Why do we apply a limited-resource currency (the US dollar, for example) to an unlimited-resource commodity such as music, games, ebooks (digital goods)? Instead, let's create a new currency that copies itself whenever someone digitally shares (copies) a good. This solves the imbalance between content creators, distributors, and consumers. Finally, a currency exchange or marketplace that converts between Copy Currency and commodity currency would solve the "what's my music/video game/etc. worth?" problem.

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Introducing Copy Currency (and its Positive Sum Economy)

Our current monetary system was founded on the idea of the exchange of limited commodities. In order to keep prices stable, the money supply must grow (and shrink) with the total value of commodities in circulation.

But digital goods are different because they are not limited--infinite copies can be produced at zero or near-zero cost. What if we created a currency that deals in digital goods--let it grow (and shrink) with the value of information in circulation? Could we reward artists as well as distributors fairly? What if we created an information currency in which transactions are not a zero-sum exchange?

For example, digital music is a "copyable good" and will serve for now as an example of a positive-sum transaction: Suppose person A writes, performs, and records a song. She then sells it to person B. When person B gets the music, he can sell it to person C. In selling from B to C, person A (the content creator) is also given an increase in her account. So for example let's say that A, B and C each start with $1 in their accounts:

A B C 1 1 1 ($3 total in this economy)

Now, let's say B buys the music from A:

A B C 2 0 1 ($3 total in this economy)

And finally, C buys the music from B:

A B C 3 1 0 ($4 total in this economy)

Hey, where did the new money come from? It was "minted" digitally by the act of selling music and by participating in the distribution of that music. Person A was given an additional $1 at the same time that person B was given $1 from C.

What this system would promote is creativity and sharing. Being the first person to share something of value (to introduce it to the digital economy) is rewarded many times over by the social network. And intermediate steps in the social network--friends sharing with friends--are also rewarded. It turns the idea of piracy on its head--it becomes a feature of the system and the system can then properly represent artists and reward people in the middle for participating in the advertising & distribution of goods.

(Aside: We could also apply a global replication constant to each transaction (rather than a fixed amount being replicated through the transaction chain). For example, what if we had a 2/3 replication constant so that if person C buys the music from B for $1, then B gets $1 and A gets $0.66. This adds some complexity but provides a lever through which the global digital economy can be adjusted based on the creativity-to-sharing ratio.)

So one problem is that people can potentially game the system if we allow cycles in the graph of giving. For example, if B is now allowed to purchase the same music from C, then everyone gets $1, including B! That can't be allowed, or else copy currency wouldn't give money a NEW meaning, it would have NO meaning. This constraint on the system can be achieved through technological means. In fact, it is quite possible that we could build copy currency from the open source BitCoin software base. The BitCoin system already includes transaction chains and a record of where money came from and whose hands it passed through (all anonymously). This could be leveraged as long as there is a way to implement the acyclic transaction rule.

I think this system could operate in parallel to a commodity-based currency. For products or services that have limited supply, we would use regular money. For products that can be copied or shared without the use of limited commodity resources, we could use copy currency.

The introduction of a new digital good into this economy has the potential to impact the economy in one of several ways, depending on the network topology of the distribution of the good. For example, if the economy consists of just 10 people, it's possible that a $1 good could result in an increase of $36 (1+2+3+4+5+6+7+8+9-9) to the economy. This scenario would only happen if all members have at least $1 each, and if the distribution topology is linear (A shares with B, B shares with C, C shares with D, and so on through J).

The following economy starts with $9 and ends with $45: A B C D E F G H I J 0 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 2 1 0 1 1 1 1 1 1 1 3 2 1 0 1 1 1 1 1 1 4 3 2 1 0 1 1 1 1 1 5 4 3 2 1 0 1 1 1 1 6 5 4 3 2 1 0 1 1 1 7 6 5 4 3 2 1 0 1 1 8 7 6 5 4 3 2 1 0 1 9 8 7 6 5 4 3 2 1 0 ($45 total in this economy)

On the other hand, if everyone goes directly to the source (A) then there is no net increase in the economy, only an increase for A:

The following economy starts with $9 and ends with $9: A B C D E F G H I J 0 1 1 1 1 1 1 1 1 1 1 0 1 1 1 1 1 1 1 1 2 0 0 1 1 1 1 1 1 1 3 0 0 0 1 1 1 1 1 1 4 0 0 0 0 1 1 1 1 1 5 0 0 0 0 0 1 1 1 1 6 0 0 0 0 0 0 1 1 1 7 0 0 0 0 0 0 0 1 1 8 0 0 0 0 0 0 0 0 1 9 0 0 0 0 0 0 0 0 0 ($9 total in this economy)

And finally, there is the case of something in between which is most likely the case in a natural sharing setting. Here, the distribution happens in parallel because transactions are made simultaneously between those who do not yet have the digital good, and those who do:

A B C D E F G H I J 0 1 1 1 1 1 1 1 1 1 3 0 1 1 1 0 1 1 1 0 7 1 0 1 0 2 0 1 0 1 9 2 1 0 0 2 0 0 1 2 ($17 total in this economy)

In all cases, the person who created or introduced the copy good is rewarded $9--once for each person in the economy who benefited from the good. The difference is in how intermediate parties are rewarded: the money supply as a whole increases most when everyone colludes to participate in a linear distribution run. Working against this theoretical maximum, however, is the desire for each person to be "first" to share a good, because the closer to the root of the tree a person is, the more benefit there is for that person (similar to pyramid schemes). Therefore, optimal distribution--log(n) sharing (where n is the number of people in the economy)--pulls the increase in money supply down to (possibly) reasonable values. It would be interesting to simulate this and model the possible rates of inflation.

Copy currency is a theoretical and technological solution to today's issue of the mercantile paradigm being erroneously applied to information economies. It is not a technological solution like Digital Rights Management (DRM), however: transactions are still voluntary and trust is maintained at the transaction level. People are much more likely to want to participate in a system that gives them power and freedom than one that tries to limit their choices. It also bridges the gap between "producer" and "consumer" by mathematically relating the roles and providing a system in which people can easily switch roles depending on the degree to which they are a gatekeeper within their social networks for particular information.

Limiting Account Creation Fraud

New copy currency accounts could be created in a variety of ways. The main requirement is to reduce fraud by limiting one account per person. An account could be limited by requiring a unique cell phone number and using a text-message based confirmation.

Alternatively, we could try using a system similar to most of life on earth: it takes two account holders to create a new one. In addition, you can't marry family, up to second cousins--in other words, you can't collude with your close friends to create new accounts ad infinitum. These rules would be imposed in order to prevent people from accumulating a large number of accounts, and then taking advantage of the system by "sharing" with themselves. Lastly, copy chains would not reward ancestors of the account--so if accounts A and B create account C, A and B can never monetarily benefit from C, no matter how far removed from C in a transaction chain (i.e. A sells to X, X sells to Y, Y sells to Z, Z sells to C... A gets no reward for the last of these transactions since A is an ancestor of C).

Undeveloped Questions & Thoughts

Is it possible to convert copy currency to commodity currency and vice versa? (Perhaps the solution to this problem would become THE solution to pricing infinite goods in our modern commodity-based economy?)