The Emergence of New Money Systems in Sustaining Local Economies

THE EMERGENCE OF NEW MONEY SYSTEMS IN SUSTAINING LOCAL ECONOMIES

CONTENTS

I. COMMUNITY DRIVEN CURRENCIES > Local Exchange Trading System (LETS)

II.

III.

THE INFORMAL ECONOMY

BITCOIN: THE NEW CURRENCY

> Mobile Money in Africa : Case Study on M-PESA in Kenya

> MMT in Kenya.

What About BTC Around the World?

IV. FINANCIAL SUSTAINABILITY IN LOCAL ECONONOMIES ? > Non-Profits & Small Businesses

REFERENCES

ABSTRACT !

The sustainable economy of tomorrow will be born from a selfgoverning society. In this report, we present the emergence of self-regulated money systems on both the local and international level in the face of today’s corrupt money and banking system. Society is constantly seeing new money systems experiment with ways money can create more sustainable economies. Carrying out this analysis leads to observing first the roles of alternative locally driven currencies such as those used in Local Exchange Trading Systems (LETS) in promoting shared economies. Next, we focus on the impact of mobile money payment systems in developing economies such as Africa, where mobile money transfer services (MMT) are drastically improving lives and the efficiency of conducting businesses for millions of people.

MMTs on their own, however, still have shortcomings in addressing financial inclusion. For this reason, we propose the incorporation of Bitcoin, a decentralized, peer-to-peer digital crypto-currency, into the current money transfer systems in developing economies. Furthermore, this serves as a theoretical approach to addressing how Bitcoin can help merchants become more self sufficient in creating local startup communities. We critically analyze the disadvantages associated with the current regulated global economy and illustrate ways alternative Peer-to-Peer financing can benefit local communities to invest in more entrepreneurial activities and in doing so, create more sustainable economies.

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COMMUNITY DRIVEN CURRENCIES

Money in Society Our relationship with money used to be very different. At one point in time we trusted our banks without question, thinking of them as safe havens for our hard earned money. We believed the banks were our partners, looking out for the futures of our financial health.

Slowly, however, society is realizing just the opposite. Banks are treating money, not people, as their real assets. Banks use our money to make more money-- such is the principle business of the entire financial services industry.

Take a step back and ask yourself about the creation of money. Where does our money come from? What happens when demand for money exceeds the bank’s supply of funds?

In short, new money is issued into the economy. The reality remains that all money is debt and loaned into existence [1]. The U.S, for example, runs on a debt-money system where money is increasingly being created and “loaned” to the bank by the Federal Reserve. Debt drives our economy and will do so for as long as we keep using currencies that are being mismanaged and manipulated by financial institutions. The reality is, the financial industry has taken up the reins of our society, inducing the bottom 80% into a deep debt scheme against which so little has been done to disrupt.

Why? Because we unfortunately still depend on such financial intermediaries.

Nonetheless, amid today’s corrupt money and banking system, more and more people are waking up and losing trust in doing things the “conventional” way. For instance, in recent decades community exchange systems have emerged seeking for alternative ways of funding and sustaining local economies.

Community driven currencies have historically been a form of money innovation. Local currencies tended to emerge whenever a community needed to protect its internal economy from outside disturbances such as war or (economic) depression. [2] As “complementary” currencies that can be bought for their equivalent face value in their respective national currencies, local currencies are created as part of a larger trading framework for the purpose of financing local needs, to generate wealth and protect [people] from poverty. [3] In light of a global economy troubled by a growing wealth-money gap, local money stimulates exchange between people of the same community with the goal of “making money accountable to the local community and asking questions about where the stuff that we buy comes from – asking if it could be produced closer to home”, says Susie Lees, cofounder of the Brixton Pound. [4] Because the money circulates only within local community borders, it fully supports local independent traders. In the early stages of local currency experiments, spreading the knowledge about alternative currencies and acquiring business partners in the community will be the top priority driving the currency’s mass ! ! !

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adoption. Ultimately the currency will only help spur local economic growth if the community has the resources to provide what the goal challenges. Few local economies have proven significant economic growth using alternative local currencies; nevertheless, more local funding and support can aid businesses in these communities in a forward direction.

LOCAL EXCHANGE TRADING SYSTEMS In 1983, Michael Linton established the first LETSystem (Local Exchange Trading System) in Canada’s Comox Valley. Today, there are over 800 LETSystems adopted in the world taking the form of mutual credit or time banking systems. Unlike users of local currency, members in the LETS-Economy are encouraged to exchange goods and services based on local needs without the need for cash. The LETSystem is about developing the community through a personal and practical financing approach. (Figure A) Figure A

Community)

Personal)

Prac1cal)

Successful) LETSystem)

The fundamental principle behind a LETS-economy is using a self-created means of exchange [4] to sustain local community development. Therefore, a LET community is not designed to model a “chain-of-command” type society. Essentially, it is a self-governing system whereby all members are expected to follow the rules of the system in addition to any which are created by the community. The advantage behind a community based credit economy is such that the “currency” never runs out. LET-economies are intended to prevent social exclusion, and do so by allowing people equal access to and more control over their money. Credit is earned when a “favor” is done despite one’s skill level. So long as a skill needed is one that can be provided, there is a fair trade between individuals. Once an agreement is made, local currencies are “credited” to individuals from the system by their peers, unlike fiat currencies, which are regulated and issued by a central authority. In this manner, the success of local currencies tests the values embedded in the social system.

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THE

Informal ECONOMY

The Growing Informal Economy The informal economy is the diversified set of economic activities, enterprises, and workers that are not regulated or protected by the state. [1] Referred to also as System D, it is the second largest economy is the world. Robert Neuwirth, a journalist, discovered the existence of these self-reliance economies upon visiting international street markets. He coined the term System D from the French term l'économie de la débrouillardise, which depicts the self-starter and ingenious individual. According to Madeline Leonard, Professor of Sociology at Queen’s Belfast University, “No matter what kind of society one looks at, be it advanced capitalist, socialist or post-communist, informal economic activity contributes significantly to the overall economy” [2]. Albeit an informal economy, System D followed the U.S economy with a GDP of $10 trillion dollars in 2011 and is currently the fastest growing economy.

Contrary to beliefs about informal economies as being secret “black markets”, System D is not an underground operation. In fact, it is a fully-fledged economy functioning in all parts of the world. If you have ever purchased a good at a flea market, for example, or bought food from a street vendor, you have directly contributed to this growing D.I.Y economy. Close to 1.8 billion people work in these so-called “untaxed, unlicensed, unregistered” markets [3], amounting to half of the world’s workers.

Selling fruits and vegetables Food operation, sale and processing, Selling clothes and shoes (both second-hand and new) Kiosk selling various items Water kiosks Small retailers or hawkers who sell cereals, home suppliers, fuels and other goods.

• Small manufacturing, production, construction and repair of goods.

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Activities associated with the informal sector (World Bank, 2006, p.32-33) How is our understanding of the informal economy integral to our discussion of local economies? Perhaps I should begin by defining the word informal. “Informal”, according to Merriam Webster Dictionary, means “not according to the prescribed, official, or customary way or manner.” [4] Among several reasons, people choose to enter the informal market because they are unable to freely participate in the formal economy. Such is the case when ! ! !

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unemployment is high and employment in formal sectors is limited to “formally skilled” workers. Those unable to meet the requirements needed to compete in the formal sector are forced to find alternative ways of making a living. At its core, System D is about disentangling from the hands of government and creating efficient practices to serve others and survive in a heavily regulated society. So often we hear the government proclaiming itself as the “creator”—the creator of jobs and opportunities. Increasing participation in the informal sector, however, says otherwise about the government’s wealth creation role.

Rather, advanced and efficient technology is quickly seizing this position and meeting the demands of this booming sector.

MOBILE MONEY IN DEVELOPING COUNTRIES CASE STUDY ON M-PESA IN KENYA In the last decade social innovation has thrived in areas boasting the largest informal markets, encouraging the use of technology such as mobile phones as a tool for social improvement in developing countries. A recent research study conducted by the Center for Emerging Market Enterprises (CEME) states that in countries where bank account ownership is low and electronic payments infrastructure is underdeveloped, mobile phones have the potential to provide the unbanked and under-banked with a way to save money and make cashless payments. [5] Mobile money transfer (MMT) is a P2P payment method that makes transferring money between people cheaper and faster than formal financial services such as Western Union or banks. In 2007 Safaricom, a mobile network operator, introduced the M-Pesa mobile payment service in Kenya. M-Pesa allows individuals to store balances, make payments, and send money through cell phones, making it easy and fast to send and receive cash payments. [6] M-Pesa is just the means, however, not the ends to providing better access to financial inclusion.

M-Pesa has opened the doors for innovative branchless banking. It poses several advantages to a broader sector of poor people, one among which is providing an affordable alternative to carrying cash through informal channels. M-Pesa enables its customers to transact money using their accounts at local M-Pesa agents instead of travelling to a bank branch. For business owners, M-PESA provides a secure way to pay and keep money in shops where no credit/debit card infrastructure is in place. [7] Its efficiency has attracted over 16 million users in Kenya, reaching far more individuals in urban and rural areas compared to competing mobile banking applications. [8] Based on Figure 1, digital financial inclusion is steadily increasing in Kenya with over 23,018,500 mobile money users. That is 74% of the adult population contributing to 31% of Kenya’s GDP through mobile money services. ! ! !

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Despite its many advantages, M-Pesa remains vulnerable to many economic and privacy issues. Under the loom of security and corruption are key concerns such as fraud, fees, inflation and cross border payments.

Fraud— Kenya faces high corruption costing more than $1 billion dollars per year (approximately 3% of GDP), with individual Kenyans paying an estimated 16 bribes per month. [9] According to a report on M-Pesa’s benefits and challenges by the GSM Association (GSMA), users have complained about losing money in fraud incidents. In 2011, M-Pesa had 114 cases of fraud, resulting in millions of lost money. [10] M-Pesa has since combated this issue by instating a tighter multi-step security check process.

Fees— Earning nearly 80 percent of Kenya’s wireless market share, Safaricom has become a dominant player in the mobile phone industry. [11] As a result of its market power, Safaricom is able to provide its customers with cheap calls and rates. The ability to set lower fees compared to its rivals, however, does not make Safaricom less liable to the whims of government regulation. In February 2013 under The Customs and Excise Duty Act, the Kenyan government forced Safaricom, along with other MTOs and money transfer agencies, to comply with a new tariff— a 10% tax on transactions made over Ksh 101 ($1.1).

[12] Safaricom responded by increasing its charges by 10% while maintaining the 1-10% tariff placed on money transfers.

Inflation— Additionally, as M-Pesa itself is only a medium of currency transmission, the service is not hedged against national currency inflation by the Kenyan government. The Kenya National Bureau of Statistics reported the average Kenya Inflation Rate at 11.77 percent from 2005 until 2013, peaking at 30% in 2008. [13] Although inflation rates have since been significantly lower, historically unstable regions such as Kenya cannot shield itself from future swings of inflation. M-Pesa’s current disadvantage is that it services mainly the flow of national currency.

Cross-border payments— Regulated transaction mobility means people are not allowed to make cross-border transactions directly via the M-Pesa network*. As a closed payment system, M-Pesa must still rely on money transfer operators like Western Union to receive mobile payments from other countries. M-Pesa is proving to be a significant improvement for financial inclusion as seen in Figure B., but these weaknesses must be tackled before MPesa can be considered as a fully sustainable solution for money transfers. This is where integration of Bitcoin, an up and-coming alternative payment method, can help to resolve MPesa’s shortcomings. Examples will be addressed in the next section.

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* Since the publication of this report, M-Pesa has expanded its services with M-Pesa Interonal Money Transfer (IMT) to allow users to receive money abroad. The service is currently limited between Kenya and the UK.

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BITCOIN, THE NEW CURRENCY

What is Bitcoin?

Bitcoin, commonly referred to as “stateless virtual money”, is a digital, decentralized currency that acts as a fast payment system for internet services and international financial services. It is an open-source payment network controlled by cryptography. Instead of being regulated by a central issuing authority, Bitcoin is regulated in a bottom-up fashion and audited by a peer–to–peer network. Transactions are made pseudo-anonymously and secured by the entire Bitcoin network. Unlike reserve currencies such as the Dollar or the Euro, Bitcoin has a limited supply cap of 21 million BTC that will be reached by 2140, at which point no more Bitcoins can be issued into circulation.

Backed by free market principals, Bitcoin is the only medium of exchange that transfers financial agency from banks and sovereign governments to the consumers.

Eventually,Bitcoin will be completely independent of financial intermediaries. The only reason why financial institutions such as banks exist is because people trust them to ‘protect’ their money. Scandals are exposing this breach in trust between consumers and financial operators time and time again. In the words of John Matonis, Executive Director of the Bitcoin Foundation, “The bursting of Bitcoin technology…is not a mere coincidence. It is a reaction to three separate epochal developments largely emanating from the developed economies: (1) centralized and oppressive monetary authority (2) a dominant and complicit legacy banking system, and (3) the eradication of financial privacy.” [1] Bitcoin not only puts financial privacy back in the hands of the consumer, but also reengineers how people control their own money.

Despite the currency’s positive values, many skeptics latch onto Bitcoin’s volatile valuation, targeting price fluctuation and value instability as the currency’s biggest weaknesses. But in an unregulated network, price volatility is naturally expected. Before comparing Bitcoin’s stability to that of fiat currencies, one must first consider Bitcoin’s market size and current trading volume. Currently Bitcoin’s market value is at 1.3 billion USD and growing. As more users enter the market Bitcoin, volatility will drop, thus making the periods of loss and gains less erratic. Secondly, Bitcoin investor and evangelist Roger Ver believes the price of Bitcoin has no effect on its usefulness as a payments system. Ver claims, “Whether Bitcoin is at $1 or $1000, you can still transfer $1 million USD worth of value. The usefulness of Bitcoin as a payment system necessarily calls for an increase in the individual price of Bitcoins to accommodate a larger user base.” [2] Therefore, convincing people to not only enter, but to also stay in the market will be the real challenge for the Bitcoin community.

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MMT IN KENYA. WHAT ABOUT BTC AROUND THE WORLD? With an understanding about Bitcoin, perhaps we can now integrate the two concepts -- mobile money and Bitcoin-- to expand our discussion about money transfer services to its largest market potential in developing countries: international remittances.

MMTs are thriving in developing countries because they have proven to be the next best thing to banks for storing and transferring money safely. M-Pesa in Kenya is the most successful MMT for reasons particular to how the system was regulated. In the article “Why Does Kenya Lead the World in Mobile Money”, The Economist credits M-Pesa’s success over other mobile money competitors to “the regulator's initial decision to allow the scheme to proceed on an experimental basis, without formal approval.” [3] In other words M-Pesa developed initially without being subjected to the control of formal financial institutions, whose regulations traditionally restrict them from making “so-called” risky investments.

“Meanwhile, mobile-money schemes in other countries,“ they explain, “have been held up by opposition from banks and regulators and concerns over money-laundering.” M-Pesa models the advantages of having minimal governmental regulation on electronic money transfers, but not without a price. Since it’s launch in 2007, additional fees, along with a host of corruption and security issues have crept up behind users. Additionally, although sending money through MMTs as opposed to a bank is now cheaper, faster and safer for millions of people, M-Pesa is limited to country borders, making it possible to only transfer money between M-Pesa users domestically. This is proving to be a huge disadvantage for the remittance market, but one Bitcoin as a payment system can compensate for.

International money transfers in the remittances market play a significant role in economic development. In a recent Migration and Development Brief, the World Bank announced that remittance flows are expected to grow at an average of 8.8 percent annual rate during 2013-2015 to about $515 billion in 2015. [4] With rising numbers of remittance inflows and outflows, lower transaction costs and faster processing will continue to be the core aims of money transfer services. Currently, transferring money abroad relies heavily on financial intermediaries such as banks and neighbourhood money-transfer agents. The World Bank cites a compelling reason for applying mobile technology to cross-border remittance services, noting that the bulk of poor cross-border migrants tend to travel short distances, mostly to neighbouring countries just across the border, and a large number of them stay within the calling range of domestic mobile phones. [5] With limited competition among remittance service providers in emerging markets, high costs of remittances remain.

At the moment, specific transfer amounts and the remittance corridors determine the varied fees, which can range from as low as 2.5% to as high as 25.8% of the remittance value.

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As the world’s largest money-remittance provider, Western Union Co. (WU) has dominated operations within the remittance market. Accruing close to 17% of the market share in the remittance market annually, WU profits steadily from foreign transactions. To maintain competition with other financial services providing foreign exchange transactions, WU has begun to implement lower transaction fees. To wait for WU to lower fees to 0.5%, however, would be playing a fools game. Bottom line: WU is not open source software. It is a competitor in the financial arena looking to leverage growth through maximizing revenue and profits from consumer transactions. Compared to Bitcoin, services like WU will continue to exhibit significantly higher transaction costs.

As an unregulated, decentralized payment system, Bitcoin requires no financial intermediaries and provides direct funds to the intended beneficiaries. It is in emerging markets with limited remittance payout outlets where Bitcoin’s potential will be realised.

Money transfers to Africa are problematic due to two major barriers: high rates of informality within the continent and a regulatory environment favoring monopolies. This results in restricted outbound flows of money aside from money transferred to formal banking depository institutions. [6] With nearly 2.5 million unbanked people in the world and expensive conventional financial services, improved access to financial services and capital is a growing concern.

According to The Economist, “…migrants may not fancy using formal financial channels because they prefer informal ones”. [7] Informal intermediaries include people carrying cash, community or ethnic networks, trader networks, value transfers, and bus couriers. [8] Informal funds transfer systems are undeniably riskier than formal money transfer services, so why do individuals still choose to rely on these systems given safer options? It is the same reason why more and more people are partaking in the informal economy. People don’t trust systems that exclude their participation.

A large percentage of unbanked people are low-income, many of whom are discouraged by their socially disadvantaged status from engaging with the formalities of financial institutions.

Immigrants to areas with a high number of unbanked individuals experience further difficulties. In addition to language barriers, [there are] concerns about alien status and lack of trust in financial institutions that stems from unstable or uninsured banks in their home countries. [9] Above all, immigrants face skyrocketing fees for sending money back home to family members. Not coincidently, remittance costs are often the most expensive in countries where international transactions are limited to a network controlled by a central bank. The Bank of Ghana (BoG), for example, restricts options for payout networks in Ghana. With limited competition among remittance service providers for cross border ! ! !

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payments, Ghana’s remittance cost averages 19%. [10] World Bank studies have shown that international remittance receipts have helped to lower poverty in Ghana by 5 percentage points [11], yet it remains one of the most expensive countries to send remittances.

According to the World Bank, South Africa remains one of the most expensive remittance sending countries with an average fee of 20.7%. The World SEND AND RECEIVE MONEY FROM Bank’s Remittance Prices Worldwide report notes ANYONE, ANYWHERE IN THE WORLD! the costliest remittance corridor is from South Africa to Zambia, where the average total fee in the third quarter 2012 per 500 USD was $36.12.

Using Bitcoin would expunge such high costs by offering close to zero processing fees for users sending money worldwide. Improving remittance services in these countries would not be about efficiency, but also about saving lives. Bitcoin’s advantages as a global, open payment system in the remittance market are its value transfer utility and cross-border transfer ability, helping both the local and global economy.

Alongside Bitcoin’s ability to disrupt the way financial services manage international money transfers for migrants, it will also topple the hierarchy of individuals who have traditionally “safeguarded” access to financial capital. In an interview about Bitcoin’s future with Erik Voorhees, one of the foremost Bitcoin entrepreneurs, Vorhees mentions that “Bitcoin…excludes nobody, it has no geographical restrictions; it doesn’t make judgments on its usage…Bitcoin is a pure technological tool which will necessarily revolutionize society and finally separate money and states.” [12] Money is the root of all economic inequalities. The only way to fight corruption is to use what it cannot affect: honest money. If Bitcoin succeeds, it will give people greater mobility to make decisions, to re-evaluate the type of society they want to live in and create for the future. Opening up the flow of capital to more people in the world will inevitably lead more people to live much freer lives.

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Financial sustainability IN LOCAL ECONOMIES?

Bitcoin & NON-PROFITS Bitcoin has the potential to become a huge benefit to non-profit organizations.

Let us begin with a case study on HOTEL? WILHELMSBURG, a non-profit project of the Urban Design department of HCU-Hamburg in Hamburg, Germany. HOTEL? WILHELMSBURG is a DIY low-budget community-run hotel funded primarily by individual donors. [1] The project directors tout the need for “social capital“ over monetary capital, but in the long term, the latter is just as important in achieving and sustaining the end goal-for different local economic actors of the neighbourhood to run a sustainable hotel. The reality is clear. A project the size of this hotel cannot run for years on end without proper funds. If the hotel is to be kept as a non-profit, it must efficiently raise sufficient capital. One method is to use the vehicle of volunteerism to drive donations.

Within the project’s 5 year building time frame from 2009-2013, hundreds of volunteers have come through its doors and many more will continue to do so. In a hypothetical scenario where 1) there exists a more established Bitcoin community in Germany 2) the project leaders of Hotel? Wilhelmsburg asks volunteers to contribute a monetary amount to the project after their service, an efficient way to manage donation funds would be to use Bitcoin as a payment system.

Currently, many project managers seek crowd-funding sources like Kickstarter or Indiegogo.

On Kickstarter for example, each project is encouraged to set a deadline of 30 days or less for maximum efficacy. Since new projects are constantly being added to the site, attention to older projects decrease overtime. Unless projects are fully funded initially, they often do not benefit from these funding organizations in the long term. One of the greatest disadvantages of crowd funding sources, however, is the personal information donors must supply to the online payment processor when making donations. Providing such information is both time consuming and a security risk.

Bitcoin makes the process simple and secure. Bitcoin can be used to raise capital without the need for financial intermediaries. Because of this, Bitcoin guarantees 100% of the payments and allows quick, automatic notification of transactions to the person in charge of the donation account for the Hotel? Wilhelmsburg project. Additionally, Bitcoin is suitable for both low and high volume transactions and takes away the organization’s burden to pay ! ! !

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base/additional fees required by traditional online payment processors. Returning to our hypothetical scenario, most donors are expected to make one-time transactions. Because Bitcoin donations are made pseudo-anonymously using Bitcoin payment addresses, donors bypass the potential threat of identity theft by not revealing any personal information.

Bitcoin would not only speed up the donation process, but also incentivise constituent initiated transactions and generate more funds to sustain the project.

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Bitcoin & SMALL BUSINESSES Bitcoin poses significant advantages for small business owners as well.

The picture below illustrates the best-fit case for a local merchant accepting Bitcoin.

Small businesses accepting credit card payments are burdened with a host of issues. This leaves merchants such as private restaurant owners earning bottom line profits with no margin for error. The figure above illustrates how eliminating credit card transaction fees can grow revenue by earning merchants almost double their profits. The foremost issue merchants face with credit cards is the transaction fee they must pay to the distributors, which often ranges from 2.8% to 3.5% of sales. Add on services such as BitPay, a Bitcoin payment processor, make it possible for instant and low fee (1% or less) transactions.

BitPay signed up with more than 8000 merchants worldwide since it started operating in May 2011. [2] Merchants may be concerned about the day-to-day volatility risk of Bitcoin, but BitPay removes this risk by locking in the price of Bitcoin at the time of the transaction. ! ! !

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Below I illustrate the process of a sample Bitcoin transaction made between a US merchant and its customer via BitPay Customer buys a drink at a bar Bitcoin payment is made to the bar owner and sent to BitPay

Instantly

BitPay converts the Bitcoins to cash

Cash is deposited into the merchant's bank account

Within 1 business day

Additionally, because Bitcoin payments are made directly to the merchant from consumers, merchants need not worry about payment processors refusing their business, delaying their funds, or cutting off service. When desired, the merchant can choose to receive a direct deposit into their bank accounts, thereby automatically converting Bitcoins into fiat currency within a day and at a volatility protection for half a percent (0.5%) [3]. Furthermore, businesses often times also face settling payment and chargeback fraud from the credit card company. Bitcoin transactions are not only irreversible, but are also secured by a Bitcoin protocol that prevents security risks (e.g chargebacks) associated with credit card purchases.

Like with every new invention, nothing unveiled to the public is sure-fire. Simply accepting Bitcoins does not guarantee that there will be customers paying with it, especially in areas of the world where Bitcoins are not easily obtained. [4] But no invention succeeds without first risking the idea of a new possibility. Electronic transfer payments such as credit cards and PayPal were the first alternatives to cash. Now there is a second alternative, one whose leveraging potential merchants would be wise to consider.

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Interview responses from small business owners in London and greater UK: [CABLE STUDIOS] 1) When/how did you first hear about Bitcoin?

I first heard of bitcoin through a friend back in 2011. I've always been interested in the history of money and challenged myself to understand how they worked.

Once the penny dropped I was hooked. I went ahead an made a purchase when you could buy them for £5 each. I'm since very happy I did so, not just for the gain in the wealth transfer, but for what it will ultimately mean for humanity as things start to break down.

2) How long have you been accepting Bitcoin?

Pretty much as soon as I understood them. We use a company called coinbase for direct website payments. We created an account with them as it is extremely simple to add their payment button to our website. (I'm not a coder and did it myself!). We did this back in late 2012, and have since worked with some great tech seed companies working on design related aspects on some very interesting, game changing projects. The growth is epic, watch this space.

3) Why did you start accepting Bitcoin?

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Low inflation risk. One of the biggest problems with our current british pound and other currencies used around the world is inflation. Over time all currencies lose purchasing power at a rate of few percents per year mainly because governments keep printing more money. This process is basically a small tax on your accumulated wealth. With Bitcoin you don't have this problem because the system is designed to make Bitcoins to be finite. Only about 21 milion Bitcoins will ever be released (mined). The release of new Bitcoins is slowing down and it will stop completely within a few decades. We have a slowing population growth which is projected to stop at around 1 0 billion by approximately 2050 which roughly coincides with the last Bitcoin to be mined. There will be roughly 1 Bitcoins for every 500 people.

Low collapse risk. Regular currencies depend on governments which fail ocassionally. Such events either cause hyperinflation or a complete collapse of a currency, which can wipe out savings of a lifetime in day. Bitcoin is not regulated by any one government. It's a virtual global currency. !!!!!!!!!!!!!! ! !

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Safe, simple and cheap. The problem with traditional online transactions from the perspective of the seller is that Credit cards, PayPal you and other online payment systems allow buyers to claim their money back. You can can use escrow services but that makes things complic ated and slow. With Bitcoins once you have the money you have it and that's that. Buyers can not in any way take the money back and the seller can safely ship the product or perform the service that the client purchased. From the buyer's perspective the infrustructure for payments and sending money between accounts is potentially going to be simpler and cheaper because it is peer-to-peer rather than done through some intermediary.

Easy to carry. Not a real problem that needs a solution, but you can carry a billion dollars worths of Bitcoins on a memory stick in your pocket. You can't do that with cash or even gold.

Untraceable. This is both a benefit and a risk for Bitcoin. The benefit is that yo u don't have to be afraid of any organization of being able to trace the source of your funds. This is a clear benefit in many areas of the world because governements that are supposed to guard against fraud are actually defrauding people by taking their savings partially or fully.

4) Has your business seen any advantages since accepting Bitcoin as an additional payment system?

I do believe this will be the currency we will all be using in the long and short term future.

The benefits to business with mass adoption will be 0 fees, along with the above benefits listed. For instance, if we needed to send money (bitcoin) to China to start up a sister company. We could do so instantly with no fees, no exchange rates, taxation, need for a foreign bank account or government interference.

5) What challenges, if any, are you facing while converting Bitcoins into the British pound?

None. We don't do so. However the FSA shut down many of the British exchanges back in late 2011. Seemed like they are scared of something?

We tend to hoard our bitcoins as they are going to be worth much, much more in the future!

7) In your opinion, what opportunities will Bitcoin pose for small businesses in the future, and for the regulated marketplace in general?

Bitcoin is a Monopoly free currency system. It's private and holds its value. No Govenment or central planning authority can control it. It's a distributed payment system with 0 fees. ! ! !

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These facts alone with encourage growth and stability for bossiness based on the sound money principals of the free market.

You are going to do very well if you use bitcoin, as the other businesses fail due to their tie with the debt based monetary system and centrally planned paper currencies. [5] [CUMBRIA CABS] 1) When/how did you first hear about Bitcoin?

I think I first heard about Bitcoin a couple of years ago on Youtube, I think it was Max Keiser / Keiser Report.

2) Do you personally invest in bitcoin? If so, what advantages do you see with investing in bitcoin for the long run?

I have not actually invested in them as such, but have tinkered around with mining them as it was something that originally intrigued me. Over the last couple of years they seem to have become more respected and the price has increased 10 fold, Bitcoins were ÂŁ8 each then, now they are around ÂŁ80 each. It remains to be seen if this trend continues.

3) Will your company be looking to convert bitcoins into the British pound?

If and when we do get any Bitcoin paying taxi customers then we will be converting them to GBP as soon as we receive them. Unfortunately they cannot be used to buy fuel yet!

4) In your opinion, what opportunities will bitcoin pose for small businesses in the future, and for the regulated marketplace in general?

The main attraction for us as a small business was the low transaction costs when compared to taking credit card payments, we accept credit cards both online and in our vehicles and the transaction costs are quite expensive. These costs have to be either passed on to the customer or absorbed by the driver or the company, to accept BTC payment using Bitpay is 0.99% (some of them are free) compared to up to 10% with some providers of mobile credit card terminals. Another benefit is the reduced risk of fraud, we have had some problems with people attempting to pay for taxis over the

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5) If you have talked with other business owners about integrating Bitcoin, what have their reactions been? telephone with stolen card details. Bitcoin transfers are instant and guaranteed immediately, there are no charge backs.

At the moment Bitcoins are still a long way from becoming a widely accepted currency with the public in general, but there are a lot of businesses around the world that are starting to see the benefits and accept them as payment. As far as we know we are the only business in Cumbria to accept them. At the moment the only interactions we have had with other businesses has been online via social media. [6]

[THE VIRTUAL DOCTOR PROJECT] 1) When/how did you first hear about Bitcoin?

We were approached by Jonathan Turrall who is a neighbour of ours at Sussex Innovation Centre and is creating a community of Bitcoin users ( companies & charities ) in the Brighton area. He mentioned that Bitcoin was possibly a new route to attracting donations and as a charity that is something we are always interested in. Once we had researched it properly and decided it was worth trying, he helped us to get started.

2) Do you personally invest in bitcoin? If so, what advantages do you see with investing in bitcoin for the long run?

I don't invest personally, we just accept Bitcoin for the charity. It is something I am new to so will watch with interest 3) How long have you been accepting Bitcoin?

6 weeks 4) Why did you start accepting Bitcoin?

We were persuaded from our research that it was an interesting and viable new way of attracting donations to support our charity. We have nothing to lose by offering it as an option and hopefully the fact that we do will help to spread awareness of our project and help to raise funds ! ! !

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5) How many customers have paid for your service using Bitcoin?

We have had around half a dozen donations so far 6) Has your business seen any advantages since accepting Bitcoin as an additional payment system?

Not really. So far the spread of the use of the currency still seems limited but hopefully it will develop over time 7) In your opinion, what opportunities will Bitcoin pose for small businesses in the future, especially in emerging markets?

That depends on whether it can be used to purchase goods & services in more outlets, and also whether it offers the opportunity to avoid international bank transfer fees which would make it attractive. [7]

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COMMON PROFILE PRIVATE/INDEPENDENT OWNERS MAIN INVESTORS: SELF OR OTHER MEMBERS OF THE FAMILY

NEIGHBORHOOD BUSINESSES IN WILHELMSBURG

ECONOMIC OUTLOOK: MAINTAINING A BUSINESS IN THIS ECONOMY IS HARD EDUCATION: EXPERIENCE & APPRENTICESHIP

FLEISCHEREI KAYA!

BÄCKEREI ALLAF!

KÖZ URFAM LEZZET!

JOHN – IMPEX! FISCHHAUS!

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Self-Financed 100%

QUESTIONS Wie haben Sie ihr Geschäft angefangen?

HOW DID YOU START YOUR BUSINESS? Haben Sie ihr Geschäft sich selbständig aufgebaut?

DID YOU START YOUR BUSINESS ON YOUR OWN? Warum haben Sie entschieden, ein Geschäft in Wilhelmsburg zu beginnen?

WHY DID YOU DECIDE TO OPEN A BUSINESS IN WILHELMSBURG? Wer hat ihnen geholfen, ihr Geschäft zu finanzieren?

WHO HELPED TO FINANCE YOUR BUSINESS? Schicken Sie einen Anteil ihres Einkommens in ihr Heimatland?

DO YOU SEND HOME A PORTION OF YOUR INCOME? Wie überweisen Sie das Geld ins Ausland?

WHAT METHOD OF MONEY TRANSFER DO YOU USE? Wie wichtig ist dein Geschäft, um ihre Familie zu unterstützen?

HOW IMPORTANT IS YOUR BUSINESS IN SUPPORTING YOUR FAMILY? Ist es schwer, ihr Geschäft zu führen?

IS RUNNING YOUR BUSINESS DIFFICULT? Was für eine Ausbildung haben Sie bekommen, bevor Sie ihr Geschäft geöffnet haben?

WHAT TRAINING DID YOU HAVE BEFORE GOING INTO BUSINESS? Welchen Rat, könnten Sie zu anderen Kleinunternehmern anbieten?

WHAT ADVICE WOULD YOU GIVE SOMEONE WHO WANTS TO SET UP A SUCCESSFUL BUSINESS? ! ! !

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Interview responses from small business owners and workers in Wilhelmsburg: Köz urfam lezzet Dr. Mores is the chef and owner of Köz Urfam Lezzet, a Turkish restaurant in Wilhelmsburg.

He has been trained as a chef for over 33 years. He started the restaurant on his own with his personal savings as well as with contributions from close family members. The business is a very important asset for supporting his family in Germany. He does not remit home money very often. Dr. Mores recognizes that it is hard and sometimes stressful to run a business in this economy and advises aspiring small business owners to work hard, to do your job the best of your ability and to be a self-starter.

Fleischerei Kaya* Fleischerei Kaya is a meat shop self-started by the owner and financed by members in his family. The owner has lived in Wilhelmsburg for thirty years. The business remains the main source of income for his family. To the worker’s knowledge, the owner does not remit money home. The worker mentioned that there are less opportunities for success in this economy as before. His advice for aspiring small business owners is to work hard and put effort in what you do. !

Bäckerei Allaf* Bäckerei Allaf is one of 16-20 franchises. The bakery was self-started by the owner and financed by members of his extended family. !

John Impex Tony helps his mother and father run John-Impex, a self-financed clothing store in Wilhelmsburg. His father has been living in Wilhelmsburg since 1990, the year he founded the business. The business is a very important asset for supporting his family in Germany.

Tony admits that running the business is difficult, with some good days and some bad.

Fischhaus Fevzi Toner is the owner and founder of Fishhaus, the only “grilled fish-in-bread” shop in Germany. The speciality originated in Turkey. When thinking of opening a business, his vision was the do something that no one else in Germany is doing. Prior to opening Fishhaus, he worked as a cook in a gastronomy. The business is entirely self-financed and has become very successful. The shop remains a main source of income for his family in Germany. His advice for aspiring small business owners is to head your own business and to be unique. *Indicates store owner was unavailable to interview. Interview may be incomplete due to store employees' lack of knowledge ! ! !

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Bitcoin & THE COMMUNITY CULTURE When introducing Bitcoin to people, there are many ways of portraying the currency. If you were talking to a Libertarian, for example, you would emphasize that it is open sourced and decentralized. If you were approaching a financier, you would want to expand on its advantages as an investment opportunity. The reason why there are multiple ways to introduce the currency is because it is a tool of social, economic and political influence, affecting society in unique ways. Since currencies do not have inherent value, but rather given value according to what people perceive and agree it to be, the environment often becomes the indicator and determiner of the currency’s growth and success.

Germany, for instance, is a heavily cash based economy. At the moment, Bitcoin poses limited economic justifications in such a cash reliant society because its advantages are not readily seen. Bitcoin doesn’t solve a direct “problem”, per say. One might ask, “Why go through the trouble of converting currencies when you can get by using one?” This question, as it stands, is legitimate for it addresses one of Bitcoin’s shortcomings. Why turn to Bitcoin when you’re satisfied with the currency you are using? This is when the economic advantages of Bitcoin take a back seat and when the politics of the environment come into discussion.

Wilhelmsburg’s poor and socio-culturally diverse population is facing a bigger conflict – urban renewal, more commonly known as gentrification. [8] Wilhelmsburg, a former working class district in the borough of Hamburg-Mitte, has been experiencing urban rehabilitation and extensive renewal plans by the International Building Exposition (IBA) since 2006. Opponents of the IBA have touted its negative impacts on the local communities, protesting that what they want is not “fixing” for the future but fixing the now.

In parallel, the low-income residents of Wilhelmsburg would be drawn to Bitcoin as a longterm investment opportunity, but would be more interested in the currency’s ability to make providing goods and services more cost effective. This is because money is not just a commodity of exchange; they see it, like many others do, as their ticket to survival. What they care about is how Bitcoin can help with everyday problems such as paying for food on the table and affording the next rent spike.

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Even though Bitcoin is not popular in areas like Wilhelmsburg, in other cities such as Berlin, it has been gaining traction for a long time. Just like any currency, Bitcoin is only worth accepting when there is an established and growing community of Bitcoin users. Berlin has the second largest Bitcoin community and not surprisingly, the highest concentration of businesses accepting the currency. Currently over a dozen merchants in Kreuzberg, Berlin has taken the deep dive to accept Bitcoin.

As much as Bitcoin itself is a revolutionary currency, it can only successfully penetrate areas that share a similar social appeal. In an interview with Joerg Platzer, owner of Room 77 bar in Kreuzberg, he says, “Kreuzberg is traditionally an area in Berlin where people are politically very aware and people are critical toward existing systems and where people are discussing and looking for alternatives to those existing systems. Therefore, Kreuzberg is actually a perfect ground for Bitcoin to arrive and to reach people and convince them.”

Bahar Sanli, a community worker in Kreuzberg describes the district as an active centre for progressive political awareness. “It distinguishes itself through a critical leftist political consciousness” and in her belief, “Bitcoin is embedded in this political consciousness” and is the reason why it will be successful here. Platzer believes that Kreuzberg, as the first Bitcoin neighbourhood, will continue to grow as a Bitcoin based local economy, using Bitcoin as an alternative local currency with global reach. [9] At the moment, merchants accepting Bitcoin range from a record shop, a tour agency, to restaurants and bars. And this is only the beginning.

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Conclusion The creation of new monies is not a new phenomenon. They usually just don’t get very far.

Forceful central banks and their monetary policies have produced an artificial barrier to entry for new currencies to compete in the global economy. Thus many new existing currencies are local currencies taking the form of tokens or paper money, which do not extend beyond the borders within which they are created and used. While local currencies help to promote local goods, they are not a long-term solution for a globalised society.

Bitcoin is the first decentralized and unregulated currency to successfully take off as an international currency. As it stands, Bitcoin poses several advantages over existing fiat currencies like the Dollar and payment systems like PayPal. Yet learning of risks associated with Bitcoin yields immediate disinterest for many. Trust in its potential (inclusive of its risks) will determine the longevity of the currency. Educating the public about the currency will be the driving force for its success. It is not the network of techno-enthusiasts, cryptographers or hackers who need to be convinced of Bitcoin. The Bitcoin community needs to target the likes of unbanked and underserved individuals and entrepreneurial small business merchants and educate them about Bitcoin’s utility to society. Bitcoin is not just another experimental currency and payment system. It is a philosophy that challenges the way we think about money and how we use it in society.

Bitcoin is only a pioneer of future revolutionary money systems. In a world of open competition, it is only a matter of time when delimited financial access and increased monetary freedom will prove the driving factors of a truly free and global society.

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I. [1] "Federal Reserve's Money Printing Failure." Demonocracy.info. ]2] Linton, Michael (August, 1994).The LETSystem Design Manual. Landsman Community Services Paper No. 1.3 Version No 1.3 [3] ibid

REFERENCES

[4] ibid [5] Ramada, Camilo “LETSystems to strengthen local economies” December 1998 [6] Linton II. [1] “Informal sector.” Wikipedia: The Free Encyclopedia. Wikimedia Foundation, Inc. [2] Leonard, Madeline. Invisible Work, Invisible Workers: The Informal Economy in Europe and the US. New York: St. Martin’s Press, 1998.

[3] Capps, Robert “Why Black Market Entreprenuers Matter to the World Economy” Wired Magazine 16 December 2011 [4] "informal." Merriam-Webster.com. Merriam-Webster, 2013 [5] Mattern,Max. “Heavy Cash Use Indicates Financial Exclusion.” The Cost of Cash Blog. 25 March 2013.

[6]Fong, Jeff “Bitcoin Price 2013: How Bitcoin Could Help the World's Poorest People” Policymic [7] http://www.strathmore.edu/pdf/innov-gsma-omwansa.pdf [8] "Guest Post: Kenya Primed For Wide-Scale Bitcoin Adoption." The Genesis Block.

[9] Safaricom – Kenya – Feasibility Study. Publication. London: GSMA, 2012. Print.

[10] Mas, Ignacio, and Daniel Radcliffe. "Scaling Mobile Money." Sept. 2010. Bill and Melinda Gates Foundation.

[11]Kiite, Ndunge “M-PESA responds: Benefits and Challenges of using mobile money to reduce poverty for women in Kenya” 21 Feb. 2012. !

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[12] Handford, Richard. "Safaricom Blames Govt for M-Pesa Tariff Rise." Mobile World Live. !!!!!!!!!!!!!! ! !

[13]"Kenya Inflation Rate." Kenya Inflation Rate III. [1] Postell, Robin. "How Roger Ver and Bitcoin Will Save the World." Bluzink [2] "Why Does Kenya Lead the World in Mobile Money?" The Economist. The Economist Newspaper, 27 May 2013.

[3] The Migration and Development Brief 20 (World Bank) [4] “Over the Sea and Far Away” The Economist 19 May 2012 [5] http://siteresources.worldbank.org/INTPROSPECTS/Resources/3349341110315015165/MigrationAndDevelopmentBrief13.pdf [6] www.ifad.org/remittances/maps/africa.htm [7] “Channelling Cash” The Economist (Bankok Print Edition) 25 March 2013 [8] Publications, World Bank. "The UK-Nigeria Remittance Corridor: Challenges of Embracing Formal Transfer Systems in a Dual Financial Environment." Scribd.

[9] “Banking on the Unbanked.” Partnership to End Poverty. 2006. 8 July 2013 <http://www.partnershiptoendpoverty.org/unbankedwhitepaper.pdf> [10]“Ghana, others rated as Africa’s most expensive remittance destinations” Ghana New Agency 29 January 2013 [11] “Remittances, Funds for Folks Back Home” International Monetary Fund !

[12] "Bitcoin Is the New Frontier." Interview by Felix Moreno De La Cova. Bitcoin MagazineJune 2013: 50-52. Print.

IV. [1] http://goteo.org/project/neighborhoods-university-hotel-wilhelmsburg/home [2] www.bitpay.com [3] www.bitstamp.net [4] http://bitcoinmoney.com/post/35733263353/bitcoin-clusters [5] http://www.cablestudios.co.uk

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[6]!http://www.cumbriacabs.co.uk [7]!http://www.virtualdoctors.org [8]!http://www.lafabriquedelacite.com/sites/default/files/b7-lafabrique-amsterdam-kellner.pdf [9]Grandjean, Guy, and Kate Connolly. "Bitcoin: World's Fastest Growing Currency Migrates off the Internet." The Guardian. Guardian News and Media

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