Editor’s Note: This is the second post in a series on electricity-backed currency. In case you missed it, you can read the first post here.
By Sam Bliss
SolarCoin is a decentralized digital currency that we can trade person-to-person over the Internet, without PayPal or Visa playing middleman and charging fees. Each SolarCoin represents 1 megawatt-hour (MWh) of solar electricity generation.
In my first blog post about SolarCoin, I described the two “proofs of work” that back the currency: a cryptographic proof of work that secures the online currency and verifies transactions, and a proof of solar power production. That introductory piece also explains how one can claim or trade for SolarCoins, but leaves unanswered the question of why one would want to do that.
So, is SolarCoin valuable? What can we buy with it?
All currencies, including U.S. dollars and Euros, are valuable as long as a network of merchants, people and other organizations deem them valuable. But unlike the currencies with which we are required to pay our taxes, digital currencies must provide value as a complement to national currencies.
For SolarCoins to succeed as a means of exchange, we need to begin treating them like money. They must be in people’s hands — or digital wallets — and they must be used for purchases and exchanges.
This is how Bitcoin gained value. The first famous cryptocurrency provided a decentralized, free-flowing way to do business on the Internet, so people started trading it like cash.
On a fundamental level, something has value if we think it’s important.
SolarCoins not only offer the trust associated with a block chain transaction database, but also the goodness of fossil-free, renewable energy. I think we can all agree trust and goodness are important.
To understand how digital currencies create decentralized trust, just think of the way you know trust is defined. Trust is the firm belief in the reliability, truth, ability, or strength of someone or something, according to Merriam-Webster.
In this case, it is the firm belief that SolarCoins are reliable and secure, and that the online community that holds and trades the currency cannot cheat you out of your SolarCoins or devalue SolarCoins by creating too many.
It’s decentralized because we need no central authority. Money can change hands person-to-person, and there’s no way to cheat the system — since each SolarCoin or other digital currency is a unique piece of digital property that simply moves from one digital wallet to another within minutes of a transaction.
A public ledger – the block chain – records every transaction ever made in SolarCoins, which makes it impossible to get away with double-spending. This digital database enables us to make trustworthy purchases and trades over the internet without entering credit card data or going through a bank. As a result, online transaction fees can drastically decrease.
SolarCoins are backed by physics, not just the computing power necessary to create and secure them. Each one was originally granted to a producer of 1 MWh of solar electricity — a unit of energy with a value to society that stays relatively steady over time.
By contrast, other digital currencies carry little intrinsic value beyond the mutual agreement that they have monetary worth. Bitcoin’s price has fluctuated wildly over the past several years in part because bitcoins are not tied to anything concrete and stable (though there are other good explanations for the currency’s volatility, detailed in this Washington Post article arguing that Bitcoin’s value will stabilize in the future).
Advocates of the gold standard – a system in which a currency’s value is based on a set amount of gold — believe that a tangible asset is essential to ensure the long-term price stability of currency. But unlike a precious metal, the commodity represented by SolarCoin provides real benefits to society. Electric power from the sun protects the environment and raises standards of living in energy-poor regions.
One MWh of electric power produced by solar photovoltaics releases no greenhouse gases other than the emissions from manufacturing solar panels, while burning fossil fuels like natural gas or coal releases 1,500 pounds or more of carbon dioxide-equivalent emissions per MWh generated — not counting the upstream emissions from extracting, refining and transporting the fuels. Not only is solar power climate-neutral, but it does not cause air or water pollution.
Because solar panels produce electricity without side effects to human and ecosystem health, solar energy can be produced right where it’s used. Consequently, thousands of tiny solar “power plants” can make the electrical grid more resilient by reducing our reliance on massive, polluting facilities connected to cities by inefficient, expensive and vulnerable transmission lines.
Electricity availability is closely tied to prosperous living. In developing countries and other areas without widespread access to energy, solar panels can bring power to the masses.
Solar electricity often replaces energy sources like kerosene lamps, diesel generators and wood-fired stoves when it’s installed in places without a dependable electrical grid. This transition allows communities to discontinue purchasing and burning costly fuels, increasing quality of life with reliable power and protecting human health from harmful emissions.
In summary, SolarCoin has inherent value in trust and goodness. It facilitates transactional trust between strangers, frees everyday exchanges from the banking system, and rewards producers of clean and useful electric energy.
Now SolarCoin just needs a huge network of people holding and using the currency. Check out last week’s blog post for instructions on how you can join the open community.
Next week’s post will show how SolarCoin can achieve the popularity necessary for the currency to achieve significant monetary value. Stay tuned!
Graphic courtesy of SolarCoin
Image credit: Christoffer Riemer
Sam is an aspiring economist and writer. You can read his work at theblisspoint.org. Sam’s digital wallet does not yet hold any SolarCoin thanks to his technological incompetence, but he hopes to have some ‘skin in the game’ soon.