A Blockchain Solution for Greece
E-Drachma Version One 28/04/2015
Advances in information technology now make it possible for non-government entities, or governments themselves, to establish and run a national parallel paperless monetary system at very low cost and launch it on very short notice. The workings of such a system is described and discussed. Such systems may ameliorate the dire state of affairs in the hardest hit eurozone countries such as Greece.
Based on Greece’s current financial situation this proposal aims to look at viability of issuing a secondary currency parallel to the Euro and whether blockchain technology can be used to deliver a viable alternative to paper money. It will outline various case scenarios from Individuals, Private Associations, Regional and Municipality Government and Central Government alongside the acceptance or disapproval of the technology.
Blockchain technology and digital currency is hailed as the future of money and we aim to find out whether it actually has a role to play in real time, real world problems or if it should remain a theoretical experiment left to be debated by economists. .
1.0.1 The proposal:
Key elements to the proposal are as follows:
· Issuance of a secondary Digital currency (Asset Backed or IOU Based).
· Can digital currency be used as a mechanism to collect taxes at source and per transaction.
· Creating an asset backed token marketplace based on the secondary currency.
· Utilisation of the blockchain public ledger as a method of transparency to mitigate fraud and corruption issues.
· Benefits of issuing a Digital Currency vs Paper Money.
· Centralized or Decentralized or a combination of both.
Key sectors the proposal are as follows:
Government workers “Salaries”
1.1.0 How would the Greek people respond?
Greece Has Sizable Financial Assets:
While Greece may not have the liquidity to satisfy its current obligations it does have enough illiquid assets to solve many of its financial problems. According to Eurostat, as of September 2014 Greece had €86bn of financial assets on its general government balance sheet. As a percentage of GDP, this makes Greece the 7th wealthiest nation in the EU. As a point of reference, financially sound Germany ranks 17th on the list of state owned assets as a percentage of GDP.
Greece has faced growing pressure to denationalise loss-making public companies and sell off land holdings estimated by the IMF to be worth between €200bn and €300bn and possibly up to €600bn in oil and gas reserves.The real estate includes islands, Olympic games venues and other prime sites around the country. But with state-owned assets considered sacred cows by powerful unions traditionally aligned with the ruling Pasok party, such a move would also bring the socialists head to head with grassroots support.
Given the amount of assets held by Greece, the solution to its financial problem becomes obvious - it must monetize the assets. This contingency has not escaped the IMF, Eurozone and the ECB, but it has run into resistance from the citizens of Greece. Greece needs a method to monetize state owned assets while still maintaining ownership.
In my opinion blockchain technology can provide the solution and bridge the gap between the Greek people and its Government, therefore lowering the resistance and possibly provide a positive outcome to their debt crisis and the wider economic implications for the EU and the Euro states.
1.2.0 Will the project be squashed by the Greek Government?
The Greek government is actively exploring and due to announce, in the very near future, their position on issuing a secondary currency, which could actually be weeks away, but it is unclear if they are going down the road of paper money or digital money. Yanis Varoufakis, Currently the Finance Minister of Greece, has issued 2 very interesting documents on crypto currency Article 1 & Article 2. In 2 article Yanis looks at the FT Coin “Future Tax Coin” and as an exponent of blockchain technology it is therefore reasonable to assume the Greeksare at least exploring the opportunity of the blockchain ledger and digital currency or some form of version of mobile money, such as M-Pesa.
“Yanis Varoufakis, bitcoin a flawed currency blueprint with a potentially useful application for the eurozone”
Key to this outlook is what the government needs to achieve, fast and efficiently, to solve or at least alleviate its current issues which are not only loan repayments but many other issues internally to the country and Government. Therefore Greece is in a situation that it could be open to suggestions of real solutions over the blockchain.
1.3.0 Will international Political powers resist?
Most of the EuroZone are very anti crypto currency except for the UK which has pretty much opened its doors to the idea of the blockchain for the Fintech market.
Based on the fact we are not talking about using crypto currency as a secondary, but Asset Backed Currency, a secondary currency could be an option.
In one article land holdings estimated by the IMF to be worth between €200bn and €300bn.The real estate includes islands, Olympic games venues and other prime sites around the country. This could be used to back the value of its secondary currency as International political powers recognise Greece has physical assets that can be put to use. The only potential objection could be they are not happy with that asset being Digitized.
2.0.0 Technology has progressed so far could this be a viable option:
Centralised meets Decentralised, by using the best of both technologies flexibility and transparency can provide much needed solutions to Greece’s economic woes.
Mobile Money services such as M-Pesa have paved the way forward for a new style of banking and has proven on many occasions to be able to penetrate the deepest of markets along with providing multiple services.
Therefore Mobile Money over the blockchain is a hybrid of both Centralized and Decentralized and a realistic and viable solution for the rollout of a secondary currency.
2.1.0 Building confidence
Trust is going to be hard to establish not just about the technology and Blockchain but the issuance of secondary currency alongside possibly leaving the eurozone will be very hard for the Greek citizens to accept paper money issued by the government.
Backing the value of the currency to state owned assets that are accepted globally by the ECB and IMF as existing and owned by the state will help build that confidence in a secondary currency for Greece.
The Blockchain ledger could provide transparency demonstrating to the international community that Greece is serious about tackling deep rooted problems such as corruption.
For the Greek citizens it would be hard to also accept that from now on the source of a transaction will see tax payments automatically deducted over the Blockchain. But in the long term they will get used to the new method as this will help to resolve some of the internal issues the Government faces regarding fraud and corruption.
For once Greek citizens will be able to monitor how the government is using funds and how they are being allocated. At the same time the government is able to receive taxes that it wouldn’t normally be able to collect currently estimated to be 30 Billion Euros a year. “It will take time to build confidence all round”
2.2.0 An intermediate solution
As a short term solution the rollout of the secondary currency over the a Blockchain reduces the cost and time needed compared to paper money and at the same time improves transparency on where funds are being used and how.
2.3.0 Long term solution
Collection of taxes demonstrates some of the long term opportunities of Blockchain ledger for the second currency.
This approach is a hybrid of a parallel currency and an asset backed security. Combining the attributes of a digital currency and an asset backed security would result in several benefits. First, Greece would retain ownership of its highly prized state assets satisfying the voter mandate to curtail privatization. Second, the currency could not only be used to pay government salaries, but workers would be able to spend the currency at local businesses providing a much needed economic boost. Third, it creates an investable asset that would be a proxy for a recovery of the Greek economy. Finally, Greek banks could hold this hybrid asset instead of T-bills, the asset backing would immediately strengthen banks balance sheets.
2.4.0 Gradual increase of adoption
Adoption will be forced downwards from the government level based on all government employees being paid in this new secondary currency, this in return also encourages businesses to accept the currency.
Due to the high number of government employees this is the fastest and most stable way of distribution.
Social payments and pensions will be part of the secondary rollout phase.
3.0.0 Who can adopt such a proposal
Such a proposal could be looked at from different areas and sectors, Private association creating a members group, for business trade currency between themselves.”Business Networking Group”
Private association wishing to create its own asset backed economy by purchasing assets in the Greek firesale therefore creating a new ecosystem based on a basket of assets to back the currency.
Regional government and Municipalities can use this type of technology and pooling their assets to create their own currency in their own regions or to drive more resources into local economic development.
Central government can use this to rollout their secondary currency amongst solving other transparency issues also collection of taxes.
3.1.0 A non-government "monetary" system
In 1991 A non-government barter platform was created in Australia. Bartercard enables member businesses to exchange goods and services with other member businesses without using cash or cash equivalents, or having to engage in the direct two-way swap of goods and/or services.The hotel industry utilise Bartercard to fill unsold rooms, restaurants use Bartercard to fill tables, the wine industry uses Bartercard to increase their marketing and distribution, and trades people and professionals use Bartercard to fill their work weeks and gain new business.
Example of Bartercard visit www.bartercard.com
Using the example of Bartercard as a non-government platform, it could increase the number of tourists visiting Greece, an industry the country relies heavily on. A bartering tool between local business could help commerce and this can be done using Blockchain technology to mitigate against fraud etc due to the Public ledger, Transparency and decentralised structure.
Crypto Currencies/Coloured coins can be an Ideal example for A Non-Government Association to set up and issue a token over the Blockchain in which can be classed as a POINT. Point needs to be associated to a value so it could be equal to one Euro, USD, GBP or Drachma, as long as the point is associated to a fixed value that Greek business can use this as private bartering tool with full transparency over the Blockchain. This can then be implemented to a business directory enabling a simple search tool.
3.1.1 Pure faith-based money
The VP's are pure faith-based money. They do not have any property giving it an intrinsic value like (fiat) money issued by a government/central bank, which has indisputable value by being the sole currency that may be used to pay taxes ─ as per the "MMT = Modern Money Theory " or "Chartalist" view (Wray, 2006). People or firms will therefore accept VP's in payment only if they believe that a sufficient amount of other people/firms will accept them. This outcome is probable however, since today's only alternative for the Greeks (and other nations in a similar situation) of increasing hardship, unemployment and too low and further shrinking income in euros over many years, is much worse.
Since 2008 and the entrance of Crypto Currency and the underlying technology such as the Blockchain it has demonstrated that a pure faith based currency could be applicable and has been adopted by large corporate brands as method of payment globally and the innovation to the Fintech sector now looking to harness the attributes of the blockchain ledger along with over 600 million USD being invested into this technology so far which is a PURE FAITH BASED CURRENCY in Decentralised manner.
3.1.2 Would a Registration be required and what would it change
Government Registration for Secondary currency:
Being a digital currency solution all users will have to be KYC and AML compliant, which then enables the delivery platform to be regulatory compliant this cannot be a decentralised but can connected to the blockchain for the transparency of the ledger.
Private Assocation platform:
The registration will implement a medium of trust and security between users also enabling business to be on a business directory enabling them to trade goods and services between each other on the business network.
Conclusion on registration:
Registration will be valid and important to differentiate TAXES between U2U or U2B pr B2B
3.2.0 A (parallel) Region or Municipality government monetary system
The structuring of the Regional administration also enables them to adopt and implement their own version of a blockchain solution according to their own regions as they are liable for utilities and the upkeep of roads etc.
Kallikratis Plan administrative divisions
The Kallikratis plan (Law 3852/2010), which entered into effect on 1 January 2011, transformed the modern regions of Greece into 7 fully separate entities by the 2010 with elected regional governors and regional councils.
The previous government-appointed general secretary disappeared at the regional level, and the regional organs of the central government were in turn replaced by seven decentralized administrations (el), which group from one to three regions under a government-appointed general secretary.
3.2.1 Environmental Carbon offsetting programs
Carbon offsetting projects are highly populaire as the they create jobs and community activity alongside the potential of revenues for the funders in various formats as the carbon offsetting can be done in many ways along with the possibilities of carbon credit revenues being awarded. “Mahogany trees can be used as a prime example and depending on the growth rate to achieve 30 CM diameter the tree can be harvest for local wood by the artisans” Tree = Token backed by the growth of the tree and can be redeemable upon the harvesting period at the value at that moment in time. This can be done by Private Association, Regional and municipality Government and Central Government. The use of the blockchain and the tokens provide transparency to the above scheme and participants from around the world can be involved in some form or another.
3.2.2 Heritage protection
In the format of a loyalty and reward program a specific token can be generated over the blockchain and issued to people for supporting historical sites and digs such as the Acropolis and Olympia, This in return enabled on a global space the support of the Greek heritage and protection of its future opposed to be sold off in the firesale.
3.2.3 Supporting tourism & Travel
In the above of Heritage protection mentioned a token in the format of loyalty and reward scheme and this very scheme can be used for the tourists who donate to protect Greek heritage and can equally be used in the Tourism and Travel sector as method of discount of payments for goods in the local museums and businesses.
3.2.4 Supporting youth and talent
Uniquely structured through the digitization of IP rights of athletes / talents / teams, to enable individuals to become micro-investors in the future careers of promising young athletes and their teams.
Using blockchain technology decentralises the world of sports and entertainment by disrupting the traditional fan-athlete-team relationship. Fans are no longer just passive spectators but can instead contribute actively to transforming a promising talent into a global star while benefiting financially in the process.
A marketplace where anyone can trade assets representing the IP rights of sports athletes. As their performances improve, their assets appreciate and generate more revenues.
Greece has a large and fervent sports fan base in most of the mainstream popular sports who can be engaged and motivated by creative financial solutions and the fan-athlete rewards mechanism.
As there is also a charity / community engagement angle built into such a model, whereby 10% of the revenues generated by the assets could automatically be committed to a charity or a community project, this can help to raise awareness of and contribute to community needs.
Setting the stage for Greek entrepreneurs to build a more transparent and sustainable economy.
3.3.0 A (parallel) Central government monetary system
A new Mobile Money system based on a hybrid platform providing traditional banking services and the blockchain ledger for traceability and public ledger accountability.
Existing banks and government platforms will be able to connect into this Monetary system.
This would reduce the rollout period and cost of a secondary paper currency as it could be delivered over mobile phones, down to the very basic feature phone and transacted by a simple SMS (in addition to mobile apps, online accounts, email, etc) thereby enabling maximum reach. It would also enable Euros to be digitised or additionally any other asset with intrinsic value thereby bring new banking services to the Greek people.
The nature of this Hybrid approach enables the Greek government to achieve and accomplish one of its major issues “Collecting TAXES” secondly to mitigate against fraud and corruption on all levels.
3.3.1 Government issued Secondary digital currency “IOU”:
It was recently revealed that Greece is working on an IOU based secondary currency similar to the IOU’s used by California in 2009 - a comparable scheme was also proposed by the Greek Finance Minister Yanis Varoufakis. This secondary currency essentially borrows tax revenue from the future to pay for obligations today. This secondary currency would be tantamount to a T-bill that is backed by the full faith and credit of the Greek government. As a faith based financial instrument, acceptance would be a function of the confidence in the Greek government to collect future taxes. Furthermore, without a way to easily spend the IOU currency it would likely go unused by government employees and thus have no impact on economic growth. These limiting factors make it clear that an IOU currency issued by a government under financial stress is not a workable solution.
3.3.2 Government Issued Asset backed Currency:
Instead of selling assets in what will likely be a fire sale, the Greek government could use blockchain technology to create an asset backed digital currency that can be used to repay creditors and pay government employees. Initial proceeds from the sale of the currency could be used to meet obligations to the Troika, while government employees could be paid in this parallel currency.
To make this work, the government of Greece would place a portion of its assets into a trust. Next a digital currency would be issued and backed by this basket of assets. The mechanism for tying the assets to the currency would be a smart contract embedded in the currency that would not allow Greece to sell any asset in the basket unless the holders of the digital currency are paid.
This approach is a hybrid of a parallel currency and an asset backed security. Combining the attributes of a digital currency and an asset backed security would result in several benefits. First, Greece would retain ownership of its highly prized state assets satisfying the voter mandate to curtail privatization. Second, the currency could not only be used to pay government salaries, but workers would be able to spend the currency at local businesses providing a much needed economic boost. Third, it creates an investable asset that would be a proxy for a recovery of the Greek economy. Finally, Greek banks could hold this hybrid asset instead of T-bills, the asset backing would immediately strengthen bank balance sheets.
3.3.3 Government Issued Smart Bond:
Smart bonds are a very simple solution for Greece that can be run 2 ways 1). By the Government and 2) By individuals. The Greek Government can issue Bonds managed by a 3rd party manager to create development in the Greek economy based on Multi signature contracts where the funds are escrowed and when they deliver on the contract terms the payment gets released. This same principle applies to every person on the planet and can be issued down to the penny or cent and could be a way to provide confidence in external investors investing in to Greece or simply Greek people afraid of being conned out of their money for services that don’t get completed. to be invested among. “not just the large banks and corporates”
Greek peoples Smart Bond is something that has been in many countries but the best example is Turkey, You have a smart contract over the blockchain ledger that enables the land owner, construction company, real estate agent and end Buyer to have Multi Sig smart contract therefore the cost and effort is distributed among 3 entities and brings in new money from overseas into the country but this can be also done in many sectors also and creates investment and jobs therefore reducing unemployment and creates TAX payments for the economy.” if all parties such as land owner, Construction company, Real estate agent and end buyer do not agreed the Smart contract does not confirm therefore meaning force of success of all parties creating investment, revenue and Taxes.
3.3.4 Tax collections
The extent that tax evasion has been described by Greek politicians as "a national sport" with up to €30 billion per year going uncollected.
Alleged origin of Greek corruption: Commentators both within and outside Greece have attributed this flaw in Greek culture to a mismanagement of Ottoman Greece by the Ottoman Empire. In Ottoman occupied Greece tax resistance became a form of patriotism, and property and commercial tax systems were left in a shambles.
What is the possible solution for Greece: If Greece issues its secondary currency in the digital format various taxes can be collected at the moment of transaction/exchange.
Why Paper based secondary currency is not advisable: Paper money is untraceable therefore collection of taxes will be uncollectable and no change to the current situation.
3.3.5 Corruption from within
Corruption is acknowledged as part of Greek life on all levels (including Government) and will always be a problem. As long as there’s paper money, there will be ways to hide money and therefore allow corruption and bribery.
While international media has focused on Bitcoin’s use on the Dark Web, they have so far failed to highlight the fact that blockchain technology puts all transactions and data onto a public ledger and therefore ultimately creates Trust, Transparency and combats Fraud.
The Solution is straightforward - monetize the corruption: by using Blockchain and digitizing the currency it will enable prosecutors to have a transaction audit trail from the source to end. By failing to pay relevant dues or for fraudulent activity such as Tax Avoidance you could enable automatic fines such as a four time levy e.g if a Tax is normally 15% and you fail to pay or you are classed as a bad actor you would be fined 60% instead, therefore providing a highly punitive financial incentive to operate within the rules.
4.0.0 A profitable solution proposal
In developing a viable solution for Greece it is important to create a "Win Win" solution where possible. A Win Win solution suggests that all parties involved would benefit from the proposed solution in some way. We feel this is a must as any solution that only favours one party will be hard, if not impossible, to gain widespread agreement and mass adoption. As with negotiation the sign of the best deal for all is where the agreement is not ideal for one party but acceptable to all.
The proposal has to provide an acceptable solution for the people of Greece, the Government and its creditors.
It will be very hard to win over all parties and won’t happen overnight, but it can be in the long term interests of the Greeks.
What would classify a win win scenario?
A situation whereby Greece does not have to sell its national assets and the Greek people do not lose their national heritage. The Greek Government is able to create liquidity to pay its creditors opposed to defaulting and possibly being forced to leave the Eurozone, thereby possibly avoiding contagion across the other Eurozone countries and the Greek people can rely on government payments that actually hold value.
For this to happen, the relevant parties would need; Speed, Efficiency and most of all Transparency, all of which blockchain can help provide a solution, to at least some of the problems such a transition would entail.
4.1.0 Loans over a public ledger
Government loans of the secondary currency can be easily managed and allocated to economic development projects alongside variable low interest rates. Loans and repayments will be ledgered over the blockchain enabling public scrutiny and transparency for bad actors and fraud.
4.1.1 Grants over a public ledger
Grants can be issued as a 3rd currency backed by the value of the 2nd currency with a specific purpose.
Grants as a currency could be issued to businesses and new start ups to help them get started or boost their existing business via the means of purchasing specific goods and services from companies that form a part of the Grants program.
Example: Startup business is a window cleaner, they receive 500 Euros funding to be spent only at the supply outlet registered on the Startup program or with selected suppliers, meaning they can not spend their grant funds elsewhere.
What is the point in this? Start ups get the financial support they need also reducing any fraudulent use of the funds, alongside this a timer can be implemented on the account for any unused funds to be returned to the funding pot to be used for other startups.
4.1.2 Pensions over a public ledger
The Greek Pension System is one of the most flawed in Europe. For Example: The Social Insurance Institute (IKA), which manages pensions for more than 5.5 million people, is seeking to reclaim up to €8 billion paid out in bogus pensions over the past decade.
Using the blockchain for every transaction in the pension system into an immutable, distributed ledger to track every expense, every withdrawal and every cheque sent as well as requiring a digital signature from the authorizing agent to be present for each transaction would mitigate fraud within the system by providing a fully auditable trail, therefore reducing fraudulent costs and satisfying some of their bailout requirements.
4.2.0 import and export
Import and Export duties are always a constant concern for governments around the globe. Enabling all transactions to be ledgered over the blockchain means information cannot be tampered with alongside any duties on those goods needing to be paid.
5.0.0 Conclusion: better than the bleak alternatives
During the time since this document started 30-04-2015 multiple articles and publications have been read and opinion sought from a wide range of investors, business owners, analysts, economists and journalists but some of the most interesting was from Yanis Varoufakis’s blog and his other articles describing the FT Coin “Future Tax Coin”.
The FT coin poses even higher risks for Greece because Varoufakis’s digital currency is only redeemable against future tax revenues. Therefore you would have to believe the Greek state could not collapse and have a mechanism for further taxation.
Given these doubts, another of Syriza’s big-hitting economists turned politicians, Costas Lapavitsas of Soas, points out, the use of a digital currency would have to be just a transition phase to euro exit and a new Greek currency.
It is very unclear how the FT Coin would help the situation as Greek people will simply use the Euro, USD or even the British Pound as the Greek citizens will not trust the FT Coin being valued by future tax revenue especially when they are all acutely aware of the current tax scenario.
The most logical and possibly the most acceptable is to launch a secondary currency backed by Greek Assets which the IMF estimates to be roughly 200 to 300 Billion Euros of physical assets available and numerous reports estimating Oil and Gas reserves in the possible 600 to 700 Billion USD.
The Greek fire sale and FT Coin based on future taxes are only going to give Greece very small time to breath, just like trying to put your finger in a hole of a sinking ship.
Asset backed Digital currency could therefore possibly be accepted as part of ECB and IMF payments including future payments of full bailout amounts or even traded on the open and secondary markets, as the digital currency is representing a real asset value. Furthermore and possibly more importantly at the moment it could also be widely accepted by the Greek citizens, with confidence, as it has value and provides a mechanism for them to retain their natural assets and national identity. If successful this model could have a domino effect into lower economies where they are asset rich and could also be a viable option for countries such as Italy, Spain, Portugal, Ukraine, etc given their current situation.