How to ‘Complete a Kula Ring’

In a recent blog post Nick Szabo tackles the relevance of bitcoin to the Greek/Euro crisis. His conclusion has some disappointment mixed with great hope:

…it’s too late for bitcoin to help much with the current 6 days of bank closure,  but once the learning curves have been surmounted, the participants in specific cycles educated, bitcoin has great potential to address likely many ongoing problems with capital control, in Greece as long as they continue in various forms, and in many other parts of the world where such financial restrictions designed for a pre-digital era have been imposed.

Nick also gives a helpful education and helpful advice in regards to creating a “useful” bitcoin adoption loop, the basic idea being to complete small “Kula Rings”. Completing a Kula Ring is a concept that comes from Szabo’s conjecture on how economic conditions and flow might have arose amongst a small chain of islands. Because Szabo’s observations take place in such a small and isolated social network, a certain phenomenon (and it’s explanation) can be made available.  Depending on the complexity of the circumstances a solution might not present itself or even be possible.

Szabo finds another isolated example of a money that arises as a result of a completed cycle of trade in the Greek Crisis:

Under capital controls, ATM withdrawals from Greek bank accounts are now limited to 60 euros a day.  Debit cards can still be used for payments within the country, but the money simply gets transferred from one frozen bank account to another.  As a result many businesses no longer accept debit cards, and many more are demanding a substantial premium price (in  at least one business, double) for debit cards (transferred bank balances) versus hard cash.  There is a growing shortage of such cash; as a result some stores are paying their suppliers in private “scrip”, which can be used by the supplier’s workers to purchase goods from the issuing store. (more on this below).
Use of credit and debit cards to pay out of the country is banned and effectively blocked, resulting in a near-complete freeze-out of Greeks from Internet commerce. This restriction, along with the controls resulting in Greeks being excluded from the pan-European money settlement system, means that Greek businesses can’t pay for imports.  Many shipments into the country have been halted as a result. (The government plan is to create a whitelist of politically approved cases in which such payments for imports will be unblocked).

A very simple and neat picture of a competed Kula Ring which he points out should have a significant relevance to bitcoiners:

A crucial feature of store-issued scrip is that it literally circulates through a complete closed cycle: store –> supplier –> workers –> store. Such specific cycles are a pattern that is commonly found when currencies are primitive or newly emerging, and every Bitcoin marketer and evangelist should be familiar with them.

This subset solution “Completing a Kula Ring” reminds the author of the old arcade games of the style/genre Qix.  A player moves their “piece” from a safe zone out in the middle and tries to reconnect their box back to safety. If they make it, a completed square (like a Kula Ring cycle) is made and the value of the territory now goes to our hero!  Hero must constantly battle versus completing small “Ring” which have a higher probability of success or tackling larger cycles which have a higher bounty.  A player might find their attempts too big and be forced to return, wasting the value of their time (or encouraging. other negative possibilities programmers create!).

We might even (loosely) equate the 3 direction changes (or lines needed to complete a square) to the simple chain Szabo describes above.

John Nash talked about how we have failed to reason about money as a technology comparable to telecommunications and electricity. I think in this basic form we can start to see exactly what he was referring to, and especially with help from Szabo’s clever observation. Electricity can be very helpful or very useful, it can also be very damaging and very wasteful. Much like the game of “Qix”, what seems like a gainful treasure which can result in a lot of value, might end up a pipe dream because of the complexity from too large of an attempt to complete a closed cycle (ie reaching too far!).

Many years ago when Nash was quite young he made some (in highsight) simple observations on money and its relation to game theory.  It wasn’t until nearly 40 years later that we recognized Nash’s contributions to, not only economics, but also many sciences because of his astuteness.

Could Szabo’s observations on the Kula Ring have the same consequences?  How long would it take our society to recognize such a significant contribution today?

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