Reduction Over Time: Easing the Burden of

Peer-to-Peer Barter Relationships

to Facilitate Mutual Help

Kenji Saito

, Eiichi Morino

and Jun Murai

Graduate School of Media and Governance, Keio University

Gesell Research Society Japan

Faculty of Environmental Information, Keio University

Abstract. A peer-to-peer complementary currency can be a powerful tool for

promoting exchanges and building relationships for coordinated activities. i-WAT[1]

is a proposed such currency usable on the Internet. It is based on the WAT Sys-

tem[2], a polycentric complementary currency using WAT tickets as its media of

exchange: participants spontaneously issue and circulate the tickets as needed,

whose values are backed up by chains of trust. i-WAT implements the tickets

electronically by exchanging messages signed in OpenPGP[3].

This paper proposes an extension to the design of i-WAT to facilitate mutual help

among people in need. In particular, we propose additional “reduction” tickets

whose values are reduced over time. By deferring redemption of such tickets, the

participants can contribute to reduce the debts of the issuers, as well as to accel-

erate spending. Applications of this feature include a relief to disaster-affected

people.

A reference implementation of i-WAT has been developed in the form of a plug-in

for an XMPP[4][5] instant messaging client. We have been putting the currency

system into practical use, to which the proposed feature will be added shortly.

1 Introduction

1.1 Peer-to-Peer Complementary Currency

One of the issues of activity coordination is incentive-compatibility[6], roughly restated

as the goal of the coordinated activity being accomplished by collection of selﬁsh

behaviors. Because it necessitate fair exchanges of resources among participants, the

medium of exchange must take an important role.

Money is a well-known medium of exchange, but its scarcity has caused a lot of

problems. Complementary currencies, or alternative forms of monetary media, have

been proposed and tested to achieve an autonomous, sustainable local economy even

in short of money. There have been successful cases, such as experiments in W

orgl in

1932 (stamp money[7]), in Comox Valley in 1983 (Local Exchange Trading System[8])

and in Ithaca since 1991 (Ithaca HOURs[9]).

Many of those outcomes are short-lived, however, because most of the existing cur-

rencies are dependent on the qualities of their administrations. It would thus beneﬁt the

Saito K., Morino E. and Murai J. (2005).

Reduction Over Time: Easing the Burden of Peer-to-Peer Barter Relationships to Facilitate Mutual Help.

In Proceedings of the 2nd International Workshop on Computer Supported Activity Coordination, pages 28-37

DOI: 10.5220/0002578000280037

 SciTePress

autonomy and sustainability of economy if we could design an administration-free (or

peer-to-peer) complementary currency.

We proposed i-WAT[1] in year 2003 as such a currency usable on the Internet,

based on the WAT System[2]. The WAT System is a system of polycentric complemen-

tary currencies using WAT tickets as its media of exchange. A WAT ticket is like a bill

of exchange, but without a speciﬁed redemption date or place. i-WAT implements the

tickets electronically by exchanging messages signed in OpenPGP[3]. It has been put

into practical use since June 2004.

1.2 Reduction Over Time to Accelerate Spending

It is known among the practitioners of complementary currencies that reducing the

value of the exchange medium over time accelerates spending. The stamp money ex-

periment in W

orgl in 1932 is a well-known example. It was based on the idea of stamp

scrip introduced by Sylvio Gesell in [10], who believed exchange media must also de-

teriorate as the exchanged goods do (for this reason, Reduction Over Time is dubbed

ROT hereafter).

A user of stamp money needs to paste a stamp every week on the back of the note, or

the note becomes invalid. Users are motivated to spend the scrip before another stamp

is required. The stamp is a tax for storage of exchange medium. It is a suitable way to

implement ROT in a centralized currency system.

1.3 Contributions of This Paper

If ROT is to be implemented for decentralized currencies, a different approach needs to

be taken. We have applied the notion of calendar money[11] by Arthur Dahlberg, which

has a schedule of reduction printed on the note.

We have realized that this has potential effects of not only promoting exchanges,

but also providing participants with means to support peers by sharing debts among one

another.

This paper describes WAT/i-WAT concisely, and proposes an extension to the design

of i-WAT to realize the above concept. It shows that the extended design is incentive-

compatible by a casual analysis.

2 WAT/i-WAT Currency System

2.1 The WAT System

Overview The WAT System[2] is a complementary currency designed by Eiichi Morino,

a coauthor of this paper. It has been used broadly as a means for mediating bartering,

since its introduction in August 2000.

A WAT ticket, a physical sheet of paper resembling a bill of exchange, is used as the

medium of exchange in the system. A lifecycle of a WAT ticket involves three stages of

trading as illustrated in Fig. 1:

Fig.1. Three stages of trading with a WAT ticket

1. Issuing – the birth of a WAT ticket

A drawer issues a WAT ticket by writing on an empty form the name of the provider

(lender) of the goods or service, the amount of debt

, the present date, and the

drawer’s signature. The drawer gives the ticket to the lender, and in return obtains

some goods or service.

2. Circulation – ordinary exchange

The person to whom the WAT ticket was given can become a user, and use it for

another trading. To do so, the user writes the name of the recipient, as well as

their own, on the reverse side of the ticket. The recipient will become a new user,

repeating which the WAT ticket circulates among people.

3. Redemption – the return of the WAT ticket

The WAT ticket is invalidated when it returns, as a result of a trade, to the drawer.

Distinctive Features of the WAT System

Autonomy Anyone can spontaneously become a member of the WAT System with a

sheet of paper if they follow the above protocol.

Compatibility A WAT ticket is compatible with any other WAT tickets in the world, so

that the currency system is operable globally, as long as the drawer can be credited.

Extensibility The protocol illustrated in Fig. 1 deﬁnes the WAT Core, the essence of the

WAT System. An extended part can be deﬁned for a new currency based on the WAT

System, stating, for example, the region, group and duration in which the tickets are

usable, as well as the unit in which the debt is quantiﬁed.

Typically in the unit kWh, which represents cost of producing electricity from natural energy

sources.

Table 1. i-WAT messages

message sender receiver function

<draw/> drawer recipient (lender) draws an i-WAT ticket.

<use/> user recipient uses an i-WAT ticket.

<accept/> recipient drawer and user conﬁrms readiness to accept the i-WAT

ticket once it is validated.

<reject/> recipient drawer or user

∗

rejects an i-WAT ticket.

<approve/> drawer user and recipient validates an i-WAT ticket, and approves the

transaction.

<disapprove/> drawer user and recipient denies an i-WAT transaction.

∗

depending on whether the ticket has just been issued or in circulation, respectively.

Security In case the drawer fails to meet their promise on the ticket, the lender assumes

the responsibility for the debt. If the lender fails, the next user takes over. The respon-

sibility follows the chain of endorsements. The longer the chain is, the more ﬁrmly

backed up the ticket is. Therefore the length of the chain of endorsements represents

the extent of trust the ticket has gained.

2.2 i-WAT: the Internet WAT System

Overview i-WAT is a translation of the WAT Core onto the Internet. We have made a

reference implementation available to the public, which has been used mainly by the

members of the WAT System.

In i-WAT, messages signed in OpenPGP (i-WAT messages) are used to implement

transfers of an electronically represented WAT ticket (i-WAT ticket).

An i-WAT ticket contains the identiﬁcation number, amount of debt and public key

user IDs of the drawer, users and recipients. Endorsements are realized by nesting PGP

signatures.

Table 1 shows the types of i-WAT messages. All i-WAT messages are signed by the

senders, and are formatted in the canonical form[12] of XML[13] with nested signa-

tures. The messages cause state transfers of a ticket as illustrated in Fig. 2.

Changes from the WAT System Upon translating the WAT Core onto the digital com-

munication domain, we have made the following changes from the state machine of a

WAT ticket:

1. Trades need to be asynchronously performed. Intermediate states, such as waiting

for acceptance or approval, are introduced.

2. Double-spending needs to be prohibited. The drawer is made responsible for guar-

anteeing that the circulating ticket is not a fraud. This means that every trade has to

be approved by the drawer of the involved ticket.

The semantics of this design and the trust model of i-WAT are discussed in detail in

[14].

* Gray arrows represent WAT state-transfer.

* Black arrows represent i-WAT state-transfer.

Fig.2. State machine of a WAT/i-WAT ticket

Protocol

Issuing – the birth of an i-WAT ticket (Fig. 3)

1. The drawer sends a <draw/> message which contains the public key user IDs of

the drawer and lender, identiﬁcation number and amount of debt. This message

becomes the original i-WAT ticket after the protocol is completed.

2. The lender sends back the content of the message as an <accept/> message.

3. The drawer sends an <approve/> message to the lender.

Circulation – ordinary exchange (Fig. 4)

1. The user adds to the i-WAT ticket the public key user ID of the recipient, and sends

it to the recipient as a <use/> message. This message becomes a valid i-WAT ticket

after the protocol is completed.

2. The recipient forwards the content of the message to the drawer and user as an

<accept/> message.

3. The drawer veriﬁes the ticket, and sends an <approve/> message to the user and

recipient.

Redemption – the return of the i-WAT ticket (Fig. 5)

1. The user sends a <use/> message to the recipient, who equals the drawer.

2. The drawer veriﬁes the ticket, and invalidates it as the debt is now redeemed. The

drawer sends an <approve/> message to the user.

Fig.3. i-WAT transaction 1: issuing

Fig.4. i-WAT transaction 2: circulation

3 ROT: Reduction Over Time

3.1 Concept

We make a generalization to the value of a WAT/i-WAT ticket such that it is expressed

as a tuple hV

, V

, f i presented by the drawer, where V

is the face value (initial value)

of the ticket, V

is the minimum value, and f (t) is the differentiation (derivative) of

a function of time F (t) such that f (t) ≤ 0 for all t (an extension to allow f(t) > 0

is conceivable, but it will be discussed elsewhere). The effective value V

of a ticket at

time t is given by the following equation:

= max(

f(t)dt + V

, V

)

Fig.5. i-WAT transaction 3: redemption

This is a generalization to introduce an additional type of tickets called reduction

tickets, whose values are reduced over time, limited by a minimum value. For regular

WAT/i-WAT tickets, f(t) is a constant value zero, and V

= V

Reduction of the value of a ticket means that the drawer’s debt is reduced. The cost

of reduction is ﬁrst admitted by the lender who credits the drawer, and then shared

among the endorsers as illustrated in Fig. 6. The amount of the total reduction is man-

ifested to the drawer upon redemption. By deferring redemption, participants can help

easing the burden of the drawer.

3.2 Incentive-Compatibility of the Design

We show that the design of reduction tickets is incentive-compatible by a casual analy-

sis.

Lender’s Reasoning The lender may not want to accept a reduction ticket because

they know that its value will decrease over time if they save it. They can be motivated

to accept the ticket, however, if they know that the drawer is in need, such as in a case of

aftermath of a natural disaster. They know that they do not have to take all the burden by

themselves; they infer that, by the same reasoning as theirs, it is likely that those people

around them are also willing to accept the ticket. Therefore the ticket is accepted, and

spent as soon as possible to satisfy the need of the lender themselves.

Endorser’s Reasoning All participants, if they are aware of the situation of the drawer,

will be motivated to:

1. defer redemption of the ticket to support the drawer, and

2. spend it as soon as possible to avoid much reduction of its value and to satisfy their

own needs.

Fig.6. Giving relief by deferring redemption of a reduction ticket

We predict that a reduction ticket will typically circulate at high speed until its

effective value reaches the minimum value V

Drawer’s Reasoning There is a risk that circulation may be stalled for an i-WAT ticket

by negligence of the drawer in their role for approving transactions. However, we can

show that it is to the drawer’s own beneﬁt to maintain the liveness of their tickets:

1. If one is late to respond, or tends to fail to answer requests for redemption, they

will lose trust from others. Then it will become more difﬁcult for them to have their

tickets accepted for future trades.

2. If one is quick to respond, and accepts requests for redemption with certainty, they

will gain more trust from others. Since their tickets become easier to use, they may

attract more load. But it will become easier for them to draw tickets at will in the

future, and initiate trades spontaneously to obtain goods or services.

3.3 Protocol

Reduction tickets can be incorporated to the system with minimal changes to the exist-

ing i-WAT protocol.

Since it is unrealistic to assume that the clocks of all participating computers are

synchronized with precision, the time is ultimately measured by the computer of the

drawer.

The timestamp of the drawer’s or user’s signature (depending on whether the trade

is issuing or circulation) deﬁnes the effective value of a reduction ticket, to which the re-

cipient either agrees or disagrees. The drawer (or their software agent) is responsible to

check that the timestamp belongs to the past for them when they approve a transaction.

3.4 Applications

Applications of reduction tickets include relief to disaster-affected people.

We are sure that everyone is hurt by the tsunami which swept the coastlines of

Southeast Asian countries on December 26, 2004, killed an unprecedented number of

people and took means of life away from literally millions.

We have made a proposal to ccTsunami[15], which is an open forum on the Inter-

net for discussing and implementing programs to support the tsunami-affected places

with complementary currencies. In the proposal, i-WAT tickets are issued by an NGO

which promises to exchange the tickets with WAT tickets issued by the disaster-affected

people, so that people in need do not need to use computers.

4 Ongoing and Future Works

4.1 Implementation

We have been developing a reference implementation of i-WAT as a plug-in for wija, an

XMPP (Extensible Messaging and Presence Protocol)[4][5] messaging client. Although

we cannot quantify the number of users because of the nature of the WAT System, many

who have experienced the physical WAT System are using i-WAT despite of technical

difﬁculties they may be suffering. We are in a continous process of improving the ease

of use of the system.

Implementation of the proposed ROT feature is in progress. It will be included in

the bundled plug-in for the new version of wija to be released in March 2005.

wija is available at http://www.media-art-online.org/wija/.

4.2 Formal Analysis

We are working on a more formal analysis to show that the ROT feature is incentive-

compatible. A partial result shows that an equilibrium is achieved when the scheduled

minimum value of a reduction ticket is zero. Although this is compatible with every-

one’s beneﬁt, it may cause a moral hazard such that the drawer issues as many tickets

as they want. We are pursuing an operational design which mitigates this hazard.

4.3 Future Work

Once the new implementation is ready, we will experiment on actual usage of the ROT

feature to verify the prediction that the reduction tickets typically circulate at high speed

until their effective values hit the minimum.

5 Conclusions

This paper proposed an extension to the design of i-WAT to implement reduction over

time, which has potential effects of both promoting exchanges and providing partici-

pants with means to support peers, by sharing debts among one another as a form of

currency. The extended design is shown to be incentive-compatible by a casual analysis.

The implementation will be available to the public shortly.

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