Freicoin's attempt to free the economy
Freicoin wants to fundamentally change the rules of finance and economics. Danny Bradbury talks to co-developer Mark Friedenbach.
Mark Fridenbach wants to change the world, one coin at a time. As one of the core development team behind Freicoin, he is trying to evolve a people’s coin, with lofty economic motives. The coin’s tagline is “Freedom from usury”. Will he succeed?
was an application developer at NASA’s Ames Research Centre, where he assisted the astrobiology and lunar science labs. He programmed tools for visualising complex 3D data on commodity hardware while at the lab, and was constantly evaluating new tools for online collaboration.
“We were looking at how we could make NASA and its researchers more efficient using these tools, either by creating new tools for looking at planetary data or figuring out how to do an entire conference over the web.” In early March, he decided to quit his job and spend his time making money more efficient instead.
“What I realized is that Bitcoin is the most revolutionary technology, I would say ever. It creates a digital protocol for managing economic relationships, and to a very real extent I believe that defines who we are as human beings; our relationship with the world, with property and with each other,” he says.
The nature and behaviour of today’s corporations depend largely on credit, and the banking system that provides it is regulated by a central authority in the state, says Friedenbach. He sees Bitcoin as a means of redefining that, creating a way of decentralising not just currency, but the financial mechanics that currency supports, such as credit.
This is how Freicoin came about. “I felt that Bitcoin’s economic model wasn’t matched. We wanted something more stable, that had higher liquidity,” says Friedenbach, who is also heavily involved in supporting and developing Bitcoin. “It didn’t exist, so we created it.”
Friedenbach worked on Freicoin with a small group of others, including Jorge Timon, who conceived the idea, and who was also behind some of the ideas underpinning Ripple. Timon and Fridenbach are both involved with the Lifeboat Foundation, which is trying to encourage scientific achievement, while finding ways of protecting humankind from the risks associated with rapid technological development.
Released in December, Freicoin is a decentralised currency, like Bitcoin, but with some extra economic ideology baked in. That ideology is based on the writings of German merchant and economist Silvio Gesell. He advocated the use of money with zero interest, so that it would be pointless to hoard it and speculate with it. To assist with this, he founded the concept of demurrage; the application of a carrying cost to money.
A demurrage fee on money is designed to mirror the kinds of storage costs you find with other units of value. Gold, after all, must be stored. So must wheat, copper, and eggs, and they all cost money to hold. Why, asks Gesell’s theory, should money as a unit enjoy any special privileges? In fact, the argument goes, applying a holding fee on money would stop people hoarding it, and encourage them instead to use it for its original purpose: as a means of exchange.
In Freicoin, the demurrage fee is set at around 5%, per year, closely mirroring basic interest, says Friedenbach. “It’s the amount of the value of the currency that’s due to speculation. So since we counterbalance that we expect that there will be price stability over time. We expect that most of the volume of the transactions would be actual exchanges for goods and services, or investing, and not buying and selling on exchanges.”
But Freicoin is based on the same fundamental principles as Bitcoin: mining coins by solving the SHA-256 problem. Doesn’t this have speculation built in? After all, people don’t mine coins for altruistic reasons. If they did that, they’d mine proteins instead.
“It’s 95% speculative value right now,” admits Friedenbach, who says that this phase is necessary as the group “bootstraps” the coin. “It will transition over time.”
But Freicoin differs from other mining-based coins in several ways. Firstly, miners do not get all of the coins. Instead, a foundation designed to control the currency in the early stages will distribute 80% of them as they are mined. These coins will be distributed to projects that contribute to the wellbeing of humanity.
Miners will get 20% of the coins over the entire distribution period, but they won’t all be distributed equally. The rate of distribution will decrease on a sliding scale, starting with 30% at launch, and shrinking to 5% after all of the coins have been mined. That 5% represents the demurrage fee, which is fed back into the mining community to cover operational costs. So, the demurrage fee effectively doubles as a mining subsidy.
Mining is a means, not an end, argues Friedenbach. “It’s a distraction, and I can’t wait until we reach the bottom and it stops being one.” The current race towards ASIC miners (which is particularly frenzied among Bitcoin miners) will settle when we begin reaching the limits of silicon technology, he warns.
“This is continuously improving, but only because we’re into a gold rush stage,” he says. “After a couple of generations of ASICs you won’t see many improvements, so things will start to settle down and the other way that they will settle is if there is some level of price stability in Bitcoin.”
If mining is merely the means, then what is the end? He is more interested in longer-term services built to support economic innovations in Freicoin. One of these is called Freicoin Assets. This would enable people to produce their own tokens, representing anything that they wanted, including stocks, bonds, and IOUs. “We will let Freicoin be basically the medium for exchanging credit and IOUs in the same way that bitcoin is exchanging hard cash.” He hopes to have Freicoin Assets ready by Christmas.
Friedenbach hopes that Freicoin will pick up where Bitcoin left off. “Looking longer term, I think a coin has to bring something special to the table. It has to bring something new and original. Something that has material benefits to the people using it,” he says. “Here, I’m going to step back a little say that there hasn’t been that much innovation in Bitcoin, unfortunately.”
He has other developments in mind, such as a system for running microtransactions ‘off-chain’, to enable very small transactions, which could be used for different applications such as pay-per-view, or online newspapers.
“For self-driving cars, what about paying a tip to all the people in the slow lane when you’re in the fast lane,” he suggests, citing a talk he heard by a Google engineer.
Ultimately, this feels like a coin for the 99%. Whereas some other coins tend to focus on tweaking the parameters for existing cryptocurrencies, few of them seem to focus on changing the motivations. There are some exceptions, such as PPCoin with its proof of stake concept, which was designed to be more energy-efficient and secure than Bitcoin. Litecoin, too, made some fundamental changes by introducing the Scrypt algorithm to make mining more egalitarian. And then, there’s Ripple, which like Freicoin has the potential to make peer-to-peer credit more workable.
The comparison to Ripple, though, (which Friedenbach makes several times) raises other questions. Ripple has been criticised online, including in the comments section of this publication, for being too centralised. And like Ripple, Freicoin’s controlling body holds 80% of the currency, and gives it away on its own terms. This has led some to try and subvert the process, removing demurrage altogether.
Whenever anyone tries to change the rules of the game this much, there is bound to be pushback. Freicoin’s success will depend ultimately on how well it achieves its goal of creating a free and open exchange mechanism for goods and services, which will in turn depend on the number of goods and services providers supporting it. Supporting the Freicoin economy is a key mandate for its grant-making process. We’ll monitor those first grant awards with interest.
Image credit: Flickr
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