Did you see any of the celebrity-backed ads for the slew of now defunct crytpo businesses? Did they leave you scratching your head at the time? It was precisely the inscrutability of cryptocurrency that allowed scammers like Sam Bankman-Fried to pocket billions through crypto exchanges like FTX. That company’s pitch was essentially “it’s OK if you don’t understand how all of this works, we’ll handle it for you.” But then, of course, the bubble burst. This week on Sea Change Radio, we check in with Matthew Slater, a community currency engineer and blockchain expert with whom we spoke back in 2011, at the dawn of the alternative currency movement. Slater boils down the past decade of cryptocurrency mayhem into layman’s terms and explains why, despite the many bumps along the way, he still believes in a financial system based on what he terms “trade justice.”
Narrator | 00:02 – This is Sea Change Radio covering the shift to sustainability. I’m Alex Wise.
Matthew Slater (MS) | 00:21 – If we don’t need banks, because we can do finance ourselves. If we can organize, if we can trust each other. And also if we can trade more with each other, then we can start to build a financial power and take financial responsibility in a way that the government is never going to do for us.
Narrator | 00:45 – Did you see any of the celebrity-backed ads for the slew of now defunct crytpo businesses? Did they leave you scratching your head at the time? It was precisely the inscrutability of cryptocurrency that allowed scammers like Sam Bankman-Fried to pocket billions through crypto exchanges like FTX. That company’s pitch was essentially “it’s OK if you don’t understand how all of this works, we’ll handle it for you.” But then, of course, the bubble burst. This week on Sea Change Radio, we check in with Matthew Slater, a community currency engineer and blockchain expert with whom we spoke back in 2011, at the dawn of the alternative currency movement. Slater boils down the past decade of cryptocurrency mayhem into layman’s terms and explains why, despite the many bumps along the way, he still believes in a financial system based on what he terms “trade justice.”
Alex Wise (AW) | 01:55 – I am joined now on Sea Change Radio by Matthew Slater. He is a community currency engineer. Matthew, welcome back to Sea Change Radio.
Matthew Slater (MS) | 02:08 – It’s a great honor to be invited back.
Alex Wise (AW) | 02:10 – Well, for our listeners, we had a discussion about cryptocurrency and alternative currencies back in 2011, and folks can go to Sea Change Radio dot com and go to the archives there to listen to that. And with, with all that’s happened over the last decade plus, I thought it would be a really good opportunity to circle back with you and get your thoughts. As somebody who is an early thinker and engineer of alternative currencies, why don’t you, first let’s create a glossary for folks who, who may not be well versed in some of these terms like blockchain and cryptocurrency and, and some other terms. Why don’t we explain in simple terms the differences between these phrases and words?
Matthew Slater (MS) | 02:54 – Well, starting with blockchain and moving on to cryptocurrency, let’s say a blockchain is a new technology invented in 2009 that enables people to keep a database when none of those people is actually responsible for the database. None of them or all of them. And that means that the database is basically impossible to hack. And the first use of that new kind of database was to make a currency where the account balances and the transaction records were not kept inside a bank or a central bank. The idea was that we can now do payments without needing to trust these much-hated institutions in our society. So it was a big thing for libertarianism, for example, we are now free from the government, uh, in that very narrow sense
AW | 03:53 – Cryptocurrency – how would you define that?
MS | 03:56 – Well, Bitcoin would’ve been the first cryptocurrency. It was the name of the token that circulated around the Bitcoin blockchain. But after that, anybody could just copy and paste the Bitcoin blockchain. And so they, they did it and they changed the parameters and the tokens on all of those new blockchains became cryptocurrencies in general. And each cryptocurrency would have a different story, uh, a different reason why you should buy it and hold it, and you would get rich from doing so.
AW | 04:31 – Can you explain the element of crypto mining and as the host of environmental show, I remember hearing a lot about how the carbon footprint of this mining was excessive.
MS | 04:42 – Well, that’s, uh, part of the mechanism that makes the blockchain unhackable and it’s not the only way to do it anymore. It’s how Bitcoin works and how some of the early ones work. But I don’t think anybody’s making blockchains now that use this method. So the idea is that you can’t fake the use of energy. And so if everyone is giving energy into the system to verify the blockchain, then if someone wants to say that the blockchain is different, they have to give more energy than everybody else put together.
AW | 05:18 – Define energy in this system. You’re talking about computing capacity, yes?
MS | 05:23 – It’s processor cycles in technical terms, but it all cost electricity. And that’s the way it’s measured and that’s what the environmentalists are complaining about. So Bitcoin is reported to consume as much electricity as a small country like Austria. It goes up and down with the price of Bitcoin. And I would agree it’s an environmental travesty, but an interesting technology.
AW | 05:49 – Maybe you can kind of summarize regenerative finance, and one of the basic concepts of Bitcoin is a decentralized finance system. Maybe you can explain the two?
MS | 06:02 -When blockchain advocates talk about decentralization and they do so as a high ideal for them, what they mean is that in blockchains you have the data, a complete copy of the data stored in many, many places. So there’s no one place that a meteor could strike or anything bad could happen that would be able to destroy the blockchain because there’s multiple copies of it constantly being kept up to date. But there are much more important ways of decentralizing our institutions that Bitcoin does not address. For example, Bitcoin is a single currency, and from that point of view, it has a single monetary policy and a single way that the technology itself is governed and all of that counts as centralization. And hence it’s a kind of risk to, if you’re talking about decentralization as an ideal, um, decentralized finance means the same kind of decentralization. It just happens on lots of web servers at the same time. But instead of just doing the payments that Bitcoin does, so Bitcoin, uh, creates some tokens every 10 minutes when it mines each block and writes it to the permanent record instead of, um, those kinds of tokens, which can just move from one account to another as a payment. In decentralized finance, they’re trying to do other financial services as well. And chiefly that means things like markets and possibly lending or token swapping. So you can swap one kind of token for another in an easy way, which is, it’s good for speculating for example. So the financial services that are provided by DeFi are actually not very useful to most of us because most of us aren’t interested in swapping one kind of token for another or trading them on a market. And that’s most of what DeFi does. But that didn’t stop it becoming another craze, another bubble, lots more fortunes made and lost and in my view, you know, wasted another five years.
AW | 08:35 – Yeah. So let’s go back to our conversation in 2011 where I think you were calling it complimentary currency. And now in your view of this is a much more of a community-oriented finance regenerative approach where you think that there are better ways than what, what we’ve been doing for thousands of years in terms of the traditional banking system. I think that’s a noble goal. But when you were talking about the speculative nature of Bitcoin and one of the things that often accompanies any conversation with money is greed and it led to this bubble. I’d love to hear your perspective on what we just saw over the last decade or so in terms of that bubble and where things went off the rails, Matthew.
MS | 09:21 – Well, things went off the rails right at the beginning when they said this is like gold, it’s money and it’s like gold. And the trouble is, um, when gold is currency, it tends to be an international currency. That means it works between national currencies and it tends to be governed. And if you just have a commodity that you say is like currency, but it doesn’t have a way of stabilizing the price, then you end up confusing something that’s going wildly up and down in price because it invites speculators because it goes up and down in price because the price is determined by supply and demand, which is always changing. So you confuse that kind of asset with money, which is really by definition an asset as stable as you can make it. And so when people hold money for short periods of time or long periods of time, they need the value of it, the purchasing power to stay as much the same as possible. They need to be able to trust it. And when Bitcoin said it was money, but it was fluctuating at, I dare not say how much percent per day, then nobody felt they could trust it as money. And it became a playing field for people with spare money, which is usually rich people to speculate and uh, get even richer in this case. So that was where the discourse failed. But because there was no monetary theory going on, um, people were constantly trying to portray Bitcoin as, uh, the ideal money and it just needed to make it, it just needed to get past this period of instability and get wide adoption and then it would become money. And so there was no progress being made on the monetary front. It was just, uh, a random asset that had been created that had a great story that made people want to invest in it. But it wasn’t a stable unit of value that real people can use in trade and especially that real people would like to borrow. because don’t forget, 97% of all money is borrowed into existence and has to be repaid. And the Bitcoin crowd didn’t understand that at all either. And if we want to borrow money, we definitely want to make sure that the value is going to be, be stable and that it’s not going to be worth three times more next year.
(Music Break) | 12:05
AW | 13:04 – This is Alex Wise on Sea Change Radio, and I’m speaking to Matthew Slater, he’s a community currency engineer. So Matthew, we were talking about the shortcomings of Bitcoin. Do you think having one cryptocurrency standard like a Bitcoin would’ve been preferable to the fragmented industry that we ended up with?
MS | 13:26 -Well, I think that uh, it’s good to be able to have some innovation and some variety and some competition. And I think that Bitcoin is flawed but with money systems in general, yes, a money is a standard of exchange and you need it to be won. If you’re going to call it money, there has to be only one of them, or at least one per country or one per area that you are trading with. Once they’re competing, they’re not money, they’re just different commodities that you might use as a medium of exchange.
AW | 13:58 – So you don’t think that we need to all align under one cryptocurrency.
MS | 14:04 – I don’t think that’s even reasonable to hope for. We have one cryptocurrency and it’s Bitcoin and it’s the oldest and it’s by far the largest and it’s the currency that’s used on the markets as the one that everything pairs with. So if you want to trade from one cryptocurrency to another, you go through Bitcoin and that’s an indication that Bitcoin is money in the crypto sphere. So in a sense, yes, we already have the one, but the diversity is always growing.
AW | 14:41 – So do you think that this fragmentation and the diversity that you speak of in the crypto space will lead to wider adoption or do you think that the bubble having burst in the last year or so will have driven too many potential adopters away?
MS | 14:59 – I think that Bitcoin is going to be like an alternative to gold in the financial world, that the marketing in that sense was absolutely right. Gold is not money. Uh, we can dig into that if you like. That’s a very political statement. Uh, gold is not money, but Bitcoin is like gold and it can be used as a long-term store of value and hedge against inflation and things like that. And I, uh, imagine it will stabilize, uh, like gold is much more stable and, and that that’s a useful thing. But I don’t imagine that Bitcoin will ever be like money because there’s no way to stabilize its value. Now there have been innovations in crypto called stable coins where um, the coins are issued for every dollar that’s put in the bank and then the coin is backed by a dollar and therefore it’s stabilized against the dollar. But the trouble is to have a stable coin like that, you have to get back into the world of finance somehow because you are interacting with dollars or there are other mechanisms which try not to interact with dollars, but then they always bring with it this risk that the asset that’s backing the stable coin will crash and then the stable coin will be worth nothing or very little. So when we try to stabilize against the dollar, you are always going back into the dollar system that you said you were trying to get out of.
AW | 16:32 – So explain the FTX concept, the crypto exchange, and was the bubble that burst with FTX more an indication that the exchange concept is flawed or were there just scammers running it?
MS | 16:48 – Well, in every market you, you need exchanges. Uh, especially if you are thinking that what you’re trading is a currency that gets you between markets. So the exchange is first of all, it’s a vital function and also in a market economy you use the exchange to discover the price, the relative value of things by putting all the supply and demand into one place and everybody bids on it. So this is happening a lot in crypto because of the amount of speculation, but there’s also some legitimate reasons as well why people might want to, uh, swap one token for another. And when that happens, the exchange takes a small commission and you’ve got a business. The trouble is that, uh, in order to participate in that kind of exchange, what the decentralized advocates would call a centralized exchange, you have to put your tokens in their wallet. And that means that in order for them to allocate tokens between you and the people you’re trading with, they own those tokens temporarily. In the same way that when you put money in a bank, the bank owns the money and then they just promise to give it back to you. So you deposit your tokens in one of those exchanges and then you can trade very, very efficiently. Um, but if the exchange then says, well, we’re going to sell some of these tokens just temporarily and give some money to the Democratic party and to all of these other causes and we’ll get it back later because well, we’re just a fantastically growing business and we can’t lose, that’s what was happening in FTX. It was an absolutely fraudulent business and they were able to be fraudulent because they were operating in The Bahamas, not in the United States. And I think some people, um, closed their eyes to that and allowed it to happen. And especially because they were being bribed, uh, or donations were being given political donations. So in that sense, it wasn’t really a bubble that burst. It was not even a Ponzi scheme. It was a flat out fraud where they were taking people’s money, spending it on other things and then eventually they ran out because the market went down.
AW | 19:06 – Matthew, why don’t you give us an overview of some of your work in the last decade. Last time we were speaking, you were working on this Drupal based complimentary currency platform. Why don’t you get us up to speed if you can?
MS | 19:21 – So I started my work in Drupal, which is a software platform that gives you a website. From that I built it into a social network that does accounting. It allows people to advertise what they offer to the community and the community can download the whole platform and run it and own it and control it themselves. So they’ve got their own little social network. But I’ve gone on because I’m less interested in the social networks and more interested in the accounting and the money. I’ve gone on to build an accounting service which works outside of any platform and that would enable any platform to plug into it and people on all the different platforms, therefore to pay each other. So that’s called the credit commons protocol. I’ve built a reference implementation, which means I built the software to do it and it’s running in just a few places. So mutual credit accounting is when instead of issuing tokens from somewhere and allocating them to someone where you’ve got all those huge political questions about where they come from, who issues them, who gets the benefit from issuing them, and who decides where they go in the first place. Instead of that we, you and I can just agree that um, between us we’ll have some, a credit line of 10 or a hundred and uh, it always has to get back to zero. So if I give you 10, you have to give me 10 back and then the position is closed because the trade is balanced and we can reopen it again if you like, but usually most of the time I’ll owe you something or you’ll owe me something. It just depends where we are at that moment. It can be very difficult conceptually when you have dollars in mind to move to another system because a dollar is a commodity currency in essence. And we’re talking about debt between us. So I can pay you as long as you pay me back, I can give you 10 bananas and you can gimme 10 apples and we don’t need any money. And we might measure that in a unit of fruit. So if I give you 10 bananas, then you’ll owe me 10 units of fruit and then you’ll give me 10 apples and then we’ll be clear again. And no money was needed. You didn’t have to issue any fruit tokens either. because you’re just measuring the temporary debt in fruit. And as long as we get back to zero, we don’t need to issue any currency or exchange any other commodities.
AW | 21:53 – But we could also complicate it by saying, you know, five bananas are worth 10 apples or whatever. Right. And then you could throw a mango into the bunch…
MS | 22:01 – Then fruit wouldn’t be the ideal unit of account. This kind of trade is possible though only when you commit to getting back to zero and balancing your trade. If you want to acquire money or seize other people’s goods through unfair practices, mutual credit isn’t the right accounting for you because it will show the imbalance when you have mutual credit. That means I owe you sometimes and you owe me. Sometimes the word kind of implies that that’s a debt and we need to get back to zero at some point. And you use mutual credit when you want to get back to zero and you want to have trade justice.
(Music Break) | 22:40
AW | 24:02 – This is Alex Wise on Sea Change Radio, and I’m speaking to Matthew Slater. He is a community currency engineer. So what is your vision now for the next decade in this space? Matthew?
MS | 24:14 – Well, I’ve broadened my interests from purely the currency into other forms of finance, what I’ve been talking about now, the mutual credit is very much about short term credit. because there’s, there’s very little risk that between me giving you apples and you giving me oranges that you’re going to default. And so when there’s very little risk, it’s very easy to lean on it, to trust it and issue it. But it’s actually not very useful for everyday life, especially because, um, we don’t trade in circles most of the time. Now we have a globalized economy and it’s very hard to make a circle through which you could make a, a loop and cancel out the use of currency in it. When we talk about finance, it’s much more touches everyday life. How can we, um, finance our businesses, finance our homes, and get through difficult periods in our lives? How can we issue the instruments to do that? And that’s kind of what I’m interested in now. Uh, and there’s a whole range of ways of doing it, usually between businesses, but there are personal things as well.
AW | 25:41 – So I hear a message of hope there. If we could check in in another decade, though, obviously you don’t have a crystal ball, but knowing the pitfalls that humanity fell into in the crypto bubble, bubble aside, is the blockchain concept a, a sound foundation to build upon for complimentary currencies moving forward?
MS | 26:04 – What I really like, one of the messages of blockchain was that we don’t need banks to do finance. Now, where they took it was we can fully automate all of these things and we don’t need policy, we don’t need community, we don’t need agreement. We just, uh, make the machine and set it off and it runs. That was the mistake. What I would like to take from that is that yes, we don’t need banks because we can do finance ourselves. If we can organize, if we can trust each other, and also if we can trade more with each other, then we can start to build a financial power and take financial responsibility in a way that the government is never going to do for us.
AW | 26:54 – So do you think that the mutual credit concept gives us an extra layer of insulation from financial collapse Matthew, or do you think it could accelerate it?
MS | 27:07 – No, I think anything that we do is going to be more stable because we’ll be looking after our own resources. And currently what drives financial collapse is that other people that cannot be trusted are looking after our resources. So I, I think the system lives on a knife edge and it needs careful watching not to collapse all the time. And I’m very sure it will collapse again. And that’s why I think it’s very urgent. Uh, the next collapse always being bigger than the last. It’s very urgent that we start to work together to look after our own finances and build our own financial instruments and tools and infrastructure using why not the latest technologies.
AW | 27:54 – Well, it’s always a pleasure to get your insights. Matthew Slater, thank you so much for being my guest on Sea Change Radio.
MS | 28:00 – Thanks for inviting me.
AW | 28:16 – You’ve been listening to Sea Change Radio. Our intro music is by Sanford Lewis and our outro music is by Alex Wise. Additional music by Jimmy McGriff, Elvis Presley, and the Grateful Dead. To read a transcript of this show, go to SeaChangeRadio.com stream, or download the show or subscribe to our podcast on our site or visit our archives to hear from Doris Kearns Goodwin, Gavin Newsom, Stewart Brand, and many others. And tune in to Sea Change Radio next week as we continue making connections for sustainability. For Sea Change Radio, I’m Alex Wise.