Show HN: Offset – Credit card powered by trust between people
offsetcredit.orgCongratulations. You have reinvented tally sticks.
Snark aside, I wish you lots of luck, have thought about this model a lot, think there is probably a small place for it in the world.
Two suggestions from random stranger on the internet, take them for what they're worth:
* don't use the word "money." This is a private credit network, not money. Private credit networks sometimes become money, but they don't start out that way. Stick to that language.
* don't solve for "inflation." There is a lot more to say here but fundamentally there is a tension between store of value and medium of exchange. Be a private credit network/medium of exchange, not a store of value.
Good luck!
I'm not really clear on how this is supposed to interact with the real payment system: is it a credit card, with a normal acquiring bank? Is there an extension of credit?
Because all credit is also money creation! (Broad money). Anyone with a pen can create money by writing an IOU. This is one of the things the goldbugs don't seem to understand properly.
Also, if this is some form of geek "hawala banking", how does it avoid running into the need for money transmitter licenses that has plagued attempts to legitimse bitcoin?
Yeah...my limited read of it is, first off- from a biz perspective, it's a toy. It has a toy understanding of money, a toy understanding of inflation, a toy understanding of payment...but the mechanism they have stumbled upon has underlain real-life credit systems for thousands of years. Lots of successful things have started out as toy implementations from toy understandings that get usage and users and become real. The Pinocchio story, rather than the Cinderella story.
My understanding is it would have the trust aspects of Hawala banking, but for goods transmission, not actual money as occurs in Hawala. I don't think there is a money transmission problem.
I am sure were this to be real that there would be a tax problem. There would need to be reporting of sales and so forth, in fiat equivalent.
I don't know that there needs per se to be connectivity to real payment systems, though there do need to be real identities.
Anyway, just guesses. Glad to see it.
> Because all credit is also money creation! (Broad money). Anyone with a pen can create money by writing an IOU. This is one of the things the goldbugs don't seem to understand properly.
I cannot do fractional reserve banking. And if I can't do that then I can't really create money. A bank can have a fraction of the real hard currency that others can spend in "reserve" (physical or electronic). I cannot do that, I cannot borrow you $50 and some other guy $50 if I only had $50.
So I dunno, depends on what you mean by money creation, but writing an IOU is different from what money creation is in the sense that most people mean. It is closer to issuing a bond, which is not really money creation.
If I have $50 and I use my credit card, and send $50 each to my very trusted friends A, B, and C via, say, Venmo, is that not fractional reserve banking, built on top of my credit with my bank? I've not independently created any money since this only works because of my bank's credit to me, but I've still created $100, no?
Well yes, your bank did create the credit, at your request, and the money they created went to you which you gave to others. So you were instrumental in the process, but without the bank that can do fractional reserve banking none of this would be possible.
Could you care to explain what you mean by "... but fundamentally there is a tension between store of value and medium of exchange"
What is the tension?
Broadly speaking there is a tension between those two aspects of money that shows up in economic context: store of value optimizes for asset qualities, preservation of value in the face of inflation, risk, etc; medium of exchange optimizes for liquidity, fungibility, etc.
There is also a tension between those two aspects from a product perspective. The various aspects of money are slowly getting decomplected and decoupled. BTC does a perfectly fine job in the market solving for the store of value feature, and in particular for the inflation-hedge subfeature. It is a terrible medium of exchange.
As a product, Offset should leave store of value be and just solve for medium of exchange. From store of value perspective, touting Offset as an inflation hedge is going to turn out to be wrong, because their toy world understanding of inflation is wrong. But there is opportunity in medium of exchange, and plenty to do there. Focus on getting users, transactions, dealing with fraud, liquidity issues. Get trains running on those payment rails.
This kind of private credit network has existed for thousands of years. Find the specific ecosystems today in which this sort of private trust/credit machinery is compatible, ergonomic, and automating it meets a need. There are potentially lots of them!
> there is a tension between store of value and medium of exchange
This tension only exists under Keynesian reasoning. It goes away when you use a theory that does a better job handling equilibria.
The Keynesian claim is that if you have a deflationary medium of exchange, people won’t spend it. This isn’t actually true - the end result of a predictable deflationary asset (e.g. something with a fixed or essentially fixed supply) is similar to the situation we have now, but more efficient. Instead of having, say, 10% of your money in cash and 90% in spoos to avoid getting screwed by inflation, you can just keep 100% of your money in cash. You will have the same exposure to global capital growth, people too poor to have a brokerage account will have exposure to growth as well, and you don’t have to deal with converting between spoos and cash when you spend money.
It's less that they won't spend it, and more they won't invest it. As you point out if you can get exposure to global capital growth by keeping your money in cash you will do that. This starves the world of risk capital being invested in new projects, the net benefit of which is responsible for capital growth. So nobody invests and technological progress drives to a halt (well maybe governments invest in military technology ands whatso but net investment in risky tech drops).
Why wouldn't they invest if potential profitability of investment was higher than that of not spending their money?
The problem is, the poor have almost no access and no knowledge of the savings instruments other than cash, so that means that in some way inflation forcibly drains their money to risk investment.
I think your assertion that inflation (money printing) is necessary for inflation is wrong and certainly not obvious. Investment necessarily comes from savings. One must not eat some of this year’s corn so as to have next year’s seed. Whether state-forced savings through inflationary bank loans is better than voluntary private savings should be answerable by studying history. Was there better investment historically in countries where the state devalued money in favor of banks, or in countries where money was not devalued?
> One must not eat some of this year’s corn so as to have next year’s seed
Corn is a productive asset that generates more corn. Money is not, in and of itself, a productive asset. One of the essential insights of Keynes was that it was possible for real productive capacity (machinery and labour etc) to be idle simply due to lack of liquid money to flow through the system. This was why consumer credit was so crucial to kickstarting modern consumerist economies: like Ford paying workers so they could afford the products, injecting credit allowed consumers to buy items creating jobs to make products, which jobs then allowed consumers to pay off the loans.
"Shortage of specie" has been a real economic problem at times; e.g. https://www.cambridge.org/core/journals/journal-of-economic-...
A deflationary money would incentivize more careful investment and consumption, rather than rampant malinvestment and wasteful consumption which is detrimental to our health and our environment.
But here's the issue in Keynesian thinking, all savings is investment, it's investment in money. Like any investment, it has a return (which comes from the increased value of money), and risk (if instead of increase value, the value of money is decreased).
Yes, but hiding your money in the mattress doesn't create jobs, businesses, innovation, etc. I fail to see the "issue in Keynesian thinking" you're talking about.
It does. When you hide money under your mattress this is equivalent of you giving your money to all the US dollar investors out there in proportion to the amount of investment they're making.
So let's just say if there is a small economy where there are only two investors you and Elon Musk, and you decide to skip investing in any business and hide money under the mattress, then this is equivalent of you giving the money to Elon Musk to invest in his business. How? Because now you're not competing him for raw materials, labor and capital.
Then when he built self-driving cars and economic growth happens because of this productive activity, when you take your money out of your mattress it is now worth more , and I'm presuming no new dollars were produced and this time.
You can see the effect if a major stockholder of a company decides to not participate in the functioning of the company, this in effect is equivalent of him lending his stocks to the other stockholders. This does not mean that somehow the company is working at a reduced power.
Ah ok I see your angle now, but I think there's a critical flaw.
Your investment into the general market is really only the amount of interest earned on deflation of that amount.
Compare this with investing the whole amount into a local bakery. The utility difference is dramatic.
> Your investment into the general market is really only the amount of interest earned on deflation of that amount.
Your investment is the whole amount which would have purchased the 3 components of production (land/labor/capital), because the price of all these goods have fallen, which have allowed other entrepreneurs to buy them for their own investment.
What you're saying is like telling people who invest in index funds only that their investment is only the interest on the yearly return they get from the fund.
> Compare this with investing the whole amount into a local bakery. The utility difference is dramatic.
I do not agree that the utility difference is dramatic. The utility difference is closely proportional to the difference on expected returns.
I really enjoyed reading this.
Lol, I should tell you about my thought experiment of capitalist society of perfect inequality (or how it would be an amazing place to live).
Hiding money in the mattress has no net effect on the number of jobs or businesses or innovation. I used to have the same reservations as you - the problem is that I was stuck on a local Keynesian/“Newtonian” view of the problem which makes it hard to predict equilibrium states. You need to switch to a “Lagrangian” view where you don’t have to manually step through all the decomposed effects of a marginal change in the money supply. A key realization is that humanity’s labor capacity at any instant is 100% independent of the number of dollars.
You just redefined what the word "investment" means, this is not a proper argument. Investment is relatively well-defined in ecomomics, see here for an introduction: https://en.wikipedia.org/wiki/Investment_(macroeconomics)
If you're going to be so specific about the meaning of the term investment than this is equivalent of saying that when you hide money under the mattress it is not outside the mattress.
His point was that when money is hidden under the mattress it is not serving an important function which would be if it wasn't under the mattress. I disagreed with that and explained how it worked.
I'm not trying to be pedantic, but saving and investments are two distinct activities with distinct economical outcomes. Fruitfully discussing economics on the internet is hard enough as is, deviating from standard meanings of core terms isn't exactly helpful.
Yes and I understand, my point is that savings and investment aren't really qualitatively different activities. Savings are investment in money, and 'Investment' is investment in non-money goods.
But there is a qualitative difference! Storing excess capital into money is "saving". Using this saved capital to buy a car for private use, or videogames, is consumption. Using the money to produce more capital, like buying a machine for work, or even "buying" a degree at a university, is investment. The transformation of money into another store of value or physical thing is is not automatically investment, and the economic results are different.
You can also check this thread: https://news.ycombinator.com/item?id=23452897
The fundamental idea is that if you store your money under the mattress then this is equivalent of investing in the most diversified index fund out there, you invest in EVERY business and CEO out there who operates in the USD economy.
This generally is a bad idea because the Federal Reserve produces more money which results in reduced returns, BUT, this effect is really visible in fixed money supply economies such as Bitcoin. By hodling bitcoin you invest in every bitcoin business out there (including the scams) because by not competing with other investors for the same resources, you allow them to operate at a bigger scale.
This line of argument also suffers from the Keynesian tendency to view money as a kind of physical constraint.
The global capital market is a continuous auction process to allocate the world’s collective productive output at any given time.
Inflationary money: people have to place meaningless low-information randomized “bids” (buying spoos) to protect their assets from inflation. This crowds out high-information directed bids.
Deflationary money: people without an edge simply refrain from placing “bids” (by saving cash) and each unit of money that does get spent on bids has more power to influence the allocation of capital.
In the end, I expect it to come out in the wash. You might actually see more capital invested in stuff like R&D because you have less money blindly pumping up entrenched large-cap valuations through spoos. That depends on how good of a job fundamental analysis funds are doing in today’s world.
Thank you, agree with that, and actually was not suggesting to stick with medium of exchange for technical considerations. More about product focus. The BTC people have the asset/inflation hedge thing nailed. Leave them to it. Disentangle the things that are money.
Here, prices in the offset ecosystem are going to float because goods are exposed to/sources from the actual money ecosystem. There will be aspects of inflation, both colloquial and technical. It doesn't sound like they understand the claim anyway. Just let it go. Focus on liquidity, fraud, utilization, ergonomics. Get trains riding on those payment rails.
If there’s no compensating benefit that necessarily requires inflation, why would I (as a rational self-interested person) ever prefer to keep any of my holdings in an inflationary asset? If you can come up with a great inflationary payment system, someone should just copy it but make it deflationary, and it’s instantly better. (Unless there is actually some killer feature that requires inflation.)
Well, I would argue credit is the compensating benefit- and killer feature- that historically goes hand in hand with inflation, and I would say it this way- credit is generally the mechanism by which assets are discovered and incorporated into the economy, thus "inflating" it (not the technical definition of inflation, of course) and benefitting all. Technical definitions of inflation are just various measures of changes of liquidity in the credit economy.
Whether a deflationary payment system is instantly better, for me, that's a philosophical argument, between liquidity and value.
Life is uncertain. Humans take risks, invest, speculate, even just work- they need liquidity to do so, and credit mechanisms and accounting provide a structured way to do so.
I am interested in what Offset discovers, and think there is new value to be discovered in keeping a (necessarily inflationary) credit system separated from the rest of the financial world.
Cheers.
I think I need to clarify a bit - I'm distinguishing "endogenous" inflation (money printing) from "exogenous" inflation (credit), because credit has natural feedback mechanisms that make it less/not disruptive to pricing.
The presence of credit denominated in some asset does not make the asset "inflationary", even if the effective supply can fluctuate. You can certainly have credit (and concomitant liquidity benefits) in a deflationary asset - this kind of lending happens millions of times every day when people acquire locate for a short sale in the securities market.
This is interesting, but I’m really skeptical about the implementation. I’d really kind to see a much more concrete specification, and details about adversarial conditions.
It feels like it’s easy to create identities, establish credit lines with no intent to repay, and propagate bad money into this system. It only takes one bad actor to corrupt the chain of mutual credit. From the documentation on the website it’s not clear at all how it handles even simple adversarial conditions like this. The fallback seems to be that you can limit what you are willing to lose by only establishing mutual credit up to a certain amount with each trusted party.
If a store doesn’t have a direct relationship with me it has to initiate a payment between an arbitrary number of intermediaries in order to fulfill the credit. Anyone have more insight into the practical application of mutual transitive credit?
Hey, interesting questions. Let me try and answer.
> I’d really kind to see a much more concrete specification
The best I can show you at this point is here: https://docs.offsetcredit.org/en/latest/theory/mutual_credit... This document is far from a full mathematical proof of safety, but it shows how things work. I expect the protocol to change in the next months, so I didn't want to be too detailed about the current protocol. Just to be sure it is known, Offset is open source, and you can find the full schema of communication here: https://github.com/freedomlayer/offset/tree/master/component...
> It feels like it’s easy to create identities, establish credit lines with no intent to repay
You can in fact create as many new identities as you wish with Offset, however, an identity doesn't worth much without established credit lines. Establishing a credit line requires human intervention. You will not be able to trick your human friend into adding your multiple identities of yourself as new credit lines to his Offset client. In other words, what protects you from Sybil attacks here is real world relationships with people.
If you ever decide to open your own "hub" or "bank" with Offset, giving credit lines to many strangers, you might want to have extra security, like maybe asking for their id card, or asking for some kind of collateral. But if the people you arrange credit line with aren't strangers, I don't think you have a real issue here.
> It only takes one bad actor to corrupt the chain of mutual credit
A bad actor can only compromise his direct "Offset friends", not a whole chain. When you set up your Offset node and add credit lines to your direct "Offset friends", you have to set up credit limits. Those credit limits limit how much money you can lose if any of your friends defaults. You can never lose more money than what you set up as your credit limits. If a friend of your friend defaults, your friend loses the money, not you.
> If a store doesn’t have a direct relationship with me it has to initiate a payment between an arbitrary number of intermediaries in order to fulfill the credit
Offset does this automatically for you. You don't really need to worry about this during the payment.
I might have missed something with my answers. Please tell me if you think something is missing!
I think what I’m missing is how a default works in this instance. If I establish a 200 unit mutual credit line with someone, spend 200, what does a default look like? Is there some time period in which I have to pay it back? Without collateral it seems that there isn’t a way to enforce payment.
If I buy a good, from someone accepting offset do they pay me back in credit the value of the good that they deliver? Thus netting us back to zero?
Thanks for answering my questions.
> I think what I’m missing is how a default works in this instance. If I establish a 200 unit mutual credit line with someone, spend 200, what does a default look like? Is there some time period in which I have to pay it back? Without collateral it seems that there isn’t a way to enforce payment.
Who do you think the "with someone" is? It's either a friend who is willing to loan you $200 whenever, or a credit company who will offer you $200 in exchange for information about your employment, spending, etc.
What do you think your friend does when you stiff him? He might offer a repayment plan, or to forgive your debt, or maybe he sues you in court and stops being your friend. Same thing that credit companies do.
> If I buy a good, from someone accepting offset do they pay me back in credit the value of the good that they deliver? Thus netting us back to zero?
No. That's between you and whoever you and this other someone know in common (the someone 1). It's credit, not cash.
This looked initially like a cool idea, then I realized that to trade with someone you have to have a mutual credit line with them, or through someone who already has a credit line. How is this any different than the current model, where the bank/government/central money issuer is our mutual credit line and why wouldn't this model eventually end up with banker-type people managing the credit for everyone? You could go now to a bakery and ask for mutual credit, the problem is they would prefer the safest route, which is credit through the current monetary system. How is Offset protecting against the same thing happening? Am I missing something?
If one, this would be open.
The current banking system doesn't suck because people are greedy or bankers are bad people. It sucks because it is closed and no one can join.
(If you're tempted to say: "no, anyone can join, they just have to fulfill the regulations blablabla", then this is your answer.)
There are local communities around the world that run their own credit lines for exchange of goods outside of the banking system, so it's not that Offset is enabling something that isn't happening already. Maybe the software is more convenient but is it any more different? I'm trying to understand. My question is what's preventing few people accumulating trust and credit lines and eventually becoming bankers for this system? Everybody needs bread, but those that sell bread don't need javascript applications, so there has to be a middle man even in this system for me to buy bread. The current banking system exists because it has established credit lines with goods that are almost impossible to acquire without a middleman, like petroleum, electricity, infrastructure.
> My question is what's preventing few people accumulating trust and credit lines and eventually becoming bankers for this system?
The way I understood it nothing is preventing people doing that. Quite the opposite, in fact. That's the whole idea. That's what is supposed to happen. The difference is that the barrier to entry for those people is essentially nothing, rather than having to start an actual bank, which will encourage local competition, keeping fees low.
> My question is what's preventing few people accumulating trust and credit lines and eventually becoming bankers for this system?
That would be great, it would be more credit for everyone and wouldn't take away anyone else's credit - and if they start misbehaving they can be quickly replaced.
> It sucks because it is closed and no one can join.
Playing the devil’s advocate, limiting the number of bankers may make it easier* to regulate their behavior as a whole, because there are fewer of them to monitor/investigate. Predatory or exclusionary lending can be difficult to detect and curb already: increasing the number of actors to regulate may make it near-impossible. What are your thoughts on protecting borrowers in a web-scale marketplace of lenders?
* independent of other variables, such as the ability of the wealthy to influence policy in their favor
Exactly, nothing is stopping few individuals from becoming mafia. Eventually a secondary system needs to be established to regulate those guys at gunpoint, then voila, you've got current society.
> "no, anyone can join, they just have to fulfill the regulations blablabla", then this is your answer.
Banking regulations are hard won protections for the consumer or investor applied after years of misadventure and (usually) large-scale fraud. They aren't perfect but the idea that it would be great to just throw those out so anyone can start being a bank is one of the crazier things I've heard recently.
Anytime a business or person let's their customer pay after work has been done there is an extension of credit. The trade credit system is massive and anyone can join.
The idea is that anyone can become a mini bank if I understand well. Decentralized banking.
Hi. You are correct, you need to have some credit line, possibly indirect, between you and the other party, if you want to send money or receive money with Offset. This is the core of how Offset works.
> why wouldn't this model eventually end up with banker-type people managing the credit for everyone?
I thought about this question for a long time myself. As a first note, I don't think Offset should completely replace the traditional banking system. Everything has its place in the world. I admit that I still use my bank account daily.
If I understand correctly, your concern is that Offset might eventually become centralized, and therefore will return to the starting point: the banking system that we have today. I have some thoughts about this:
1. I believe that technology like Offset gives very convenient tools to make payments work in a decentralized way. It takes about three "bash" lines to set up an Offset node in the cloud, and you have your own credit hub. I agree that it takes a certain amount of credibility to open a credit hub, but I still believe it makes things much easier than opening your own bank nowdays.
2. There is this idea of 6 degrees of separation, where every two people in the world probably have a chain of friends between them that is of length no more than 6. If things actually work this may, it might be possible to pay using Offset without relying on central hubs.
There are two caveats to this idea though: (a) Currently Offset clients on mobile phones will eat your battery if you keep them open for too long. (b) You might not be able to make very large payments through the credit limits you set with your friends. Most people will trust their bank with $50000, but most people will not trust their friends with this amount of money.
About issue (a): Maybe it is temporary, and in 5 years we won't have these kind of battery limitations. For (b), I'm not sure yet myself. Maybe you will always need credible credit hubs to be able to make large payments.
3. Even if Offset becomes more centralized, based on a few credit hubs, I think that it is still better in some ways than the current ways banks work. (though note that I might be biased here).
a. Your money will be protected from inflation caused by state money printing.
b. Not much regulation is required, because the nature of Offset doesn't allow the "credit hubs" to do things like play with your money, generate new money through loans and more. More than that: Offset always provides the end user with a cryptographic proof about the amount of money in his account.
c. I expect that fees with Offset will be much lower than what you get with your banks.
d. It is easy to create Offset hubs, so there will always be competition.
e. Money will move through an auditable open protocol.
Offset is still pretty young and I am very far from having answers to everything. If you think something is still missing, please send a message.
> I expect that fees with Offset will be much lower than what you get with your banks.
For p2p loans this makes sense. For credit card, my bank currently pays me 1.5% of the money they extort from businesses. I'm paying the same to the business whether I use cc or not, so I take the kickback (my refusal to participate will not hurt the system, since debit cards are the only other option since cash is not viable for online commerce). So advertising 'low fees' really means that I'm going to have to pay money to do things I currently get paid to do.
> It takes about three "bash" lines to set up an Offset node in the cloud, and you have your own credit hub.
This seems insecure in the same way as bitcoin - if a guy gets your private key number thing, you lose everything. Whereas with real CCs your bank will make you whole if fraud happens, since instead of an algorithm being the law we have humans who can can revoke transactions. With friends loaning to each other this is a lesser issue since your algorithm can allow reverting transactions, unlike bitcoin where everything has to be final for the currency to be usable. I guess i can set my credit limit with a merchant to the exact amount i owe for each transaction? But still feels a bit unsafe.
The big issue I see with this is that poor people will always be seeking money and rich/financially reponsible people will never need to get money through this. Aside from rare events like buying a house or extended job loss, in which case they'll end up getting money through rich/financially responsible friends instead of the poor ones they always loan to. So the system will get split into a few 'providers' and many 'leeches.' What do you think about that?
Flow is limited by the narrowest pipe along the path, and my suspicion is that you would need to get to pretty damn high user adoption before you could expect consistent, high flow between points since you'll need to find many alternative paths. Prior to that level, the network wouldn't be very useful.
Still not entirely sure what problem this solves. As a consumer, I don't really have an issue with current payment systems. I can buy everything I need in seconds, and banks compete for my business by (as stated elsewhere in this thread) giving me kickbacks from the fees they take from merchants.
As a merchant, you're not going to trust your customers/suppliers at the level that would justify extending an unsecured line of credit to all of them. Not going to happen. Yes, perhaps payment systems suck, but honestly payments are an incredibly hard problem. A robust legal system which enforces contracts solves the hardest problems, I suppose, but legal action is slow and expensive so it's still pretty hard.
> Flow is limited by the narrowest pipe along the path
Ah, this was a concern I had too. To mitigate it, Offset allows paying using a multi-path: a few paths together. It happens atomically, and doesn't require intervention from the user.
I think it has potential, as you explain, it's pretty young at the moment. There is certainly some value in a friend-2-friend credit network and the technology looks good, a lot work has been done judging from the repo! I can't help but thinking there is some economic component missing, it feels like everything has been laid out, just needs a final "touch" that would get it off the ground. In any case, good work and keep it up!
This is an idea I always wanted to build, though never got the time.
Congrats on the work.
Now this is something I'd be willing to use. I've never used cryptocurrencies before because of POW (I believe it is a fad). But trust based crypto is something that will likely change the world like the internet, and this or something like this is gonna be it. No more banking gatekeepers. No more private credit scores.
Interesting! For folks who like this idea, I recommend looking up Ryan Fugger's Ripplepay (https://classic.ripplepay.com/). That was inspiration for Ripple Labs, who unlike Offset did go the cryptocurrency route (XRP).
I appreciate that Offset is not spawning a cryptocurrency where it doesn't need one. There are other projects influenced by Ripple and Ripplepay which are also not their own currency. For example Synchronized Network Accounting Protocol (https://michielbdejong.com/blog/20.html) and Interledger Protocol (https://interledger.org/).
One of the thought provoking ideas in interledger is that a single payment can be delivered in packets. Meaning that if Alice is making a payment to Bob, some of that payment might go through an intermediary Ivan and some of that same payment might go through Isaac. I haven't read much about Offset, but I saw that it described payments as atomic. Interledger specifically decides not to be atomic. This is not what most people expect with payments, but giving up atomicity gets other nice qualities. For example, if Alice is making a large payment to Bob, they are not limited by the liquidity of any one intermediary. Like data finding an efficient route on the internet, a payment can find an efficient route over interledger.
Glad to know about Offset. I'll add it to my list of interesting network money projects.
Thanks for the kind words! I am a great fan of the classic ripple myself.
Great summary! Let me add that the Lightning Network is also related.
Cool stuff! This seems to effectively be a digital, distributed, implementation of a LETS[1], a system which has had some popularity in various places at various point of the last 40 years.
This sort of system is particularly useful in communities where there is a lack of money. For instance say everybody is unemployed and nobody as money to buy anything, but people would be happy to trade services/goods with each other if there was a way to do it efficiently. They could barter but that is inefficient and it is difficult to match services/goods of different value.
Because the system allows monetary creation, it enables people to start trading even when nobody has money.
It may be useful to check out the circumstances in which LETS were/are used, as it may be a good indication as to which types of community may be most interested in using Offset.
[1] https://en.wikipedia.org/wiki/Local_exchange_trading_system
The biggest advantage over bitcoin is that this is truly p2p. Bitcoin isn’t p2p in the sense that transactions require third parties (miners).
You can only transact as long as miners choose to mine. If miners stop mining for any reason bitcoin is unusable. There’s also no risk of 51% attacks and hard forks.
You could also run offset off the Internet on local networks.
> If miners stop mining for any reason bitcoins are worthless
That's like saying "if your heart stops beating for any reason you're dead". True, but meaningless. Miners mine while bitcoins have value, and bitcoins have value while miners mine. In fact bitcoins had zero value when they were first created, and yet someone still mined them.
Eh. This is how the banking system works.
Once some entities in the network become big enough, and transactions large enough to warrant credit checks and so on, what do you have? A bank. This is nothing more than an unregulated settlement system.
Yes, but that's a good thing. It handle's the microtransaction case in a small community cheaply (I paid the bill today, you can pay next week) but scales to being a service banks could join and offer.
This is novel and interesting, and could be used on a micro scale (say a group of friends who regularly split dinner bills) or macro. How would you solve the issue of losing data and nodes (through corruption, hardware failure, etc), or people being offline? I suspect if it grew, people would offer "hosted nodes", where they keep your data and stay online for transactions 24x7, in return for taking that transaction fee... so, like a bank!
I would market this as an app for a few friends to install and keep track of what they owe each other when one of them settles the bill at a restaurant. Whoever owed the most could settle that day, and everyone else's bill would be deducted. A network of friends could expand from there.
A "credit card" has negative connotations for many people.
Watching the "setting up" video here: https://docs.offsetcredit.org/en/latest/intro/app_manual.htm... it's too convoluted. Everything that needs turning on should be turned on by default. The default servers should be used unless you go into settings before you start and turn them off. When you add a friend, the default currency should be selected, and a default amount put in ($50 seems a reasonable starting amount that I'd be prepared for a friend to owe me, but the default should go in settings).
It would be good if the names of your friends copied over automatically.
This comment contains some really useful feedback. Highly appreciated. Not sure what would be a good branding instead of using the term "credit card". What do you think?
About the default servers, I always have the fear the system will become too centralized, so I tried to force the user to understand he can pick any server he wants. Maybe I am wrong here, this needs some extra consideration.
About the other defaults that seem convoluted: I picked those due to security considerations, but maybe you are correct, and it is better to leave things open by default there.
If you are interested in reviewing the next versions before they are published, please stay in touch. You can send me an email directly or join the mailing list if you like.
Very interesting. I had a somewhat complicated question about sanctions, but I think the main question boils down to whether you are based in US.
Is there any concept of a distinction between the size of the line of credit you're willing to extend to a person directly, and the credit you're willing to extend to that person's friends (and friends-of-friends, etc.)?
Most of the time, if a friend asks for a loan (unless it's a really trivial amount), my response will be along the lines of "Sure, what do you need it for?" If my sister asks me to lend her 500 euros because she's short on rent, I'd say "Yes, of course!" But if she asked me to lend her 50 euros because her smack-addict downstairs neighbour really needs it to fix their sink (my sister's a soft touch who likes to help people and always gives folks the benefit of the doubt), I'd say hell no.
David Graeber went into a lot of the issues around this in his book "Debt: The First 5000 Years". The element of debt that's monetary and recorded in ledgers is only half of the story. Most of the truth of how we relate to debt is much more socially intertwined.
It's interesting to compare this model to the Lightning Network on top of Bitcoin. Essentially, the Lightning Network uses this kind of "friendships" (payments channels) with the exception that parties do not need to trust each other in order to transact. It would be interesting to add LN to this page: https://docs.offsetcredit.org/en/latest/intro/blockchain_com... Basically, the differences between LN and Offset would be the security foundation (bitcoin contract) and origin of money (we put actual bitcoin in channels).
Offset's model of relays, nodes, transactions encoding, routing, multi-path payments could very well share a lot with the Lightning Network's model of nodes, gossip protocol, onion routing, and so on. I could even see both systems work together.
I am still going to try Offset with my friends, could be a good experiment!
Spitballing here but it seems you could even (re-)implement an Offset-based LN by using an alternative (non-PoW) blockchain underlying the channels.
This alternative blockchain would work for accounting purposes so it can be entirely local (i.e. each node has its own local blockchain).
From the website:
Incentives: Blockchain: Rewards first adopters. Offset: Early and late adopters have the same money creation power.
Does this mean there's a negative incentive for early adopters? I.e we take on more risk with an untested technology but late adopters get the same benefits at lower risk, once the technology is mature.
If it’s useful for you, you’ll adopt it whether someone who comes along later is better or worse off.
It is just a world-wide scaled IOU. The concept looks good to me but still need to evolve a little bit. For exemple, it would be useful to be able to differentiate simple credit lines (negatives) offered to someone and advance/collateral that was already provided by this third party.
Incredibly interesting. As an ex-banker, I've always thought our current money creation mechanism is a bit messed up. This is an interesting alternative.
Questions from me:
If someone wishes to make a payment, Offset will find the best path via friendships to facilitate the transaction. What if a bunch of people are offline and no path can be found? Does this require the creation of a direct friendship?
Do you imagine certain nodes trying to become "hyperconnected" so that they may connect as many people as possible, and earn fees from providing this service?
What algorithm do you use to compute the shortest/cheapest be path between two counterparties? Does this scale well in a distributed, self-hosted system?
How does one establish a friendship/trust with another party, and who sets the credit limits for the relationship?
> If someone wishes to make a payment, Offset will find the best path via friendships to facilitate the transaction. What if a bunch of people are offline and no path can be found?
What do you think happens when Visanet is down?
My experience is people either delay their purchase, or they find some other medium to exchange.
> What algorithm do you use to compute the shortest/cheapest be path between two counterparties? Does this scale well in a distributed, self-hosted system?
That seems to be answered here; looks like it's not distributed.
https://docs.offsetcredit.org/en/latest/theory/network.html
> How does one establish a friendship/trust with another party, and who sets the credit limits for the relationship?
That seems to be answered by the demonstration videos; each party sets the credit limit they offer to all of their friends separately.
Hey osrec, I wish I was an ex-banker. This kind of experience would have really helped me when working on this.
For your questions:
> What if a bunch of people are offline and no path can be found?
If no path can be found, the transaction will fail. This is truly a weak point of Offset. I have been thinking about this for a while myself, here are the possible solutions:
1. Currently Offset takes a lot of battery to use (because of communication). Maybe in the future battery won't be a problem for mobile phones. In that case people will stay online and connected most of the time. The incentive might be to make money through fees.
2. Maybe some people will decide to be "hubs", and always be online. Offset has a desktop application too (though a CLI based at this time). You can run it as a server, so that it always online.
> Do you imagine certain nodes trying to become "hyperconnected" so that they may connect as many people as possible, and earn fees from providing this service?
Maybe. But I hope that there will always be enough competition, so that people will be able to find cheap enough routes.
> What algorithm do you use to compute the shortest/cheapest be path between two counterparties?
Currently, a very lousy algorithm, the most basic thing that works. This part really needs some work. My idea is that every index server could implement his own magic thing, and you could pick whatever index server you like.
> Does this scale well in a distributed, self-hosted system?
I think it does. Not sure that with the current implementation, but it might with some improvements.
> How does one establish a friendship/trust with another party,
Check the video, I show this one!
> and who sets the credit limits for the relationship?
Each party gets to pick one credit limit. If A and B have a relationship, A gets to choose how much B can ever owe A, and B can choose how much A can ever owe B. To summarize: You get the choose how a maximum cap for your fortune.
A nation-state will ban or monopolize any competitive alternative to state-backed currency or debt (obligation transfers). Just look at current macroeconomic policy around the world, vast sums of obligations ("debt") being created.
Autonomous/robotic manufacturing/production could very well bring back bartering, depending on your definition of innovation.
Gerbil wheel economics (debt until infinity) doesn't take into account low-cost, low-labor 24/7 manufacturing, so don't invest too much logic in antiquated theories that require libor-rate'esqe techniques to make it believable.
Going “back” to bartering is a myth. Human interactions were greatly more complex and varied prior to money and debt standardization.
It's an interesting idea, but I've got 2 questions:
- What happens with fraud? I can reverse my cc transaction, but here there's no insurance. (Just in case someone answers with trust - see how many finance SE questions go like "brother asked me to guarantee a loan and disappeared, what do I do")
- How is this usable for people working in online services? I'm never going to be paid in OUSD, or by local people, so it looks like I'd either have to continuously exchange money with a person I know, or some banker-equivalent online. That gives me no benefit over CC.
Seems quite similar to a Dutch app, wiebetaaltwat, which is used a lot here.
It is mostly used for thinks like days out and group holidays, and allows you to share expenses as well. Still, I have heard some people never settle their balance and just have an ongoing list. Whoever owes the most picks up the tab the next outing.
Is this related to the Offst project that was released about a year ago (HN discussion: https://news.ycombinator.com/item?id=19756353)?
I thought it was a neat idea when I read about it then, but never got around to looking into it further. I’ll have to make some time soon to try it out.
Yes, some friends offered a rename. I noticed that every time I wanted to tell someone about the project, I had to explain that it is written as Offset, but without the "e". It was always awkward, so offsetcredit.org it is.
I'm amazed how many people are on the "Inflation Bad!" bandwagon these days.
Having a flexible money supply that can be manipulated by a central authority for the benefit of the economy as a whole seems to me like a good thing.
I like this aspect - "You will not get rich by joining early", but I fear that without get-rich-quick mania, adoption will be limited.
Interesting! Take a look at https://trustlines.app/#/ built ontop of https://trustlines.network/ Very similar economic theory, somewhat different terminoloy.
So looking at the economic model, and the transaction where Bob pays through Charli to Dan...
This means that Bob can "pay" Dan through Charli, run off without paying, and now Charli somehow owes Dan? Does Charli consent to being in the middle of this transaction? This seems like it's ripe for abuse.
Charli consented by giving Bob a line of credit. (If she hadn’t, and hadn’t owed Bob any money, the transaction wouldn’t have gone through her.) It’s up to each individual participant to set the credit limits on their friend pairings according to their own risk tolerance and trust level. If Bob turns out to be a deadbeat, Charli probably shouldn’t have given him any credit; but that’s not a technical problem.
In practice, I’d expect that if Offset (or another p2p mutual credit system) catches on, you’d see mostly two main ways of using it: friends and maybe local businesses giving small amounts of credit to each other (think splitting the bill for lunch, or a local plumber and a bakery) based on mutual trust, and writing off the occasional bad debt the same way they do now; and larger “commercial” lenders who work like present-day credit card companies, tracking credit scores and the like and with the force of law behind them if you don’t pay your overdue bill.
Is there any way to do anything with this right now? Is there anything you can buy or sell with it? Do I need real life friends to use this so I can set up "trust" as this will be a problem preventing me from even trying it out? (I have friends, just not ones that will try this)
Sorry, there is nothing you can buy with Offset right now! Maybe I should set up some kind of a demo website so that people can try it out.
One thing you can do is open two Offset cards on your own mobile phone, and try to pay with one card to the other (:
Perhaps it needs a test net so you can try out buying imagineary things on a real network while not risking real currency.
I guess actually though, you could do this with the real thing, just use a TEST currency that has no value and let people sell imaginary things for that. Then random people would be happy to be lose this fake currncy for something they didn't know.
Surely if I install it and my friend installs it we can already use it to keep track of how much we owe each other.
I'm actually kind of into this idea, even if it's purely as a Free and Open Source alternative to Venmo. But even then, you'll have to give me some good selling points to get my normie friends to use it, as they all already like Venmo.
I really liked this note:
"Offset’s algorithm for discovering routes for payment generally prefers routes with lower fees over routes with higher fees. This allows open competition for fees."
Do you have any social media handles? The project is pretty interesting and I'll probably address some things on a blog post. I'd like to mention you when I share.
Thanks for that! I am realcr on twitter, though not very active there. Best way to contact me is probably through email, see "contact" on the Offset website.
Being a business owed many small amounts of money from many people seems expensive to collect - any thoughts on that?
this looks really interesting and an awesome idea. I downloaded the app but then realized that with nobody I know using it, and nobody I can buy things from using it, I literally can't do anything with it.
any ideas how to use it for ...anything..?
Persuade a friend who owes you some money to install it. Keep track of how much you owe each other.
I am not sure how this works. Lets say we have path of 4 for a transaction.
A - B - C - D
Lets say 100usd transaction amount.
For the sake of arguement, lets consider every node has 100usd credit one way (reverse path)
So if A want to send 100usd to D.
A gets 100usd credit from B, B gets from C and C gets from D.
Until D spends money, system is locking 300usd credit for 100 usd transaction?
It's interesting that at no time is legality or regulation discussed.
This is intentional. I really know nothing about this space, but I hope to get help about from some friends in the future.
Inflation isn’t coming. Interest rate is 0. Banks were ready for inflation for years, it never came. We might even see deflation at some point.
Also, I trust very few people. People are scumbags when it comes to money. I’ll take a regular credit card thanks.
I'm not convinced the economic model is viable. Who's going to pay the operating expenses?
What if all the people involved are kind of "untrustworthy"(e.g. criminal organizations)?
>"Money creation in Offset
Money in Offset is created and destroyed by users. Offset is designed so that the money supply changes to match the market. As the market expands, the money supply increases. When the market shrinks, money is destroyed. Therefore, You will not become rich by joining Offset early.
The total sum of balances in Offset is always zero. Consider two Offset friends: Bob and Charli. If Bob’s balance with respect to Charli is x, then Charli’s balance with respect to Bob is -x. The sum of those two balances is always 0.
We count the amount of money in an Offset network by summing all the positive balances. For example purposes, consider again the two Offset friends: Bob and Charli. Suppose that initially the balance between Bob and Charli is 0.
Next, assume that Bob buys a chocolate bar from Charli for the price of $2. Now the balance between Bob and Charli is -$2 from Bob’s point of view, and +$2 from Charli’s point of view. In the moment of purchase, new money was created by Bob. In this case we can say that the total amount of money in the market is $2.
The money created by Bob’s purchase will be destroyed when a complete buying cycle is complete: For example, Charli will use the newly created money to buy something from Dan, which will use the money to buy something from Eve, which will eventually buy services from Bob. When Eve buys from Bob, the money is destroyed."
A lot of good and interesting ideas, but what about the Infinite Hotel Paradox, as applied to money?
https://en.wikipedia.org/wiki/Hilbert%27s_paradox_of_the_Gra...
That is, consider users as hotel rooms, and money as guests for those hotel rooms...
That value, as it approaches infinity, is sort of the theoretical upper limit of Milton Friedman's "Velocity Of Money" theory...
Also, as a side note, you'd probably find economic islands, that is, users who were corporations, where they produce much more than they consume, where, without taxation or other depletion, money would gel and pool and basically be prevented from circulating...
And, what about the people that borrowed, on credit, and never replenished from society what they took? If there's no limit, no "credit limit", then what prevents them from continuing to take, and what prevents everyone from doing this, resulting in a crashed economy?
Also, if there's no limitation on what constitutes an identity, then what prevents someone from signing up multiple times as different users, and giving themselves extra "credit" (ability to take) and taking, that way?
This being said, I think you have a lot of good ideas, and perhaps the only way to know if/when/where/how users "game the system" would be to deploy it -- and see what happens.
Does it succeed? If so why? Does it fail? If so why?
Either way, information could be gained to determine how to create more robust systems in the future.
Your system could work, and I hope it does!
Wishing you well in your endeavors!
> If there's no limit, no "credit limit",
There is a limit. It's the limit set by your friends.
> If there's no limitation on what constitutes an identity, then what prevents someone from signing up multiple times as different users
Nothing, but it doesn't matter:
> .. and giving themselves extra "credit" (ability to take) and taking, that way?
They'd only be able to give extra credit to themselves. No one would give credit to any of the extra users they have created, so the extra users would not be able to pay anyone anything.
> [banker refused to cancel a personal credit card because it was the bank's]
The comment disappeared, but I wanted to illuminate ...
Banks do have reasons for delaying account closures:
- good reason - delay closing until statements arrive and are paid. This is also commonly done with checking accounts in the US, which has delayed final settlement for inter-bank transactions.
- bad reason - employees get rewards for signups and face consequences for cancellations. See Wells Fargo scandals.
> delay closing until statements arrive and are paid
They should cancel the card being able to make further payments, but keep the account open for repayments until it is settled.
An actual credit card is blazing fast too. I don't know how this is immune to inflation.
At best this honestly is a solution looking for a problem.
At worst it's yet another ico scam.
I don't know why anyone would be interested in this. Sorry to be harsh but I worked in payment processing. This is a project going nowhere because it doesn't do anything new or useful