What currency shall human use when colonizing Mars

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image from daily best

The first black hole picture reminds me Elon Musk's quote

Mars should really have great bars.

It made me wonder what currency shall we use in that bar on Mars. Will it be fiat or cryptocurrency? Will there be a heated fight whether the bar tender shall accept USD or RMB? Is there an ATM for converting AUD to BTC?

I originally posted my question on whirlpool and received good feedback. Colonizing Mars is a figurative setting for this mind game. So let's save the argument if Mars is suitable for human life or not but focus more on currency itself.  And I use currency and money interchangeably in this article. 

Potato

On Mars, food is of course scarce and essential. In this case, potato can be used for trade medium except there are issues,

  • Potato has various weight and size. It's not unified.
  • Harvest of potato is limited by seasons.
  • Storage and transportation won't be easy. Hence it rises concerns of theft or robbery.
  • What if there is a huge potato import from Earth. It will certainly cause inflation.

Those aren't new issues. Homo sapiens sapiens has been dealing with it at the origin of currency. I learnt this from Nick Szabo's essay Shelling Out. This essay is highly recommended for those who are puzzled by how money, or currency, was coming into being.

Cryptocurrency

I advocate cryptocurrency on Mars. But there are challenges

  • Electricity for mining is wasted.
  • Internet lag from Earth.
  • Company scrip or corporate currency shall be issued in lieu of legal tender.

Cost of production

Mining, the producing of cryptocurrency, comes with a cost of electricity. As the network difficulty rises up, the cost goes up too. It's the case for POW cryptocurrency, Bitcoin for example. People argues that it's a huge waste even on Earth not mentioning on Mars where everything is more precious.

The cost is not a waste but necessity. From an economical point of view, money is a common commodity. Its price is determined by demand and supply. When a money grows in popularity, its demand increases. So does its price, which is measured by the amount of commodities it is traded for. If the cost of producing the money doesn't follow the up trend of its price, more supply is enticed. That's inflation and an unfair wealth transfer.

The inflation can be tamed by a couple ways:

  • Natural scarcity, such as limited supply
    Bitcoin and gold are by nature limited in supply.
  • Difficulty to acquire, such as growing potato or bone of prey.
    Prey animal's bone was used as currency in human history when productivity was low simply because it's hard to acquire.

The well known and unavoidable cost of money production is the reassurance to people who adopt it. Considering that money is designed to reduce the transaction cost, i.e. promoting productivity in human society, the cost for its production can be seen as the price to pay for. There is no free lunch, isn't it?

Internet lag

Technically it makes the mining impractical as Martian has to compete with miners on Earth. However this assumption isn't that strong. Why should Martian mine the same mainnet as Earth people do? In addition to Bitcoin there are Litcoin, Dash and Dogecoin etc. Let's do a Marscoin. Then this can naturally lead to the next issue company scrip.

Company scrip

The East India Company coins may ring a bell here. It was the only company in history to mint its own trading currency as it grew to become one of the largest bullion traders of its time. Nowadays the company can use its own assets to issue credit coin, another form of money, as a long as money bearer can still use this coin for its services or products.

Like Zuckerberg experimenting his own cryptocurrency what can stop SpaceX pre-mine its own coin on Mars and allocate to new colony on arrival. Immigrants can exchange their bitcoin for it and pay for transportation fee and other services etc. If Musk is greedy and inflate his company scrip, who knows there won't be another "Satoshi" on Mars? This goes down to a theory of free currency market which is another discussion we shall save for later.

Economy 101

There are several economical concepts that my analysis is based on.

Trade is not equal

In a free market, transaction only happens when two parties both receive gain. You will only buy a cake if it costs you more to make it yourself. And the cake maker sell it because he/she is making a profit. After the transaction, both of you are satisfied. Each party values the same commodity differently and subjectively. This notion contradicts to a widely received understanding that equal value exchanges in a transaction.

Money is a tool to reduce transaction cost

Transaction always has a cost, such as time, labor or possessions and so on. Nick Szabo says

"Many kinds of wealth transfers – one-way and mutual, voluntary and coerced – face transaction costs."

Money as a tool provides us much better efficiency in transaction. "Shelling Out" provides a verbose answer with lots of evidence.

In Says' book "A Treatise on Political Economy", he defines it

Money is not desired as an object of food, of household use, or of personal covering, but for the purpose of re-sale, as it were, and re-exchange for some object of utility, after having been originally received in exchange for one such already. Money is, therefore, not an object of consumption; it passes through the hands without sensible diminution or injury; and may perform its office equally well, whether its material be gold or silver, leather or paper.

This was written way before abolition of gold standard. In today's monetary system, credit can be used as currency too.

What is money

Various forms of money that are pertinent to time and space mythifies the concept of money itself. Some say gold is money. Some say gold is growing useless in a world where USD is used as global currency. Some argue that money requires intrinsic value. But stone and shell were once used as currency, where its intrinsic value is very trivial. Some argue that nowadays credit can be currency but it's very elusive.

I developed a practical criteria which is composed of two items:

  1. Consensus
    it can be spent later without problem. it's very straight forward. I am not trading my labor for your money but for eggs later. I shall be reassured that the money I received can be accept by farmers.
  2. Stableness
    its utility will not drop in a sensible way at the time of spending. For example, if one hours of my work can buy a box eggs now, I won't be happy to see that my wage only afford half box after I finish my work 1 hour later. But I don't care that much in 1 year's time as I have already consumed it.

This criteria can help us examine value of lots of cryptocurrencies from ICO, IEO or stable coins. But that's off this topic.

My Answer

Cryptocurrency is going to prevail not only on Earth but also on Mars.

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