin and Solidar support each other as collaborative free software. Free software is software that respects your freedom as a user and with a collaborative development model. Solidar is a fork of Freicoin, which 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. Solidar operates a merged mining with Freicoin. 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. Solidar was merge minable from block one on. The result is more security for Solidar, Freicoin and Bitcoin.
Finally: Solidar, an electronic economy that is fair, and where the expectations are explicit and clear to everyone. Solidar may be for you, but it’s not for everyone. We sincerely hope that you give it a try, and find out for yourself.
Credits: Texts of this page were copied from Freicoin website and adapted to Solidar.