Martin Köppelmann I Better Money with Gnosis I Pragma Bangkok 2024

[Music] we're going to get right into our next talk and for this talk I'd like to bring on Martin cman who is the founder of nosis and he's going to talk about circles we going to talk aoly titled better money please give him a big round of applause [Music] no yeah I'm I'm Martin and um found nosis and uh did we did all kind of things in the blockchain space started with prediction markets built stuff like the save cow swop now nosis chain wallets but actually the reason I initially um well went into the blockchain space because I was um excited about uh a thing I called circles and over 10 years ago I described this idea of circles as a form of fair money back then I was a Bitcoin somewh somewhat Bitcoin Maxi was excited about Bitcoin but then felt okay maybe Bitcoin is not the answer to all all questions or or not the ultimate form uh of money and maybe there is um yeah a better form of money um or something that is actually used as a medium of exchange and uh inunit of account where Bitcoin is put well roughly just used as a as a store of value if it's money um at all so this talk will be about circles which I'll argue um so it's a quite radical idea here um uh which I argue uh is a better form of money and as a first step quick uh let's think about what money actually is and there is this quote Yeah from Bernard Lear saying it's important to understand that money is um something social it's an agreement within a group of people to use something within that group uh as a form of medium of exchange um unit of account but the important part here is that money is essentially a choice so we have absolutely the option to uh to to change it so our our money system let's say the dollar the Euro whatever it is is not a god-given thing it's it's choices and it can be changed and in crypto we have the great Freedom uh to be on in a way in this in this um well have this playing field I guess where we can have those radical ideas and just say okay in our in our we are in in this virtual but of course also touching the reality in this world and we have the opportunity to design things just new from uh from scratch so let's do this together let's design money from scratch so let's imagine it's 100 people of us was we stranded on an island um we figured okay it would be useful to have money but we don't have money uh because yeah we're just on this island kind of from from the world um so what could we do so idea one just one time give everyone a thousand units um and then call it a day and kind of once those uh units are out there just kind of let them people can spend them people can and and and essentially use that as a form of money but then um let's say the next day uh 10 10 more people come they also get their thousand units but the other then they spend them and then the next the the day after they already leave the island again then the question is was it really a good choice to also give them uh those thousand units so maybe instead of just saying kind of at one point you get whatever the full amount equally per person instead maybe we should do a distribution over time so that instead of for for for those that just showed showed up very quickly they would of course then get way less so second idea let's not do one one kind of one fixed uh issuance let's do issuance over time let's say everyone gets one unit of this new form of money per hour and they just have the right to issue one unit um per hour so let's let's uh look um um oh wait oh wait ah okay there is you actually see the slides I'm I'm glad um so let's look at the issuance issuance would be uh would be um linear so the total supply of um of of of of token or of money increases but let's say uh here at year 50 big storm happens and therefore 80% of the of the of the people on this island die uh uh and then um the remaining so then that would of course mean the remaining 20% would have five times more money per person um and continuously grows so that means the issuance of new money would be relative to the continuously growing amount of existing money would essentially go towards zero and now fictionally at some point in the future a new group joins this this um well this this our our Island um and we who are on the island would offer them the same scheme yeah you also can join and you get one unit per per per person per hour but the total amount of circles that or of of of of money that would be around per person would already be many millions so for those that come new that would not be a really attractive um uh attractive um deal to join so kind of the conclusion here is um that we just kind of continuously issue money um then um yeah well we got we get a lot um so maybe there should be a concept that old money needs to disappear so idea three is okay we modify that so issuance is still continuous one one per hour um but in addition there is something called demage so demor just means uh money kind of rots so that means if you just hold a, uh units and an account then after a year it will lose or kind of 7% will disappear so it will go down to 930 and then kind of next year again another 7% and actually it's not a step function it's a continuous function so um so I I don't want to go in all all the details but essentially the graphs should just show you that uh in that world the new issuance of money will always even if extreme shocks in a way to that economy happen um it will always uh converge roughly against this uh 7% again so always um the ratio between newly issued money and existing money will always um stabilize towards um uh 7% and here's just the last graph um is yeah again showing the supply uh of a single person so uh in the beginning it's it's growing almost linear here but then the 7% hits in until it kind of finds this equilibrium and kind of that could go on just here kind of theoretically if they after 80 years let's say die and stop issuing then uh it would Decay but from a system perspective uh circles uh has the property to always converge against the the total supply of circles in the system always converges to this magic number of 12,804 times uh number of people in the system here is uh another way or the last way the last graph I'll bother you with uh to look at that is to say if you exactly hold that magic number in your account those 120,000 actually 84 circles then your new issuance so from your personal perspective the new issuance the one per hour you can issue exactly equals out that demor rage so that 7% that all balances are um are cut off so in that sense your marginal or your your tax rate if if you if you see this 7% as a as a tax on your money then your tax rate is exactly zero because those two forces equal out everyone every account who holds less than that has a negative tax rate so essentially they gain more from this system than they quote unquote pay in Texas while if you're balance goes towards Infinity um your kind of in a way your marginal text rate also approaches then um those 7% because in relationship to those 7% you're paying on the money your new issuance is uh is is almost irr IR relevant so um the next step is in circles again we are in this fictional um well task to say we design a new form of money and we we you say issuance could be per person now a big question is who who is the person and who can decide who is the person is so who decides who can issue money and circles here has the radical answer that it says anyone can do that and that also means potentially you can have um a fake account so so it's it's it's in principle there's no gatekeeper no gatekeeping whatsoever uh in the system so anyone can create um um yeah Circle account and start issuing money the super important part is that everyone issues uniquely different circles so if I create an account then I will start to issue yeah whatever you want to call them Martin circles and they are different from another person that also issues um issues circles now um to make it work people people need to selectively choose essentially whom Circle they trust and in this picture the idea is that a trusts person B um and that means they are accept so essentially they are kind of doing some kind of agreement okay you are issuing money you are issuing money I'm saying I accept your money you say I accept my money and and that um that essentially will form or you can form a web of trust uh with that and do payments via this web of trust so in this example person a or person B is trusting person a say yeah I trust you I accept your circles um person C and B are also trusting each other and now a wants to pay c c does not know a and therefore would not accept their circles they might be fake um but they they know B so how a transaction works is that a sends two let's say 100 circles to person B and B is fine with that because they trust um the a circles um and then kind of 100 B circles and that's very important um are forwarded to C so C is also fine with that because c um is is is trusting here the B circles um and ultimately C does not need need to care whether a is a real person or not because they just receive circles from a person uh they know so it nicely um yeah kind of or it's it's it's extremely resilient form of money because because C is essentially only affected by um or from their perspective the money supply is only relevant uh of of of the people directly um around them so together that brings us to the three rules that are enough to Define circles uh a fixed issurance rate of one one yeah Circle per hour second the 7% demor rage so kind of all balances continuously are decreased at a rate um at 7% per year and third then this uh this this trust system where where everyone has their own currency and um and you can essentially create tability across those currencies by trusting and doing um transitive trusts now circles is a system I said already in the beginning uh over 10 years uh 10 years ago it was essentially just an idea a block a blog post and I started well talking about it um but in 2020 so now a bit over four years ago we actually launched it and here's how the network uh was looking after a couple of hours so started here with those just four people kind of trusting each other after a couple of hours it was already um well much larger Network after the next day the trust network of circles already looked like that year and after a couple of weeks it already looked like that with over 100,000 accounts uh building this very rich um web of trust and therefore also quite strong Identity or I mean so it was or it is is used in this context of creating this money but it can certainly this uh Circle web of trust can also certainly be used for all kind of other applications everything that needs Identity or reputation or some form of um yeah um connectiveness between people or kind of a measure for connectiveness between people certainly the circles trust graph um can be uh can be used so if you want to have just some some social media app that that wants to kind of well address the problem of not giving too much weight to uh to spam content of course you can you could also use um the circuit graph to uh to deal with that so now uh going back to 2020 we had that very initial well kind kind of quite viral moment where the graph uh quite quickly grew but then somewhat slower period entered where well we actually tried to make it work and tried to use this currency in the real world and this is an example from a shop in in in Berlin so I'm I'm I live in Berlin so yeah we had a local community in Berlin that tried to use circles so here kind of a farmers market thing where they sold um vegetables and uh and stuff here for 450 circles and here is how a real transaction looked like or yeah looked like in that uh in that circles world so on the very right you see this this vender um Power direct uh and and they are trusting they are trusting essentially those three accounts uh and on the left side that's me and so they don't trust me directly don't know me directly but uh the pass finder luckily found a pass to essentially convert my margin circles into circles that vendor um is is is comfortable with because they they trust them and yeah I mean that's how the graph uh looks like so as I said before uh Circle primary goal is to create a new form of what I would argue Fair money that essentially one way to think about it of circles is to say um if a bunch of people if if all of all in we all all we in this room would together coordinate to use something as money then this coordination alone would already create value so whatever we choose whatever asset or whatever thing we choose to use as money just by us choosing it that choice gives that asset already um additional value uh and I would and now the question is who should who should get that value and the answer in circles is that value should be equally distributed um across those who are together making um that choice while let's say little bit in the Bitcoin world it's more like okay um probably one or 2% of the world population currently use uh use Bitcoin um and of course they would like to say everyone in the world should use Bitcoin um and whether that's better or not uh for the world is I think an open question it's certainly better for those one or two% no question about that um whether it's better for the other 98% that currently don't hold Bitcoin today uh let's at least leave that as an open question so I would say in in circles it tries to say everyone joins should equally benefit from it as an nice sight uh outcome of that project we also get those this digital identity system um already said that before um yeah small caveat um circuits is only a relational ID so uh if you just look at the graph you cannot absolutely say that person is real you can only say kind of assuming you you you need to have some starting points so you need to have some people or you need to have essentially your own starting points saying kind of I assume those people are real and relative to that that other person also seems real so yeah it's it's relational but not absolute we are introducing circles 2.0 and are adding to this pure um P P2P uh Network we are adding what we call groups or from a did perspective we would call them attestations um and they allow you to uh make yeah better choices in this resiliency efficiency uh trade-off space so circuits is extremely resilient because um essentially a small group can say okay we just TR trust each other and then we are completely separated from the rest of the network um or only through this uh trust but whatever happens here it doesn't affect us here um while if you create larger groups and if you say we are all kind of have this one large currency then of course A Part any part of this network can to take that whole currency down groups uh the the problem with the resilience is that it can create uh friction so groups allow you to essentially bundle a bunch of circles together and create um fungible um version of that and then you can also stack groups and essentially uh if you go up the the ladder then here you have much higher efficiency lower resilience but if such a higher level group breaks you can always fall back um on on a lower level group ultimately all the way back to the just personal peer-to-peer um uh layer I I'll skip that so just shows that kind of you have to um yeah convert your personal circles to um all kind of groups can happen and that's certainly where Builders come in so we expect that that groups happen for for Zupas users for passport identity so all kind of uh credentials that people have can be used to form groups and therefore fungible versions of those individual um circles so very last thing before I wrap up um we had this launch 2020 uh had the Berlin experiment where I showed you a picture from had an experiment in baliy just had now our developer release for circuits 2.0 a couple of weeks ago so developers can already do all essentially do all kind of things but for for the proper uh launch where we have a proper wallet that by the way will use a lot of the things that um uh was were presented here in the the talk from in in the wallet talk so py signing batch transactions and so on uh that launch is happening very early uh next year and if you want to well if you want to participate in that uh yeah here's QR code where you can can do so thank you [Music]