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Communications of the ACM


Why You Should Be Able to Make Your Own Individualized, Digital Nano-Currency

'IOU' on official-looking seal

Credit: Andrij Borys Associates, Shutterstock

The enthusiasm regarding Bitcoin and other blockchain enabled currencies revealed there is significant interest in imagining new digital currencies. While fascinating, the social utility of Bitcoin and other blockchain-based currencies remains debatable1 as they may facilitate money laundering,2 fraud,3 and increase financial instability.4

In contrast, we believe the ubiquity of mobile devices makes possible a completely different type of currency system, one aimed at financing entrepreneurial ventures. We propose the creation of individualized nano-currencies: small localized, self-resolving currencies specially designed to solve problems for ordinary people or small firms cut off or distanced from the resources of the traditional financial system. Whereas most cryptocurrencies and proposed central bank digital currencies11 design digital currencies to add features to transactions, nano-currencies are designed to expand financing by creating tradable IOUs.

Nano-currencies address the fundamental problem with IOUs: they cannot be reliably traded. The illiquidity of an IOU raises numerous problems for a potential lender. However, if IOUs could be traded, then individuals inside communities may be able to finance ventures so the risk is distributed throughout the community and this financing endogenously creates liquidity and facilitates exchange in a similar way that creating additional currency would.

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Individualized Nano-Currencies

The traditional IOU is given from a borrower to a lender and denotes a debt to be redeemed for currency, goods, and/or services. From this perspective, an IOU is a contract (possibly an option) but not a currency (or tradable debt instrument). Nano-currencies are any system of IOUs sufficiently complex to allow IOUs to be tradable without the involvement of the original borrower and thus resemble debt-based conceptions of currency.9,11 As we see it, the fundamental features that would allow an IOU to be traded are:

  • A way to issue new IOUs, wherein a borrower grants a lender an IOU, presumably in exchange for some resource or service.
  • A way for another party to verify the authenticity of an IOU.
  • A way for another party to evaluate the worth or value of an IOU.
  • A way for the original borrower to verify the authenticity of an IOU and redeem the IOU.
  • A way for the redemption of IOUs to be tracked and/or incentivized.

Traditional IOUs, written on paper and traded between parties, fail all but the first of these requirements. We believe modern smartphone apps allow for the creation of small, self-resolving nano-currency systems that address each of these requirements. We will refer to the IOUs created in this way as nano-currencies.

We envision a nano-currency can operate using a common, centralized market administrator, which controls a database that tracks and authenticates nano-currencies, and through which nano-currencies can be redeemed (or where redemption can be recorded) and where those redemptions are also tracked. To help users evaluate the value of an IOU, the database would also track information about the borrower and the IOU. For instance, we imagine that such a nano-currency may track:

  • Information that verifies the identity of the borrower, such as a picture of them holding a unique code or verification through a third-party service.
  • The date the nano-currency was issued.
  • A description of what the nano-currencies are redeemable for.
  • A deadline for the nano-currencies' redemption.
  • The history of the borrower's nano-currency redemption and their total current outstanding obligations of nano-currencies.
  • The seniority of a particular nano-currency, should only some nano-currencies be redeemed.

Of course, any number of additional pieces of information may be tracked depending on the particular design and intended use of a nano-currency. To illustrate how this information could be displayed succinctly and in a compelling fashion, consider our mockup in the accompanying figure. Rather than merely solving a technical problem, we believe nano-currencies address a fundamental problem. The primary goal of a nano-currency is to expand access to financing, but several other benefits can naturally arise as well.

Figure. Mobile devices allow for apps to create, manage, and trade nano-currencies, and allow for counterparties to research and validate the authenticity of the nano-currencies.

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The Utility of Nano-Currencies

Nano-currencies can play two unique roles at opposite ends of our global economy. At one extreme, nano-currencies may have applications in rural communities (possibly under-developed communities), because those communities tend to be relatively more isolated, but locally connected and need additional financial services.12 Namely, while many individuals in rural communities, especially in developing countries, may be trusted inside their community, they have little access to outside capital because they are not trusted by an external financial system. Nano-currencies offer a way to leverage local trust and the high degree of local trade in small rural communities, by allowing for local trade to be powered by the spontaneous generation of local currencies. In this way, nano-currencies are an outgrowth of existing attempts to make small-scale local non-personalized currencies, such as local exchange trading system (LETS)7 but where the self-resolving nature of nano-currencies avoids the inadvertent hoarding problems in LETS.10

Nano-currencies address the fundamental problem with IOUs: they cannot be reliably traded.

At the other extreme, nano-currencies may play a role in financing novel but specialized ventures in high tech, high connectivity communities. In high connectivity environments nano-currencies can finance a new venture by discovering and aggregating interest across a large. This could be especially important when the venture is a novel product which has broad but shallow demand inside a community but is unable to access traditional financing because there is little preexisting documentation of that demand.

To illustrate the first scenario, imagine a farmer who needs fertilizer, and a neighbor who has fertilizer but requires liquid assets. If the farmer had access to the traditional financial system, they could borrow enough to buy the fertilizer from their neighbor and pay their debt after the harvest. But, if the farmer lacked access to financing, a traditional IOU would not satisfy the neighbor, since they require liquidity and are hesitant to bear the entire risk of the farmer's harvest. If both are in a community that will want produce, there ought to be a mechanism that allows for the farmer to buy fertilizer, for the neighbor to access the value immediately, and for the community to get produce. Herein lies the possibility of a nano-currency. The farmer pays for the fertilizer from their neighbor by issuing nano-currency redeemable for produce after harvest. The neighbor can access the value by using this nano-currency within the community. The trust that allows this sequence to occur is the trust that the farmer will faithfully redeem the nano-currencies. Unlike accessing the larger financial system, no one outside the community is required to trust anyone inside the community.

As in the example here, the critical conditions that let a nano-currency create value are that the borrower has more credit inside their community than with the larger financial system and that there is a significant coincidence of wants problem in the community. In such a setting, a nano-currency allows creates value by turning trust into liquidity without necessarily appearing credit-worthy to outside financiers. While for remote communities, nano-currency may most closely resemble micro-financing, in high-connectivity settings nano-currency may resemble crowd funding.

A nano-currency would allow future users real monetary incentive to fund a company. Game studios could create a nano-currency that is redeemable for a future game. Fans, especially knowledgeable about that genre, could buy this nano-currency at a modest discount and trade or resell it inside their community. From the backer's perspective, their level of support no longer has decreasing rates of return, unlike traditional crowdfunding rewards. For physical goods, especially those manufactured abroad and shipped to purchasers, nano-currency can leverage the fact that the best time to resell or trade a physical good between two people is before it has been shipped.

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The Potential Risks of Nano-Currencies

While we believe nano-currencies offer unprecedented opportunities, they also introduce new risks, of which the most pressing might include:

  • Lenders' default risk
  • Inflation
  • Personal indebtedness
  • Cybersecurity

While default risk is inherent in financing, the community focused structure of nano-currencies should help because it brings forward additional sources of information, provides community level disincentives to abuse, distributes risk and its local nature reduces the risks of contagion. First, when nano-currencies are traded inside the borrower's community, those members of the community bring in extra local knowledge. Second, since nano-currencies are socially concentrated, there is extra incentive to avoid default. Third, when the underlying venture fails, losses are diffused across the holders of the nano-currency, thereby causing less harm. Fourth, since nano-currencies are socially concentrated, the failure of a nano-currency may be less likely to influence the confidence of a nano-currency in a separate community than the failure of assets shared across communities.

A nano-currency would allow future users real monetary incentive to fund a company.

In terms of inflation, we believe nano-currencies pose an insignificant threat. Nano-currencies that resolve on relatively short time spans and resolve using the outputs of the financed production are, in terms of inflation, not significantly different from prepaying for a good in advance. For emphasis, notice this is very different than the way cryptocurrencies operate, which create permanent money-like assets.

Nano-currencies are unlikely to create a new crisis in personal indebtedness. Unlike non-dischargeable student loans, nano-currencies are short-term and automatically resolve, thus limiting the potential for inescapable long-term debt traps. Similarly, since nano-currencies require preexisting trust, the debt is more likely to be locally held, aiding in renegotiation and forgiveness. Moreover, whereas the traditional finance system sets loan terms and charges high rates for marginalized communities, nano-currencies are created by the borrower and thus give borrowers more power over the terms. Currently, one difficulty debtors can face is simply locating who owns their debts. In contrast, nano-currencies, recorded and traded inside a single repository, would allow borrowers the unique opportunity of purchasing back their nano-currencies before they are redeemed, allowing borrowers vastly more options to control their liabilities.

Lastly, the operation of a nano-currency involves the collection of some personal and sensitive data along with securely tracking transactions and authenticating user identities. While these responsibilities are significant and require diligent cybersecurity efforts, these demands are no less than those faced by any online bank6 and online banks can offer their services at very low per-transaction costs.7 Thus, while nano-currencies may raise some well-known risks and some completely novel risks, we are optimistic that these can be managed.

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Nano-currencies represent an incredible opportunity for a decentralized mechanism of community financing, whether those communities are isolated and rural or online and dispersed. By creating financing opportunities for those who cannot access traditional financial systems, we believe the impact of individual nano-currencies will prove radical, even if their technical basis appears mundane. Indeed, it will prove an interesting irony if a modified IOU can prove more useful to ordinary people than the technical wizardry that underpins the 'digital gold' of cryptocurrencies.

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1. Dierksmeier, C. and Seele, P. Cryptocurrencies and business ethics. Journal of Business Ethics 152, 1 (2018), 1–14.

2. Dupuis, D. and Gleason, K. Money laundering with cryptocurrency: Open doors and the regulatory dialectic. Journal of Financial Crime 28, 1 (Mar. 2021), 60–74.

3. Dupuis, D. et al. Old frauds with a new sauce: Digital assets and space transition. Journal of Financial Crime (2021).

4. Eisenbach, T.M. et al. Cyber risk and the U.S. financial system: A pre-mortem analysis. Journal of Financial Economics 145, 3 (Sept. 2022), 802–826.

5. Graeber, D. Debt: The First Five Thousand Years. Melville House, New York, NY, 2011.

6. Hasham, S. et al. Financial crime and fraud in the age of cybersecurity. McKinsey & Company. 2019.

7. Hayashi, F. and Keeton, W.R. Measuring the costs of retail payment methods. Federal Reserve Bank of Kansas City Economic Review (Second Quarter), (Mar 2012), 37–77.

8. Innes A.M. The Credit theory of money. The Banking Law Journal 31, (1914), 151.

9. Karlan, D. and Morduch J. Access to finance. Handbook of Development Economics 5, (2010), 4703–4784.

10. Lopaciuk-Gonczaryk B. Social capital formation through a Polish LETS: Challenging the presumed merits of local currencies. Ecological Economics 158 (Apr. 2019) 75–87.

11. Narula, N. Technology development of digital currency. Cato Journal 41 (Apr. 2021), 231.

12. Williams, C.C. Local purchasing schemes and rural development: An evaluation of local exchange and trading systems (LETS). Journal of Rural Studies 12, 3 (July 1996), 231–244.

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Wesley Sheh ( is an undergraduate student at Arizona State University, Tempe, AZ, USA.

Joel Nishimura ( is an associate professor of Applied Mathematics at Arizona State University, Tempe, AZ, USA.

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