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Metabolic Currency: The Future of Money and Sustainable Growth

Metabolic Currency: The future of money and sustainable growth

Originally published to Medium


Do you know how money is created? It’s okay. Most people don’t. Very few understand how money creation really works. We may have learned in school that the US Treasury prints money and that’s it. The amount of money printed is only a small fraction of the money in circulation. The true story of money is much bigger and more complex.

Most of us have never questioned how money is created or how it drives our economy. We never question why our economic structure is the way it is. Most people are taught that there are only two economic options: capitalism or socialism. This is a limited framework. Many of us believe we are stuck with our current economic system — we aren’t. Humans designed the economic system, which means we can redesign it. Money isn’t created by God — the current monetary system was designed about 100 years ago by a small group of bankers. We all know that the system doesn’t work — as we see its failures in the housing market crash of 2008 and the current system failures in the era of Covid-19. The game is rigged — where most lose. It’s time to toss out archaic debates and design a system that actually works.

In designing a system that allows for healthy economic growth and fair distribution of goods and resources, including energy, we should work with nature. As a society, we have come to believe that our economy relies on banks and Wall Street, yet the fundamental underpinning of our economy depends on energy. Energy is the core driver of all economic activity. It’s the carbohydrates in our food (thanks to photosynthesis), it’s the electricity our homes, or gasoline (ancient solar energy) that powers our vehicles. Without energy, we have no goods or services from which speculative financial markets derive value. Essentially Wall Street is relying on the ability for humans to harness energy.

Metabolic currency can be a highly valuable economic instrument for humanity, now that we have the technological means to develop it. It’s time for the brightest talent and largest institutions, particularly electric utilities, to embark on collaborating to turn this hypothesis into a working model. The purpose of this essay is to make the case to economists, entrepreneurs, policymakers, and utilities that now is the time to test the metabolic currency hypothesis.

Metabolic currency is a system of money backed by energy. Metabolic currency can be backed by many forms of energy such as potential, kinetic, thermal, electrical, or chemical.

The core hypothesis around metabolic currency is: If humans were to peg currency, inflation, and economic growth to Earth’s metabolic rate, economic growth would be naturally set at a rate that works with nature and is sustainable for humans. With a slow and graceful economic transition, this is a logical and buildable solution to some of our greatest economic and environmental problems. Instead of having debt and an interest rate as the basis of our economy (which requires exponential growth), perhaps we should have the metabolic rate of Earth be the basis of our economy.

History of the Metabolic Currency as a Concept

Buckminster Fuller was the first person to publicly propose the idea of a metabolic currency based on electricity, the Global Energy Grid, in 1969. Fuller stated: “Because energy is wealth, the integrating world industrial networks promise ultimate access of all humanity everywhere to the total operative commonwealth of earth.”[1] In response to an 11-year-old who asked Buckminster Fuller a question about how to solve for violence in the world, Fuller replied:

“I always try to solve problems by some artifact, some tool or invention that makes what people are doing obsolete so that it makes this particular kind of problem no longer relevant. My answer would be to develop a world energy grid, an electric grid where everybody is on the same grid. All of a sudden there would be no problems anymore, no international troubles. Our new economic basis wouldn’t be gold or dollars; it would be kilowatt-hours.” [2]

In 2013, Brian McConnell proposed a Joule Standard, a concept for a currency backed by energy, writing an essay on how this concept could work. In his article The Joule Standard, in he states that “Metabolic currency, money denominated in or pegged to energy reserves, may make more sense in a highly mechanized economy because it’s rooted in the same physics that governs the machines.” [3] McConnell’s concept, written during the bitcoin boom, began conversations that led to a few entrepreneurs developing initial prototypes.

Debt and Interest: The System Flaw

Money is simply an agreement or contract that acts as a medium of exchange. In the US, money has held value only in how much trust we put into the agreement. The US dollar only holds value as long as global economies have faith in the ability of US taxpayers to repay treasury bonds with interest. At some point, this system will crash when people, businesses, and institutions stop being able to repay debts. We have seen this happen in a few countries — where debt became too burdensome and the currency failed. This happened in Argentina, Brazil, and Ecuador to name a few. It’s a mathematical inevitability. It’s not a matter of if, but when. In distinct contrast to debt, energy holds inherent value. This debt-based model is not workable for the long term and we are seeing failures in our environment and economies.

The core argument for a metabolic currency to supplement and eventually replace existing debt-backed currency is that the fundamental assumption underpinning the mathematical structure of fractional reserve banking is flawed.

The value of our currency is derived from the future ability for us to repay debt with interest. Through fractional reserve banking, banks create money by issuing debt, and the value of our currency is based on the repayment of debt with interest. Like a pyramid scheme, this model requires never-ending exponential growth of the economy, and thus, more and more energy is needed at a faster and faster rate to sustain this debt economy. [4] It’s a model based on short-sighted math.

Couldn’t the currency continue to inflate indefinitely while we decrease energy consumption? Perhaps, but this is not what is happening. Despite the innovations in technology and efficiency gains. The demand for exponential growth continues to outpace innovation and efficiency. Energy (in one form or another) is always underpinning that innovation.

Fundamentally, the mandate for exponential growth, driven by our money creation model, is not sustainable. Not only does it not work from a mathematical perspective, but the physics equations also don’t work. Unless there is some quantum loophole where exponential growth can continue infinitely, the system will collapse. Either the currency or the ecosystem will collapse first and then the other will follow shortly thereafter unless we redesign a new system, to which we can slowly and gracefully transition.

Earth’s Metabolic Rate is the Sustainable Rate of Growth

Earth is a thermodynamic system, with one singular energy input — the Sun. All living things (including humans and all human activities) are governed by a simple set of thermodynamic rules. Nothing, not even economics, is separate from nature or the rules of physics. Even if digital models or short-term market behavior give the temporary illusion that we can defy those rules, ultimately energy drives the economy and the laws of physics will catch up with us. The true basis of all economic activity is energy, harvested directly (solar energy), indirectly (via plants and animals), or from the past (fossil fuel).

The rate of energy the Earth receives from the sun and metabolizes is relatively constant — it’s linear, not exponential. For long-term human and economic well-being, we should have a linear rate of economic growth that should never exceed the rate of energy coming into the planet.

Climate change is an example of what happens when economic models exceed Earth’s metabolic rate. To simplify: We have been pulling ancient solar energy (fossil fuel) out of the ground and converting it to CO2 and methane gases which trap heat in the atmosphere, causing catastrophic change.

Our economy depends on energy, this is why the assumption of exponential growth is such a core flaw in our economic models. While economic growth may continue indefinitely into the foreseeable future, in order for growth to be sustainable, the rate of growth can’t exceed the rate that humans can harness energy from the sun — we are essentially consuming our own life-support systems.

How to Build Metabolic Currencies

It could be argued that some commodities as well as carbon credits or renewable energy credits already are metabolic currencies. However, at the moment none of these are easy to trade by average consumers. They aren’t used as a medium for exchange, but rather as a store of value. However, with a little tweak, commodities could be the backing for metabolic currencies.

Electricity is one of the easiest tradable and trackable systems to use in establishing a metabolic currency. Energy “credits,” “tokens” or “coins” can be monitored and measured through electric utility credits — similar to how solar net metering works. Instead of a 1:1 relationship between a customer and utility, this would be a peer-to-peer system, with the utility acting like a bank and service provider. When an energy credit, redeemable for a kWh, is governed by a PUC, is widely used, and traded peer to peer, it becomes a credible and reliable currency.

Additionally, unlike gold or debt-backed currency, electricity has useful value. We interact with electricity every day. It powers our homes, turns on our lights, and, for some of us, electrifies our drive to work. We know the value of electricity through a consistently charged cell phone, an hour of light, allowing us to read bedtime stories to our children — or the life support machine that keeps a loved one alive.

Typically, we consume electricity and pay for what we have used after we use it. But what if we flipped this model on its head and paid for our electricity before we used it? For power producers, like homeowners with rooftop solar, they produce electricity and it sits as a credit on their utility account. What if we could take leftover surplus electricity credits and trade them with neighbors, or pay for groceries?

Electricity-backed metabolic currencies can be established through prepaid metering and a peer-to-peer trading platform. A number of utilities in the U.S., like the Salt River Project in Arizona, are already switching over to prepaid metering systems and this trend is increasing rapidly. “According to a recent report from Navigant Research, the worldwide installed base of prepaid meters is expected to total more than 85 million from 2014 to 2024.”[5]

“Utilities see prepaid metering as a way to avoid bad debt and increase cash flow,” says Neil Strother, Principal Research Analyst with Navigant Research. “Advanced smart meters and utility back-office processes can remotely enable customers to pay for electricity ahead of usage without having to install a prepay-only meter and, in addition, some customers are finding prepay programs to be helpful in managing their budgets and becoming more energy efficient.”[6]

Developing electricity-backed currency provides a huge opportunity for utilities. Publicly traded or municipal utilities, solar producers, and private residential solar producers can use blockchain electricity tokens to finance new projects via crowdfunding (pre-sell energy), or simply manage transactions in a more secure way. At scale, electricity-backed currency turns utilities into banks.

Blockchain technology enables a secure smart grid network, meaning that there is no central storing location of data. This also can reduce energy waste. With a secure smart energy grid and trading platform to micromanage power consumption, it allows peer-to-peer trading of energy. Utilizing smart grid technology coupled with blockchain, the risk of fraud is reduced.

One of the biggest risks to utilities is data security. Providing an easy-to-use customer transaction system as a service allows utilities to focus on what they are good at – getting electricity to customers. When customer data management is secure and easy-to-use, systems like prepaid kilowatt-hours or credits become viable for utilities, helping them to better manage energy and cash flow. This is especially valuable in deregulated energy markets, where customer experience is an important factor.

Energy-derived Blockchain Cryptocurrencies

There are a few early tests of using blockchain technology for metabolic currency. While these currencies are derived from energy, they aren’t true metabolic currencies, in that they aren’t redeemable for the representative unit of energy value. You can’t trade a Solarcoin for a kWh of electricity with your local utility. Other energy-based cryptocurrencies include Solarcoin, kwh coin, joulecoin, power and Microsoft’s blockchain currency mined by human body heat and brainpower.

“The idea of mining cryptocurrencies using human body heat has previously been explored by other organizations. For example, Manuel Beltrán, founder of the Dutch Institute of Human Obsolescence, set up an experiment in 2018 to mine cryptocurrencies with a special bodysuit that harvested the human body heat into a sustainable energy source. The electricity generated was then fed to a computer to mine cryptocurrencies.”[7]

While these currencies open the doors for future exploration into the world of metabolic currencies, the only entities making headway in tackling this question of how to develop a metabolic currency are Power Ledger, in Australia and LO3 in the United States.

Energy-backed Currency is the Future of Money

Already, cryptocurrencies are being touted as the future of energy. But the instability of these currencies poses a big problem, not to mention the energy consumption associated with mining. It’s only a matter of time until utilities wake up to realize that there is a tremendous value and potential in recognizing that blockchain energy contracts can be traded as a currency. Energy-backed currency can be the future of money.

We forgot or never knew that money is simply a contract. We all know that there are major issues with debt-based currency, but few have acknowledged the fundamental system flaw in our global economy: Debt backed currency requires exponential economic growth to maintain its value, requiring us to create more debt at a faster and faster rate — it’s like a giant Ponzi scheme on the verge of collapse. A number of economists predict this collapse within the next few years — although this may be accelerated with Covid-19. It’s time to “build a new model that makes the existing one obsolete (R. Buckminster Fuller).”