A Thought Experiment.
Let’s imagine this strange village of Magicians. Everyone is a magician as their side job — you can’t really make a living out of it, surely not where everyone else has magical powers. So there’s a shoemaker magician, a grocery store owner magician, a fisherman magician — all these guys are there.
The Thing about Magicians, is they really appreciate a Good magic trick. So their currency naturally developed to be the following -
If the Grocery guy wants to have some fresh fish on sale, he will go to the fisherman and show him a magic trick the fisherman doesn’t know. If indeed the fisherman was astonished by this magic trick, he will give him fresh fish. If not, he may ask to see other magic tricks until at some point he is convinced.
Now, The Fisherman also knows a new trick. He can now show this magic trick around to other people — he can show it to the shoemaker and get some new shoes, he can show it to his children’s tutor as his monthly school payment. The Grocery guy can also keep showing it around — Until within a few days, everyone will know this magic trick, and they would not be able to use it anymore. They’ll have to come up with new magic tricks.
It’s a ‘Kind of’ solution to the Double spending problem — you can call it an asymptotic solution. By Spending you let out your magic trick and you can be sure that within a short time it will spread and become unusable.
What will an economy ruled by the Magic-Trick currency look like ?
Hard to Tax — If the Government will take 30% of your magic tricks every month, probably by the end of the month everyone will know these magic tricks anyway. Then the government will have no use of what it collected.
Granularity issue — Having a magic trick is 0/1 situation. It’s sort of a liquidity issue — there probably aren’t that much magic tricks, and then you need a system that will somehow allow you to buy a can of coke and toilet paper and a lightbulb, all with different prices and it can’t work too well.
Highly Volatile — If someone has a new magic trick that no one else has, he can go a long way with it. He could go in the street like a king, giving it to the homeless guy playing the saxophone, buy a meal at mcdonalds, have a tailor make his tailored suit. Just about everything. So I will get a lot of value for my magic trick but on the other hand if I’m on the selling side I will have a lot of people coming to me and taking all my merchandise the same way.
How Do Loans Work ? — Say I need a loan of 400 magic tricks to buy a house. I go to Bank I and take the loan. I go to Bank II and take the loan. But then I go to Bank I and pay with Bank II magic tricks, go to Bank II and pay with Bank I magic tricks, and I go to the landowner and buy the house anyway. Some people would benefit a lot from this kind of arbitrage, though in the long run the banks will have just the same magic tricks, right ?
Implementation
Magic-Tricks, Right ? Let’s just call them chains of prime numbers, .
Say Agent 1 knows a chain of prime numbers that Agent 2 doesn’t. He sends him a hash of the numbers and the length of it — Agent 2 says OK, you can pay with that, a 512 digit prime numbers chain is the price I want. Then Agent 1 makes the transaction, Agent 2 verifies it’s indeed prime.
Every agent needs to remember all the prime numbers he currently owns. He can ‘mine’ new prime numbers chains as he wishes.
To Avoid Infinite memory consumption an Agent can limit itself to use only a length range. Say prime numbers that are 512–1024 bit. He will accept only these.
It’s not easy to acquire new currency out of the blue — you get to higher and higher prime numbers.
What I like about it is it operates without a blockchain, ledger, all these online stuff. You can walk in the street with your prime wallet and just shoot prime numbers at people.
What I don’t like about it is all the disadvantages mentioned before. It’s not really a Currency, Right. I guess Offline Bitcoin is unfeasible, though I’m yet to see a concise proof for that.
My Conclusion
Though quite straight-forward not a viable solution for Currency, The Magic-Trick economy is a nice thought experiment that enabled me to strengthen my understanding of what is currency and what do we expect of a good currency.
I’m Really curious to see a limited Experimentation in it — Trying to predict what will happen is quite hard and complex, and real life experiments with real players can teach a lot about the Mechanism, institutions, Price-Tags and Practices that will emerge under such currency. I Think this village of magicians is worth a Board Game.