Freicoin is a peer-to-peer (P2P) currency based on the accounting concept of a proof-of-work block chain used by Satoshi Nakamoto in the creation of Bitcoin. Unlike Bitcoin, Freicoin has a demurrage fee that ensures its circulation and bearers of the currency pay this fee automatically. This 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.
A bit idealistic, but the concept is good. Let’s keep money moving though the economy.
Demurrage is the cost associated with owning or holding currency over a given period. It is sometimes referred to as a carrying cost of money.
With demurrage the velocity of money is predictable. It can prevent hoarding of currency and to keep money circulating at a rapid pace.
In the scope of urban development, incresed monetary velocity means increased transactions and increased transactions means increased economic activity.
That’s all great but why would this matter to Square?#
I wrote a little about the benefits a reward system with demurrage could have on urban development, and how I think Square could be the nexus of distribution.
Square is driving a revolution in payments. Merchants have access to dynamic powerful POS systems and consumers have access to similarly powerful payment apps.
I use Square Wallet occassionally in San Francisco (much more frequently in neighborhoods like the Mission), yet I rarely come across merchants using their reward feature and it’s not an important feature for driving Square’s revenue.
In a space where Groupon, etc. have failed to deliver a good engagement and retention tool to merchants, Square has an incredible opportunity. By building a reward system a community of merchants can participate and benefit in, Square would have natural virality in their rewards product.
About demurrage, one more time#
The velocity of money is important to urban development. The problem with inflation is unpredictability. Removing that uncertainty and letting customers know when, and by how much, their rewards will decline allows them to better plan their purchases.
Creating urgency to use the rewards, whether in the coffee shop you earned them at or the clothing boutique down the street, is crucial to supporting small businesses.
Additionally, because of the structure of Freicoin the reduction in reward value can be returned directly to the merchants, further incentivising them to participate.
What do you say Jack Dorsey, wanna build a better local commerce rewards system for everyone?