Art-Backed Cryptocurrency

Another type of entity well positioned to leverage cryptocurrency are arts institutions. Like cities, they have tremendously valuable assets. New York City’s Metropolitan Museum of Art has approximately $3 billion worth of art, Detroit Institute of Art (DIA) collection is worth nearly $1 billion.

The conventional way for art institutions to turn their art into currency without selling it is to use it as collateral for a loan from a bank. If the museum can’t pay back the loan, the bank gets the art. Cryptocurrencies give art institutions the ability to “cut out the middleman” and become their own banks by turning their own assets into cryptocurrency backed by the value of the art they hold in their reserve. This enables art institution to use “fractional reserve banking” for its own benefit.

How much currency could an institution create without putting their reserve in serious amounts of risk? It depends on how the institution invests its cryptocurrency. If it plays by the same metrics as commercial banks, earning 5% per year on its investments, and operating with a reserve requirement of 10%, within two years it could double its asset. $100 of assets could be leveraged into a $90 loan with a 5% yearly return ($4.50). Over two years that $100 asset is leveraged to create a $99 return for the institutions, without having to sell the art.

A community of artists is coming together in New York City through a project called the Bank of Mutual Interest (BoMI) to test out this process by pooling their own artworks together to form a reserve. Instead of launching with an Ethereum-based cryptocurrency, which would appeal to global technologists, they’re starting by printing “artisanal cash” notes that appeal to their communities and local businesses. These collectible notes can be redeemed at a physical BoMI location for credits to an online store that sells art in the reserve. This entire system is operated using art supplies and a WordPress-based points system. There are plans to create a cryptocurrency token equivalent in value to the physical notes in the near future, but the lack of a cryptocurrency element reminds us that such a FLO bank doesn’t need still hard-to-use cryptocurrencies to perform classic banking functions.

As open source financial technologies erode the monopoly on the production of money held by central and commercial banks, we are posed to see a proliferation of means of exchange through the world. The impact of this is hard to predict, but some things are obvious. These new systems are being adopted rapidly by technologists and financial industries, but much more tepidly by governments, labor unions and grassroots community organizations. And that’s a shame. FLO financial technologies can serve fantastic social benefits by empowering people without access to capital to create their own, and use it to resource projects, organize productive teams, and increase employment rates. No technology has more potential to expand capital access to traditionally marginalized individuals and communities than the blockchain and other FLO financial technologies. If groups that serve these communities spend their energy criticizing emergent FLO financial systems instead of experimenting with them, they’ll lose a historic opportunity to leverage this technology to benefit the communities for whom they claim to care so much. Groups that resist this technological opportunity will likely be replaced by groups who do embrace it, similarly to how Wikipedia replaced Encyclopedia Britannica.

While the comparison between Wikipedia and Britannica is certainly cliche, it’s still extremely useful. Not only does Wikipedia offer a much more more exhaustive, complete and inexpensive encyclopedic experience than Britannica, but is also offers us an open source software solution called MediaWIki, which runs Wikipedia, that is also used by millions of people to create knowledge bases for individuals and groups around the world. Therefore, Wikipedia doesn’t just offer us an a free encyclopedia, it also gives us an abundance of software tools for organizing knowledge, whether that information fits into the Wikipedia’s definition of knowledge or not. Similarly, blockchain-based technologies (including Bitcoin) not only offers us a useful and inexpensive mechanism for exchanging value, it also offers us an abundance of software tools for building our own monetary systems, whether they fit into the conventional finance’s definition of money or not.

With that said, free/libre/open-source financial technologies aren’t inherently liberatory. As William Gibson, science fiction author and creator of the “cyberpunk” subgenre says: “I think that technologies are morally neutral until we apply them. It's only when we use them for good or for evil that they become good or evil.” It’s up to us to determine if and how we will use these technologies to impact our world.

One thing seems clear: the democratization of these financial technologies is underway. The proliferation and distribution of these new monetary technologies could provide the general public with tools that are, currently, only available to financial professional at investment, commercial and central banks. In short, we should prepare to gain the ability to operate our own banks. While that possibility might sound outlandish, it wasn’t too long ago that people thought the idea that anyone could operating their own global media company was outlandish too.

We should also prepare for institutions to gain these abilities as well. If sub-national governments find a way to leverage these technologies to increase their power, then it makes a lot of sense for people interested in issues of social and economic justice to focus more on achieving local political power now so they can position themselves to utilize the new financial toolsets that will likely becoming available to sub-national governments in the not-too-distant future.

My hope is that, as the opportunities for new monetary systems structured using open source and peer to peer values begin to reveal themselves, the general public is going to realize that we’ve been living through a significant and sustained monetary famine that has starved us of the means of exchange we need to effectively mobilize our individual and collective productive energies. Once mobilized, we’ll discover that we, the people, have the tools we need to provide everyone with a comfortable standard of living. This productivity revolution won’t come from any specific corporation or government program. Instead, it will come from unleashing the productivity of people who finally have the financial tools they need to organize themselves, and the open source and accessible technologies they need to turn natural resources into wealth for themselves and their communities. The days of a global financial system controlled by the few are numbered. It will be replaced by distributed finance systems controlled by the many and rooted in the assets of local communities. Then, we’ll have the power of finance without the need for the force of the state.

Mark Twain once said "lack of money is the root of all evil." We're going to find out if he was right.