north quotient

Token Exchange Games

Last year I worked on a crytotoken project (www.projectubu.com) that is different to most token systems and currencies: The token was issued in rounds and every day user’s wallets would be updated according to a global rule that affected the entire ecosystem. Sounds like a UBI doesn’t it? 

But it got me thinking, all crytocurrency and token systems have issue mechanisms, a few have mechanisms by which tokens dissipate or get inflated, and locally there are rules by which the movement of tokens incur transaction costs. In any case, I had a Harajuku moment in which I convinced myself I needed to write a research paper that answered the question: “What is a Ledger?” And so, I wrote a paper, on ledgers as an abstract mathematical structure.

Here is the (short) synopsis of the research.

(1) We exchange tokens all the time, not just monetary tokens but tokens that get us on board buses and airplanes, tokens that prove our identities and tokens that give us access to our bank accounts. Each time an agent exchanges a token with another agent a network is formed. The agents are the nodes in the network while exchanges between agents are links in the network.

Here are some different examples: A non-exchangeable token (such as a tattoo) forms a special case of an empty network. In monetary and crypto-token systems the coins in your wallet are doing a random walk on the agent space, they hop from person to person like a web-surfer moving from site-to-site. I pass you an apple from my lunch box so you become the new owner of the apple, and it moves between us as a token in a token exchange game.

(2) Both the nodes (the agents) and the links (the exchanges) in the network have weights. In the “crypto economy” and the “real economy” agents have wallets and wallets have balances. Exchanges also have “value” in the sense that a fixed number of of identical tokens are exchanged. Monetary systems rely on tokens that are identical (bar the encoding on different media), transferrable, scarce and durable. This suggests a game in which a finite supply of tokens is distributed amongst agents for exchange, the tokens never expire, and the measurable object of the game is the token distribution. In these types of games it’s not the tokens in your wallet that matter but the proportion of tokens you own relative to the tokens that exist.

(3) We know that exchanges happen at different times and that balances get updated. A token exchange game has to proceed round by round, and to identify an particular exchange there are three primary points required: the start point, the end point and the time of the exchange. Edge weights and balances are data, but start points, end points and time of the exchange are meta-data.

This gives us a network that evolves round by round and has weightings on the nodes and the edges. It’s a very basic model of a ledger. It’s also a powerful way to describe single crypto-currency and crypto-token systems that evolve according to mathematical rules. But now what?

(4) Well, we don’t just use one network for exchanges, we use multiple networks. Playing monopoly involves two obvious ledgers: The “money” ledger and the “property” ledger. Each ledger has its own token set and the items within the token set are fungible with each other by “rules” that define the relative value of each token. (Our undsertanding of this is that five $1 bills is fungible with one $5 bill and so forth.) Then, depending on how the players define their agreements, Property A is worth Property B plus Property C. Further, property is fungible with money and visa versa: If the bank owns it you pay the full price to buy it, but if you need to mortage it you get the half price special.

This gives a four parameter model for a system involving multiple ledgers. In order to identify a transaction in this space the start point, end point, time of the exchange and the token type are required. The rules about how exchanges are correlated between distinct token types, and how tokens are issued and destroyed within token types depends on the players. But they can be modelled mathematically as a token exchange game.
Here is what I think the research implies.

(1) Crypto-token and cryptocurrency structures are natural examples of token exchange games and the rules of them can be modelled accordingly within this framework.

(2) Complex economies can be understood within the ‘price is information’ paradigm as mechanisms for allocating and distributing tokens. Economic rules that act iteratively such as tax and transaction costs can be incorportated directly. Inflation, savings rates and the velocity of money are more complex, but they can be constructed as metrics using the connection between linear algebra and networks. 

(3) Monetary systems evolve as a direct consequence of no-arbitrage arguments.

Here is why I think it’s correct.

Google’s search engine is based on the PageRank algorithm that models the web as a network. This network problem is equivalent to a problem in linear algebra which, in turn, produces as output the PageRank of a webpage that gives it a value relative to other websites. Each website own’s its PageRank with respect to a particular query. In a way, Google is a ledger created from a network, so if we run this in reverse it makes perfect sense to go from a ledger to a network. Over and above this analogy, models of the Lightning Network, the Circles cryptotoken, and the iterative Prisoner’s dilemma are developed within the paper.

Have a look for yourself - Token Exchange Games Paper

Information Overload

If you’ve ever jumped into the deep end of someone else’s project (as consultants do all the time) there is always a great deal of learning that has to happen very quickly. There’s no way to get around it, it’s just the way that things go: There are multiple tasks, agendas, hidden agendas and deadlines and a rafter of new people and relationships to build. And, life just keeps rattling away moving forward. How does one deal with this type of novelty complexity?

1. Find your own oasis nearby: A coffee shop, a park, a place that you can retreat to when it is all too much. A go-to retreat that is near your new environment can help you to deal with the overwhelm. Mental resources are precious and scarce, and in order to navigate the new these resources need to be replenished. It doesn’t matter how great you are at what you are doing, when you are exhausted everything suffers!

2. Be open to feedback and communication. If you are jumping on a train that is already going, be careful not to sit in someone else’s seat and make sure that you soak up the insider information that your new team mates have to offer you. It’s a good chance to exercise your listening skills. Tune in, don’t drop out. Ask your own questions if and when appropriate, but look to keep the discussion going instead of closing things off.

3. Look out for the hierarchy and your place in it. Workplaces are full of hierarchical tiers. These are people places and where there are people places there are pre-existing people politics. It’s not a good idea to take sides to early or to over step your marks. Actually, depending on the length of your contract you may never have to engage with this at all. But be careful, because getting snared into office politics drains resources and if you are information overloaded, then you do have to set boundaries and protect your most valuable problem solving resources: Mind + Time.

4. Exercise your no! Boundaries again.

5. Finally, persist and just take one step at a time. In the long run, seemingly infinitesimal progress can still add up to substantial results.

Salani kahle!

Project UBU: A Macroeconomic Upgrade

As a teenager with a paraplegic parent, an article that I read over and over again is In Service of Life by Rachel Remen. In her article, she speaks of the subtleties that differentiate the experiences of helping and being helped, and serving and being served: Helping is not a relationship amongst equals. We help from our strengths and create the ‘helped’ as inadequate and in need of fixing. Serving, on the other hand, is an acknowledgement of our mutual vulnerabilities and culpabilities as human beings. Helping, she argues, is the work of the ego while serving is the work of the soul.

Unfortunately, this story is not any different at the scale of the global economy. The story of helping is the main theme of how the world attempts to tackle poverty. Internationally, we donate, give aid, give loans, make appeals while simultaneously charging interest, imposing conditions, exploiting unprotected labour, and sending in armies disguised as peace keepers. At home, in our own countries, we complain about decay and corruption, cheap imports, lowering standards, and our own impoverishment by taxes, inflation, governance and the financial system.

But here’s the rub. The financial system is just the software that is used to govern the exchange of value between humans. And while the debt, interest, inflation, taxation model has been around for a long time, it can also be upgraded and reconfigured. Blockchain technology and the development of decentralized payments systems has been a quantum leap forward, but how can blockchain be leveraged to serve, rather than help the world’s poor?

An idea in this vein is Project UBU which aims at creating both a blockchain based financial service and a scalable marketplace for business. Birthed in South Africa, one of the most unequal countries of the world when it comes to income distribution, the project aims to tackle poverty from the grass roots. Now, before cynically claiming that this is just too good to be true, it is worth looking in detail at the ‘how’, and the complex business model with the ambition to
translate this idea into reality.

First, the project aims to create a complementary currency, the Universal Basic Unit or UBU, which can be distributed as Universal Basic Income system to all participants or UBU citizens (poor or not poor, just sign up). The currency will be distributed via a block chain based mobile phone application that works as an UBU wallet. Each participant will receive 100UBUs per day into the UBU wallet. The only caveat is that if they remain unused the wallet will dissipate UBUs back to the UBU treasury so that they can be reissued. Dissipated UBUs are not destroyed, but once the volumes of UBUs that are issued daily and the UBUs that are dissipated daily are equal, the number of circulating tokens will become stable.

Then, concurrent to the citizen process, the project aims to recruit participating UBU vendors whose role it is to ascribe value to the UBU in the form of goods and services. Vendors have their own application that can be used to market directly to UBU wallet holders. Jointly, vendors and citizens create the UBU marketplace; the second aim of the project. Initially, citizens will have UBUs to spend, and vendors will offer something for these UBUs. In principle, it all sounds very good, but why would vendors agree to this? Where will the UBU get its value from?

If enough traction is created and Project UBU can recruit sufficient numbers of citizens, then vendors get value from the UBU through the marketplace: The application is a powerful marketing device that could bring customers with fiat currency and UBUs to spend into stores. Vendors with moribund stock could price this stock in UBUs and thereby turn a loss into a gain. And, ultimately,
vendors with accumulating UBUs could use UBU as a loyalty program. The premise is that given a sufficiently good platform for connecting people, the market will find uses for it.

Now, more poignantly, how will UBU serve the world’s poor? The project gives each participating citizen a certain amount of guaranteed liquidity per day. This creates economic inclusion and acts as a passive income. The system acts as a banking platform which micro-entrepreneurs can leverage to create businesses. In a country like South Africa where the government grant system is poorly managed and often corrupt, UBU could fill the role of a transparent payment and aid delivery platform. Effectively, UBU creates resilience in the economy by providing alternative, complementary liquidity to regular fiat currency.

So why invest in UBU? At large enough scales, for example, if the business hits the 500 million user mark in the next 10 years, the system will create value for citizens and vendors across the board. Picture this, you are taking a 14 hour flight and the airline offers a last minute upgrade from economy. The upgrade is priced in UBUs, because they couldn’t find anyone who wanted to buy the seats in fiat. You don’t have enough UBUs in your wallet, so you buy more on an exchange. The exchange pays an UBU seller on the other side of the world the fiat he needs to invest in his “spaza” shop. Multiply these types of interactions across a global economy and the effect is very powerful.

Thanks to angel funding from GlobalVoice of Norway, the software for the project has been under development for 30 months and the next step is to get citizens and vendors on board. The initial token offering or ITO which allows one to buy the UBX token, a derivative product based on the UBU, is currently open. Further details may be obtained from the white paper at www.projectubu.com.

Project UBU: Advertising with a Difference

A major use of the Internet has been to match customers to businesses. Advertising is what drives the revenue streams of the Internet’s megaliths Google, Facebook, Twitter, and the intelligent use of customer data to advertise is what Amazon’s retail empire is built on. A result of this is extreme personalization: The information that we receive through these services is attenuated to our historical tastes and preferences. Algorithms, these days, do the job of figuring out what you would like to buy, and selling it to you. On the other hand, customers are savvier, and more information is available on product reviews, prices and service complaints.

But what if your marketing problem is intractable? Push advertising doesn’t work because the product is already well known and supported, and pull advertising doesn’t work because as brand loyalty is well developed. Do these intractable marketing problems even exist?

Here is one that is local to South Africa and it might be global too: Post the 2010 world cup, there are a handful of very modern, exquisitely designed, stadia in the country. They were built for two purposes: to host the world cup, and to create facilities for the local Premier Soccer League. The trouble is that seven years later, unless the big teams are visiting, it’s a struggle for clubs to fill all those seats. For those South Africans who support local sides, it’s relatively cheaper to buy a satellite subscription than to buy a season ticket and, then, there’s the cost of travelling to the games and the paraphernalia that goes with it. Sure, most of the money in sports is tied into television, but how can one get bums into stadiums and off couches?

Project UBU (if you haven’t heard of it already) is a block chain based Platform as a Service business that aims to deliver a Universal Basic Income product to the market. Translating the jargon, this means that you get some tokens as a reward for downloading the UBU app and participating in the project. Then, as a token holder, you can exchange these tokens with participating vendors for products that they are willing to price in UBUs. More specifically, the vendors can advertise these products to you directly through the UBU app.

Now, an empty stadium seat is an economic waste and a game without stadium atmosphere looks terrible on television, but traditional marketing cannot fix this problem. Those that are loyal to the brand, especially lower and middle income South Africans, have a more cost effective substitute than going to the game directly. What can UBU do?

In theory, the lost value of an empty seat could be priced in UBUs and then advertised using push notifications to people in the vicinity of the stadium through the UBU mobile application. People could buy tickets immediately in UBUs instead of fiat currency, and what would have been a dead economic loss for the customer and the vendor could be transformed. The fiat cost of the game has already been paid for by television advertising so getting paid in UBUs for those empty seats is a net benefit for the vendor. And, this is but one example, there is significant economic waste in the world because vendors can’t find customers for their stock before it expires or willing customers don’t have the available liquidity.

More generally, if we think of the stadium ticket problem as a moribund, expiring stock, problem for the vendor, then it is easy to grasp what Project UBU can do for business: Project UBU aims to solve every instance of the stadium problem, all over the world, through a massive collaboration between vendors and customers. The project is creating a complementary currency that can unlock lost value and deliver that value back into the economy; especially to those in need. Now, isn’t that fantastic?

If you would like to invest, the Project UBU ITO is currently underway and many more details can be found in the white paper at www.projectubu.com. The goal is 500 million users in 10 years, and worldwide vendor engagement. It’s ambitious and a bit unconventional, but global poverty has not yet been solved using conventional means.

Note that this article also appears on www.projectubu.com.

Project UBU: Why invest in the UBX token?

Project UBU is a cryptocurrency system that aims to deliver a Universal Basic Income product to the marketplace. The basic premise is to use a block chain protocol to deliver a fixed amount of tokens called Universal Basic Units or UBUs into a participating “citizen” wallet. The tokens may be spent at participating vendors or exchanged between citizens, and the UBU mobile phone application acts as both a marketing system and a financial service. A separate application is in development for vendors, and this also works as a point of sale payment system. As a means of funding the growth of the project and the enrolment of citizens and vendors, an ITO has been offered for the an UBU derivative product called the UBX token. The UBX pays the holder an amount of UBUs per month that scales up with the number of participating citizens. The article below explains why the UBU and UBX will hold value for investors.

The first question that most investors ask after reading about Project UBU, UBUs and UBX tokens is how (and why) will the system hold value if UBUs are being issued en masse? The second is, why buy an UBX token if one can just go out and collect UBUs? The UBU yellow papers provide a detailed mathematical answer to these questions which is good if you understand that sort of thing, but completely opaque if you do not. What is the short answer?

At its heart Project UBU is a marketplace that connects vendors to potential customers or “citizens”. The theory goes that vendors and citizens will engage with each other using the UBU as a means of exchange and, as vendors price goods and services in UBUs, the UBU token will obtain a value. UBUs are issued to citizens at a fixed rate of 100 per day, and participating vendors give a place where the daily issue can be spent, attracting customers and other intangible benefits in the process. Unfortunately, for a sceptical investor, this is not quite enough: How can the currency hold its value, especially if UBUs are being handed out like sweets?

First off, there is a built in counter-inflationary mechanism written into the block chain protocol for UBU. Every citizen wallet has a ‘fixed point’ of 10000UBUs (or 100$ if one goes at a ratio of 100UBU: 1$). If the wallet contains more UBUs than this amount, then over time the balance will decrease daily until it hits the 10000UBU limit. Similarly, if the wallet contains fewer UBUs than this amount, then the amount will increase daily until it hits 10000UBUs. Why is 10000UBUs the magic number? Think of an UBU wallet as a balloon that is being pumped up with air at a fixed rate, with one caveat: The balloon has a leak somewhere. Unless you are entrepreneurial enough to increase the daily rate at which you collect UBUs, your balloon is going to stay at a certain size as the incoming air balances with outgoing air. This is the clever Universal Basic Income aspect of Project UBU which encourages people to transact with UBUs on a daily basis, become UBU entrepreneurs, and build an UBU economy.

But, if millions of people are collecting free UBUs, then, surely, there will be UBU price inflation? More and more UBUs will chase goods and services supplied by vendors and the token will lose purchasing power. Yes and no. As citizens join the project more UBUs will be issued, however, the value proposition for any given vendor to price and discount items in UBUs will increase, and so the real economy underlying Project UBU will grow. Further, this growth will be faster than the rate at which UBUs are issued to additional citizens. The idea is that, from a vendor perspective, Project UBU behaves like a Universal Rewards System that can be used to attract and retain customers.

The core argument is as follows: The more citizens that sign up ro receive UBUs in a given region, the more effective the system is for the vendors in that region, and the more value vendors will be willing to ascribe to the UBU. Moreover, vendor-citizen ratios will stabilize in specific regions. This, in turn, will create price stability in the UBU region by region. The mathematics backs the idea up by connecting growth in UBU citizens to a logistic population model: Eventually, as citizen numbers stabilize, per day issued UBUs will be equal to per day dissipated UBUs and circulating UBU volumes will stabilize.

Why, then, is the UBX token a good investment? There is one simple answer: The magnitude and scale of Project UBU. Cryptocurrency and token values are driven by powerful network effects as more people enter the cryptomarketplace. Project UBU aims to enrol around 500 million citizens and a commensurate number of vendors over the next 10 years. At this level 1UBX token will pay out an ongoing 500UBUs per month, and 1000UBX tokens (equivalent to a $5000 investment today) will pay out 500,000UBUs per month.

The long run expectation is that UBUs will become fungible with conventional money, and investors will be able to obtain a fiat return. As fiat holders see a value in buying UBUs to obtain unique UBU denominated rewards, goods and services from vendors, the UBU can obtain a fiat value on an exchange. At a peak of 500 million citizens an average demand of 1$ worth of additional UBUs per citizen per day implies a daily fiat market for UBUs with a volume of half a billion dollars. At this scale, it is easy to anticipate the development of UBU exchanges and the equivalence of UBUs with fiat money. The UBU counter-inflationary mechanisms will help to keep this equivalence stable. At an exchange rate of 0.01$ to an UBU a 5000$ investment into UBX tokens today has the potential to pay 5000$ per month for as long as the system is operational. And that is very good value.