In Sharing communities – Community currency in the sharing economy, (2021) Eszter Szemerédi and Tibor Tatay, both from Hungary, described a new model for the use of virtual community currency within a sharing economy.
The sharing economy is defined by the authors as a socio-economic model that increases social bonding and collaborations while disrupting the traditional way of doing business. Reciprocity is key and can be monetary or not, immediate and mutual or not. Another key is the building of a social network and a sense of belonging to a community wherein participants can access previously out-of-reach resources. The authors focus on peer-to-peer transactions wherein the sharing economy matches supply with demand, provides services, contains a user rating system and an automatic payment system. Because users make small payments, elimination of transaction fees is a must. They do this by suggesting the use of a virtual community currency that only serves as a unit of account and is created through transactions automated by a smart contract – the person’s obligation is represented as a debit or credit in the virtual community currency.
The authors described some of the benefits of a decentralized system that uses blockchain technology as well as smart contracts: enabling peer-to peer transactions without the need of a trusted third-party. But they also describe issues with using this type of technology for those who are poor, make micropayments, and are not technologically sophisticated: these includes transaction costs, the slowness of the transactions, the need to register on currency sites, the requirement to exchange fiat currency to cryptocurrency, and the ability to use the technology.
The authors described some of the benefits of a decentralized system that uses blockchain technology as well as smart contracts: enabling peer-to peer transactions without the need of a trusted third-party. But they also describe issues with using this type of technology for those who are poor, make micropayments, and are not technologically sophisticated: these includes transaction costs, the slowness of the transactions, the need to register on currency sites, the requirement to exchange fiat currency to cryptocurrency, and the ability to use the technology.
The authors postulated that a virtual community currency system could be devised using smart contracts, which would make the system automatic and decentralized, simpler to use and less expensive for users. Currently the majority of virtual currencies use blockchain technology (transactions linked by code cryptographically) using distributed ledger technology, which enables secure transactions. However, cryptocurrencies are also risky because they provide opportunities for money laundering, terrorist financing, tax evasion and fraud, and speculative bubbles and bursts. However, blockchain technology can also be used to develop smart contracts (self-executing contracts), which enable customizable contracts programmed into the blockchain and triggered by pre-defined conditions. Smart contracts can facilitate large numbers of microtransactions in a much more cost effective and timely manner than the usual blockchain technology.
The authors state that blockchain technology is not necessary for the use of smart contracts and that smart contracts, distributed ledgers and encryption are possible without blockchain technology for geographically defined sharing communities. Their model would be tied to the community platform and is a virtual unit of account only used for exchange purposes within that platform. The unit of exchange is created by the performance of the participants. These transactions create the decentralized platform and allow participants to choose which personal data to share and how to identify themselves. The authors suggest that Hyperledger Fabric’s (open source by Linux Foundation and IBM) smart contracts could be the basis for this type of virtual community currency. Participants need only an app on their smartphone and to register on the platform. Trust can be built through reputation ratings (such as AirBnB uses). To settle any issues, a local arbitration system can be set up, and a cooperative governance model developed.
The authors quote Lietaer (1997 as cited in Szemerédi, E & Tatay, T., 2021) on what the ideal type of community currency includes: 1) it is an efficient and secure payment system, 2) it is in a self-regulatory network, 3) it supports the creation and strengthening of communities, 4) it can be converted into local expenses, and 5) it is a non-national currency. The model of the authors, however, as designed, develops a virtual community currency that cannot be converted into local expenses or used as an alternative source of income. They end the article with several suggestions for further research.