Index wallets are a novel payment mechanism which exhibit promising theoretical properties including:
funding for public goods
voluntary taxation
wealth equalizing dynamics
The mechanism of index wallets is incredibly simple: when paying with an index wallet a user transfers multiple currencies simultaneously, amounting to transferring a fraction of the holdings in their wallet with each transaction. Whereas in a traditional economy participants transact in money denominated as scalars, in an index economy participants transact in vectors. Importantly, once a currency is bundled into an index wallet it can only be transferred according to this proportional scheme, individual currencies in the wallet can no longer be traded separately.
To visualize this, imagine an economy where goods are bought and sold with sands of various different colors. A standard payment in today’s world would occur when a vendor indicates which sand color they prefer to receive as payment. By contrast, an index payment would occur when a customer first mixes up several different colors of sand into a single bag and then scoops out a homogeneous mixture and transfers it as payment to the vendor. The proportion of each color of sand is always the same given a particular bag, all that changes is the size of the scoop which depends on how much the vendor values each color.
Here’s an implementation of the mechanism in code:
customer = np.array([10,20,30])# the customer's wallet
valuation_a = np.array([1,1,1])# the first vendor's valuation
valuation_b = np.array([1,1,2])# the second vendor's valuation
price =5# the price charged by both the first and second vendor
# showing that it's cheaper to pay the second vendor
It’s possible to then recognize that this simple payment method dissolves the Keynesian Beauty Contest that normally restricts economies to allowing only one currency with purchasing power; an index wallet economy is capable of transacting in multiple currencies because, no matter how uncommon, every player knows that what they receive they’ll be able to later transfer.
This property opens up a new game space for currency price discovery. Rather than exchange rate determination based on buy and sell orders in a currency market, prices are found through the interaction between customers and vendors in the retail market. Currency denominations become vehicles for preference expression where vendors feel an incentive to highly value those currencies that have high perfusion in their economic context.
In other words, as more members in a local economy hold and value a particular currency, it will feel more expensive to buy from those vendors that don’t also value that currency at a similar level. This begins to exert an economic pressure on the nonparticipating vendor as the elevation of price causes their regular customers to begin to buy less or buy elsewhere, thereby giving the vendor a private incentive to raise their valuation of the currency to retain them. The increase in valuation among locals manifests for the vendor as an increase in the monetary base, causing the experience of taxation through inflation. This means that those in social proximity to the public good benefit the most by paying taxes toward it, this can be thought of as a means of addressing the free-rider problem.
This dynamic becomes most interesting in the context of public goods funding. If anyone can mint a new currency and add it to their wallet, which of those new currencies are likely to accrue social value? One hypothesis is that those currencies associated with supporting a good that is beneficial to many members of a community would more easily accrue elevated valuations than ones that do not. If this assumption holds it would imply that a community transacting in index payments could use a process of social computation to discover which goods are public goods meriting collective support. One might predict this would result in a more entrepreneurial provision of public goods in lieu of the typical top-down political process of tax dollar allocation.
In summary, index wallets are a simple payment mechanism that constrains how a wallet can transact such that it always pays with a proportion of the held currency. Within the boundaries of a community that adopts this payment mechanism it becomes possible to transact with multiple currencies, rather than needing to convert in and out of a single local money in order to buy goods. This additional dimension of economic expression opens up a new game space wherein retail transactions can represent not only an expression of private preferences, but also collective preferences, potentially resulting in a new dynamic of public goods founded by entrepreneurial activity and funded bottom-up.
For a more story-based exploration of the use of index wallets to fund public goods, as well as frequently asked questions and those currently being explored, see
