A Primer on Personal Currencies

Imagine a world where you could invest directly in creators, and you gave them upside in your future earnings or some royalties in exchange for giving you the capital you needed to get started. Imagine if you could create your own currency that could be bought and sold by other people that represented an hour of your time. People could redeem that currency for an hour of your time or something similar, thus giving it value.

What if you could earn some monetary return for helping people succeed? Or, more broadly, what if you could earn a return by speculating on the true value of creators — if you invest in undiscovered talent, you could earn a healthy return. You could give a creator with no reputation money, and over time earn a return if your support helped them reach their full potential. The people who do not have access to great opportunity could sell off some of their time, and in exchange receive the capital they need to showcase their value to the world.

Let’s say that you have found an interesting creator — a writer, for example. This writer is producing high-quality essays, but their work has remained largely undiscovered. Sure, they may have a Patreon page, but the perks offered are limited. This writer needs to raise money to upgrade their blog, and to give them more financial security so they can focus on their writing. If you believe in this writer and their abilities, the best you can do right now would be to donate money through a platform like Patreon. This raises the question: How can we create an ecosystem where creators can raise money and investors can earn a return by investing in undiscovered but talented creators?

That is the idea behind personal currencies.

What is a personal currency?

Personal currencies allow people to raise the capital they need to pursue their creative work — writing, the arts, building a side-project, et cetera — while giving outside investors the ability to earn a good return on their investment. Thus, people are incentivized to spend more time investing in young and largely undiscovered talent; if they become the next big author, the investor would be able to access significant upside.

If you are an aspiring author or someone who has a great idea they want to explore as a side project, it can be difficult to raise the capital you need. The incentive for someone to invest in your Patreon page is weak because although they may access perks — and the creator would of course be grateful — the expected returns are limited. If you become the next New York Times bestseller, your contribution on Patreon will not be very impactful on the broader scale.

If you had a personal currency, on the other hand, you could create a way in which people could earn a proportional economic return in exchange for investing in your success. At the start, an investors’ stake in your success may not be worth much, but as your value increases — you produce better quality work — then the value of that stake would appreciate. The personal currency would have the underlying value of one hour of your time, which means that the currency would inherently have value.

Personal currencies make it easy for creators to raise money, and also allow people to invest in talent easily. Someone interested in funding creators in the arts could buy a few tokens from a group of creators they think are undervalued, and earn a return as those creators reach their full potential. The investor could provide the creators with introductions to people who can help them, and provide general counsel to help the creators improve their work.

The Problem

The main products used to support creators can be split up into a few categories:

- Pre-orders or general fundraising (Kickstarter, etc.)

- Donations or perk-based crowdfunding (Patreon, etc.)

- Paid consumption (YouTube Red, etc.)

There is no product that allows speculators to invest in a creator and their work. The main problem is that there is no intuitive way to invest in creators. Indeed, you can pledge money through platforms such as Kickstarter and Patreon, and that money will have an impact on the creator’s life. However, because they are largely donation-based or based on a future perk, the financial incentive for someone to invest in your project is limited.

Investing in something is a more efficient way of making a difference because the incentives of an investor and a creator are aligned. When a creator raises money on Kickstarter, investors have no strong incentive to provide continued support to the creator. Indeed, pledging money on Kickstarter can make investors feel as if they are supporting creators, but the extent to which this aligns incentives is limited. If you invest in a Kickstarter campaign, you may be receive a discount on a product or a version of the product when it has been launched. However, this is often not enough to encourage people to participate in a campaign — people only receive the creators’ product, which has no long-term value for the person who has pledged money to the campaign.

Investments, on the other hand, create a system where a creator can raise funds while giving investors the ability to earn a proportional return if they succeed. Rather than relying on donations or “crowdfunding”, which has a short-term value for those who have pledged money to a campaign, investments give an investor a long-term incentive to help the creator succeed.

There are a few different reasons why investing is a better model. Firstly, more creators and people working on side projects are developing successful businesses out of their work. There are a larger amount of successful YouTubers who have turned their passion into a viable source of income. At present, the only way you could support these YouTubers would be to consume their content or donate through platforms such as Patreon. There is no way in which you can invest in their success. Because more creators are developing successful businesses out of their work, more people will want to invest in these creators — there is a potential upside to be gained.

Therefore, creators would be able to raise a larger amount of money. If investors have a financial stake in a creator, they have the ability to earn a good return if that creator succeeds. Therefore, more capital will be available to the creator as more investors will want to join their journey. This money could be used be creators to expand their operations, and focus on creating the best possible content.

Investments would also allow the crowd to access upside in exchange for taking a risk on people with a limited track record. Let’s say you are a talented writer with a largely undiscovered blog. If you allow people to invest in you when you are still undiscovered, they can earn a good return on their investment. As the creator succeeds, so do the people who have invested money in them. The incentives of both investors and creators would be fully aligned — what’s good for the talent is also good for the investor.

Where did the idea of personal currencies originate?

Personal currencies are a more specific form of “community currencies”. Community currencies were forms of currency that were issued by a community to be used in that specific locale. These currencies were usually geography-based, which meant that their value was confined to the community that issued the currency. The idea behind a community currency was to encourage spending at local businesses as opposed to larger, chain stores. Only local businesses would accept the local currency, which meant people would be more likely to go to a local store.

One of the most famous examples of a community currency is BerkShares. This currency was launched in September 2006 in the Berkshires region of Massachusetts. Anyone in the Berkshire Region could spend their BerkShares at a variety of different local stores. People could go to a BerkShares Exchange Bank and purchase a BerkShare with USD at a rate of 95 cents per BerkShare. These shares can be spent at face value to pay for goods and services offered by a variety of local businesses — for example, a $5 purchase could be made with 5 BerkShares instead.

Although this is not directly related to the idea of personal currencies, this demonstrates the potential of creating smaller currencies for communities. Indeed, personal currencies give your supporters an economic incentive to add value to your life; community currencies gave the citizenry an incentive to spend more time at local business, thus adding value to the community as a whole.

More recently, there have been people that have experimented with the idea of a personal currency in a variety of ways. Mike Merrill, for example, issued shares in himself back in 2008, and allowed people to vote on decisions in his life based on how many shares they owned. The idea behind this experiment was to help align the incentives of Merrill and people who wanted to support him, and give people the opportunity to earn a return as he became more successful. This experiment took the form of a stock market where anyone could buy or sell a share on the KMikeyM exchange, which is loosely based on the idea of the NYSE or NASDAQ.

Roll, launched in 2019, is also creating a platform that makes it easy for creators to issue their own cryptocurrency tokens. Through the platform, any creator can issue tokens in themselves that will be given to fans if they support the creator. For example, if you watch a YouTube video, you may be given a small number of a creator’s currency; if you participate in a private beta of a creator’s app, you may also be given some currency. Roll refers to this idea as “social money”, where creators can give fans more of an incentive to support their work by creating a market of tokens. However, Roll does not allow you to exchange tokens for money, and personal currencies have no underlying value (such as a US Dollar, or an hour of a creator’s work).

Common Concerns

There are several concerns people have about the idea of personal currencies. These can be broken up into four main categories: focus on monetary incentives; earning a return; ethics and scalability and confusion.

Focus on Monetary Incentives

When someone is betting on the performance of an individual, there may be more of a focus on the monetary value of the individual rather than their work. Indeed, the incentives of the creator and the investor are aligned — the more value the creator generates, the more valuable the investor’s stake in the creator is. However, investors may become more focused on how they can earn money from the creator, which may result in their not giving the creator the best possible advice. For example, an investor may push a creator to monetize their content before they are ready, which would maximize the investor’s returns.

Investors may also start to develop financial products around a creator on the secondary market, such as derivatives or facilitating short selling. This would mean that the creator may become at the center of a speculative secondary market which may apply pressure on them to perform. Because this would be a secondary market, the creator would also have no control over these trades. When an economic return in a stock, some investors will try to find a way to exploit that opportunity; this rule would likely apply in the context of personal currencies, too.

Earning a Return

Many businesses raise capital from angel investors, Venture Capital firms, friends and family, or other institutional investors. These investors will purchase shares in the company, and give the company the money they need to grow their product. Investors such as angels and VCs can only yield a return on their investment when the business “exits”, at which point they can sell their shares for a good return.

This happens in two main ways. The first is when a business is acquired by another company — the acquirer will purchase all shares of the company, giving investors the ability to cash out. The second is when a business goes through an Initial Public Offering, where they will sell shares on a stock exchange such as the NYSE.

In the context of personal currencies, there is no clear way in which a creator could “exist”. A blog or a YouTube channel could only scale to a certain point, and would likely never reach the point where it could go through an acquisition or an IPO. At present, the only way someone could earn a return from a personal token would be to sell it to someone else. However, because no centralized exchange exists, finding a buyer can be difficult.

Ethics

Investing directly in a person may be seen as unethical by many people. Indeed, if you are selling a token which is worth an hour of your labor, many people may see the market as a form of indentured servitude. Indentured servants were immigrants who gave away their labor for between four and seven year, in exchange for being allowed to move to the British colonies. If the underlying value of a personal currency was one hour of an individual’s labor, then people may see this as selling off your labor. The ethics behind personal currencies may discourage people from participating in the market, thus affecting both the liquidity of the market, and the value of each token.

Scalability and Confusion

There are also concerns around whether this concept could scale. In order for a successful market to exist, there would need to be a few creators whose tokens were continuously appreciating in value. Otherwise, people may be skeptical about whether or not personal currencies are a good investment. If most personal tokens do not appreciate in value or receive any interest from outsiders, then investors would have a strong incentive to invest only in those who already have a demonstrated track record of success. If this were to happen, the concept would likely not scale past a certain point — people would not invest in new creators because the prospects of a return would be limited.

Scalability may also be affected by the difficulty of launching a personal currency. At present, there is no platform that allows people to easily launch their own personal currency that can be transacted, and holds real value. There are a few platforms that allow people to create their own crypto token or “social money”, although these do not include many of the components that a personal currency investment platform would need. Until such a platform exists, most people will not be able to launch their own personal currency. Further, even when such a platform exists, it will have to articulate this concept in a way that appeals to both creators and fans; indeed, a complicated problem considering the financial concepts involved with personal currencies.

The Value of Personal Currencies

By selling tokens, a creator would be able to access funding without having to rely on donation or crowdfunding-based services. There would likely be a huge repository of people interested in supporting ambitious and passionate creators who can demonstrate their talent. A token economy would make it easy for these investors to participate in offerings by creators, and investors would have a strong financial incentive to hold their stake.

Before a token is sold, it would need to have some form of underlying value. BerkShares, for example, represent 95 cents; personal currencies would need a similar representative value. One way this could be done would be to link one personal token to an hour of a creator’s time. Therefore, the token would have some inherent value, which would give people a reason to buy or transact the token.

Let’s say that you are a writer who wants to work on a new book, but you don’t have the money to focus full-time on a book. If you launched a personal currency, the creator could say “I want to write a book and I will need to work full-time for three months in writing this book. In order to do that, I need to raise $15,000.” Each token sold could cost $100, and represent 1 hour of the creator’s time. Thus, the creator would need to sell 150 tokens to the public.

After an investor had purchased a token, it would be given some form of exchange value — a stock price. The investor could either hold onto the token, sell it to another party, or redeem it for one hour of the creator’s time. As the creator becomes more successful, the creator’s time will become more value. If you purchased a token in someone who writes a bestselling book, an hour of their time will be immensely valuable. This arrangement would make it easy for creators to pursue their work and empower investors to earn a financial return if a creator succeeds.

Conclusion

Despite the many challenges associated with personal currencies, there are more people who have become interested in this concept. Indeed, a few dozen artists, creators, and businesspeople have launched their own personal tokens, and give people the ability to earn a financial return if they succeed.

Personal currencies would create a new economy where creators could easily access the capital they need to reach their full potential. Investors would have a strong financial incentive to participate in a token offering, and to provide long-term support to the creator. As the internet creates more opportunities for creators, personal currencies may become a more popular way of helping those creators pursue such opportunities.

If you are working on this idea, please send me an email at jamesg@jamesg.app. I would love to chat.

Blog, EssayJames GallagherComment