[rojeee]

I think the idea of money as credit is very interesting (look at my HN comment history for my ramblings on the topic!).

> I think the system described is interesting, but for regular human commerce purposes, I think the downsides of it (managing IOUs from many different parties, needing to have a trust-path between users that could steal from you, needing to keep a node online always or trust your money to someone else who does so) make it less useful than cryptocurrencies. Having a common currency between many different parties is much easier to work with than trying to figure out a workable way to value IOUs from many different parties. Needing an established trust-path between users seems like a large obstacle in the internet age where I might suddenly want to transact with anyone on the planet.

You are right, these are disadvantages but other than "trust paths" the complexity can be mitigated with:

1. Market makers who buy IOUs at a discount and swap them for _their_ IOU which can be more trusted. Essentially you want a little bit of centralisation around parties which are known to always make good on their liabilities. These parties could be fully automated (think like Ethereum DAO) and transparent. In some ways these market makers are like banks of today but instead of lending their credit into existence, like banks do, they require people to buy it (usually) at a premium.

2. Insurance or a credit derivatives market so people can hedge against counterparts defaults.

3. If everyone agrees on a common numeraire and wallets are sophisticated to show an aggregate balance in that numeraire taking into account credit risk then that could remove much of the complexity for users. Integrated with market makers, you could "auto swap" IOUs to issuers which you prefer. Wallets can also provide a credit risk break down on all counterparts. Agree this is more complicated than current notions of money.

4. Securitisation markets. Package up IOUs into tranches. Traders can speculate on various levels of credit quality.

5. Sensible reputation management. Non-invasive performance tracking of debtors. Did they meet margin requirements? Did they meet all coupon payments? Etc. Can also take into account degree of co-operation with other users, for example do they accommodate restructuring and help others meet their liabilities?

I don't like crypto because there's essentially zero accountability for issuers and that kind of environment is optimal for scammers. Crypto behaves like synthetic equity/commodity instruments with no accountable issuers. In contrast, with a credit based system, issuers are responsible for their issued liabilities and are expected to make good on them. In crypto, no-one thinks in terms of liabilities and so you get ridiculous projects like "Synthentix" who are collateralising a USD Stablecoins with their own issued tokens. For anyone with a basic understanding of financial risk and accounting, their approach is mad.

A credit based system is fairer because anyone can issue credit and the onus in on issuers to ensure they have the necessary reputation for others to accept their credit. Furthermore, credit-like instruments are natural Stablecoins - providing all agree on a numeraire, the value of credit is a function of credit risk which can be successfully managed in most cases.

[gruez]

>1. Market makers who buy IOUs at a discount and swap them for _their_ IOU which can be more trusted.

Doesn't this go against decentralization? Why would anyone want rojeee IOUs when they can instead trade US federal government IOUs (aka. US dollars)? What's the advantage in managing IOUs from a bunch of different entities and having to pay market makers every time you transact?

>These parties could be fully automated (think like Ethereum DAO) and transparent

This is a bit handwavy. How does the system know how much rojeee IOUs are worth? Your ability to repay is based off a multitude of factors that can't be captured on the blockchain.

>2. Insurance or a credit derivatives market so people can hedge against counterparts defaults.

>4. Securitisation markets. Package up IOUs into tranches. Traders can speculate on various levels of credit quality.

All of this is going to increase complexity exponentially, and for what benefit?

[nonameiguess]

Dollars aren't an IOU. Their advantage is all creditors and the government itself is required to accept it as payment, and practically speaking, all businesses will also accept it even though they aren't legally required to. But owning them doesn't mean the government owes you anything.

The advantage of an actual IOU is revenue and expense streams, even when they are very predictable, may not happen on the same schedule, or one is seasonal but the other is not. So allowing the buyer of a good or service to pay with money they don't yet have (and allowing the receiver to count that as revenue according to accrual GAAP) is critical to how businesses function.

Not forcing them to trust each other is the only thing that makes this possible, and that happens via banks and other market makers. This arguably even requires some level of centralization because many factors make this easy for a bank but pretty difficult if not impossible for some arbitrary third party, i.e. banks are extremely well capitalized, heavily regulated and audited, might have multi-century histories of reliably making good on their guarantees, have extremely specialized departments dedicated to assessing default risk. Paying for this reliability and trustworthiness has been deemed a worthwhile cost of business for effectively as long as businesses have existed.

Making this actually free would be nice, but I don't see how it's possible. Settle doesn't seem to solve that from reading this. It just trades explicit cost for risk, which you can already do if you prefer risk. Cryptocurrencies don't solve it either. Something like lightning is fine for microtransactions, but anything large enough that you would otherwise involve a bank or escrow agency can only be handled by the blockchain itself with its massive transaction costs, which happen to be presently masked from buyers and sellers due to the ability of miners to get rich off of speculative frenzy, but when that stops being the case, suddenly you're going to need to pay explicitly to move large amounts of value, more than you would have been paying a bank.

[hanniabu]

> I don't like crypto because there's essentially zero accountability for issuers and that kind of environment is optimal for scammers.

Please expand on this as I'm almost certain this doesn't apply to BTC, ETH, and other reputable chains.

[arcticbull]

Uhh... if you define reputable by market cap and purported volume then... [1]

[1] https://ag.ny.gov/sites/default/files/2021.02.17_-_settlemen...

[rojeee]

Sure, it's more an observation of the mechanics underpinning cryptocurrencies. My statement was actually incorrect in that there are not actually "issuers" per se in crypto and that can be a problem.

Cryptocurrencies like BTC, ETH and whatever else are not "money" in the sense that we generally understand. This money is either a credit on a commercial bank or a credit on a central bank. These entities are responsible for managing the liquidity and solvency of their balance sheet such that the credit you hold retains value (Yes, I know there is inflation but that's an orthogonal concern, I would argue). There is a governance and legal framework underpinning how money works in this "mundane World". Everything in the mundane world is a legal agreement. Financial agreements are always someone's liability and that's a good thing because someone is always accountable if something goes wrong.

Cryptocurrency behaves more like some kind of synthetic commodity. By that I mean that it inherently has no value and has no use for anything other than being a "token". When cryptocurrency is created, it has no issuer. There's no accepted legal framework or explicit governance framework for holding people accountable if something goes wrong (other than code is law) and things go wrong all the time. There are rug pulls, exchange rate crashes and project failures are ten a penny etc... and this is all happening while the crypto world is in a mega bull market! What happens when the next bear market comes around? All the projects that _seem_ viable now will suddenly become unviable. All the debt positions collateralised with sketchy crypto will unwind en masse. I suspect the tokens for many projects out there will trade close to zero. People who invested in various projects from algo stablecoins to lending protocols will suddenly find that they hold worthless tokens with zero recourse. By this point the insiders would have exited into BTC/ETH/fiat ready to start the next round of "projects".

Maybe this is OK. I mean, it is what it is and clearly some people are fine with that. I think we can do better though. That's why I'm interested in credit based monetary systems because reputation is a key part, so participants are accountable for their actions. This is fundamental for any significant real world adoption. Furthermore, credit based instruments do have intrinsic value which is a function of issuer credit risk. Such instruments are more stable than "synthetic commodities" and have more utility for real world uses.

Having said all that. I work in the crypto world and quite enjoy it. I just don't think it's as good as some would have you believe.