~ NOT crypto-dollars; actual computer chips = dollars ~

TL;DR — A currency is ‘backed’ by the thing you get for it when you hand-in your dollar to the bank. It used to be that you could go to the bank with your paper dollar, which was really just a *receipt* for your REAL dollar — a SILVER coin at the bank. You could hand-in the paper, and get the real silver dollar back. That is a ‘silver-backed’ currency; same for gold. Currently, the dollar is backed by NOTHING, which is bad for us. Instead, we could let each paper dollar be the receipt for a computer chip held at a Server Bank. (You could walk out of that bank with a computer chip in your pocket, though that would never actually be valuable to do.) The chip is real, physical capital, and it runs the internet, providing services, making real money, and you get paid a DIVIDEND; holding dollars would be better than German bonds. That’d pull Trillions of dollars into the US currency market, subsidizing our own chip-sector and A.I. dominance. Sounds good?

Death of the Petro-Dollar

We got rid of gold as the backing for our currency half a century ago, and it hasn’t really hurt us much for two simple reasons: 1) Rich Americans still have to pay TAXES using US dollars, creating a steady demand for them; 2) Dollars are the commanded currency to buy and sell OIL, which is a huge market, sopping-up those spare dollars. Yet, oil will be dwindling over the next decades, as climate-responsive energy sources arise and supplant it. The US will need something else to prop-up its currency, or a slow crisis may unfold.

I offer the chip-dollar. Let’s walk-through the three steps of how that protocol would work:

  1. An approved Server Bank lets the US Federal Government know that it can support additional chip-capacity on its computer-farm. It offers $X to the government, in return for ‘stamped’ chips.
  2. The US Government issues an auction to approved chip-fabricators, offering to buy that same $X worth of chips at the standard metric performance. A mix of bid prices and volumes come-in; some fabs get to send their new chips to the government, and those fabs get paid in NEW, CHIP-DOLLARS. That dollar is a receipt for a chip; the chip is ‘stamped’ by the government and sent to the Server Bank — details below. The dollar keeps track of when it was made, to properly attribute the right amount of dividend to you when you return it to one of those Server Banks.
  3. Those fabricators who sent chips to the government, and received chip-dollars in return, are able to spend those dollars around the world. Whoever later holds those dollars can cash-in at a Server Bank for the dividend that their chips earned. How to keep track of all that, simply and securely? Er, well, blockchain. NOT TOKENS! This is *not* a crypto-dollar that just blinks into existence with a billion billion tokens from nothing! Only use the encrypted, incorruptible ledger itself. The *real* dollar is the computer chip — which is actual, physical capital earning steady revenue, NOT magic-puff money! The Gov’t only creates a chip-dollar when they receive an actual computer chip.

Supply and Demand with the Server Banks

Server Banks *must* be the source of demand; if, instead, the government began binding chips to dollars willy-nilly, they risk being flooded by chips and going broke. The government shouldn’t take money from its own pocket; it takes money from the Server Banks, and puts that money up as the pot for chip-fabricators to bid-on. As a result, chip-dollars would NOT immediately supplant existing dollars; they would exist side-by-side, slowly adding more chip-dollars, with chip-dollars held digitally and bound to the blockchain, so that their assessed dividend could be added automatically to transactions. What that looks like:

Your boss sends $1,000 to your account, in normal dollars, and you wire $200 of that to a Server Bank, to earn a 5% dividend; the rest is spent immediately on rent, etc. As the end of the year rolls around, you want to buy Christmas gifts, and you pull-up that $200 deposit, which is now $210. $200 of that is still chip-dollars, while $10 is dividend in normal dollars, from when the Server Bank made profits running everybody’s apps. [[Key Technical Concept: Server Banks should incentivize you to re-invest into chip-dollars by letting you buy-in as a pool, ahead of non-dollar-holders. That is, you and other chip-dollar holders’ pooled $X offered to the Server Bank as re-investment becomes the Server Bank’s $X offered to the government for more stamped chips! So long as chip-dollar holders see a dividend, they’ll keep wanting to re-invest, which becomes the $X offered to the government by the Server Bank for chip-purchases from the fabricators. Whew!]]

Why would a Server Bank want to buy chips through the US Government, when they could just buy those chips from the same chip-fabs that the government did? A few reasons: 1) bargaining power — the government makes larger orders, and in doing so, they sop-up the demand in the market, displacing smaller bidders; it’s the benefit of being a whale. 2) defense — while your personal server farm is up to *you* to keep safe, if you instead get approved as a US Gov’t Server Bank, then that huge military and spy apparatus will have your back… and being a Server Bank might let you qualify for the “too big to fail” cheat-code that gives you infinite lives and super speed and fireball attacks! 3) The Government can offer other incentives, especially as deals between nations — negotiating so that your country gets to hold tens of millions of computer chips to make revenue is great diplomacy, binding the two closer together.

Why Capital? Why Chips?

Backing a currency is better than not, in terms of that currency’s desirability. If a currency is more desirable, you have more market power internationally, and more flexibility, better terms when negotiating debt. So, when a currency is backed by gold, you can be sure its value won’t *diminish*… yet, gold itself does not create NEW valuable outputs, with real dollar yields. Capital DOES. That’s why capital should *always* be the backing for currency, and I’ll fight you on that point :)

Among all the forms of capital, one of the best is land — it’s hard to steal without a war, and it lasts a long time, and it keeps producing value steadily, making things that everyone needs. Yet, we can’t make more land, so its supply isn’t increasing; we would like to be able to issue more currency, and incentivize the CREATION of more capital! Imagine, if the trillions in unproductive dollar-holdings were actually pushed into computer chips; the flush of compute would be absorbed fully in only a few years, because we never have enough compute. As soon as we have too much, we think of more to do with it! Jevon’s Paradox, in particular, ensures that compute is the sort of capital we can over-invest in happily, rather than boosting our ‘investments’ by endlessly remodeling a mansion that sits empty, as much of this country does.

And, of all the nations to do it, the US is best positioned to have a reliable, profitable, secure chip-currency. Monaco could try, but it would feel like a casino token. Finally, once one major power settles-into chip-backed-currency, it will be difficult for others to displace them by offering their own; the US should act first, before China and a consortium of client states.

New Comment
1 comment, sorted by Click to highlight new comments since:

I'm confused why you need the government in order to do this. You can buy computer chips now, and you could in-theory rent them out (although I don't know how you'd make the economics work).

You should keep in mind that chips lose value rapidly, so instead of a 5% dividend, if you just owned a pile of chips you'd probably be losing >20% of the value every year.