Grassroots Currencies: Foundations for Grassroots Digital Economies

Grassroots currencies are means for turning mutual trust into liquidity, with the goal of providing foundations for grassroots digital economies. Grassroots coins are units of debt that can be issued by anyone -- people, corporations, cooperatives, banks, municipalities and governments -- and traded by anyone. They are more similar to `inside money' (a medium of exchange backed by private credit) and to fiat currencies (for which the issuer controls scarcity) than to global cryptocurrencies such as Bitcoin or Ethereum, which are unbacked and for which scarcity is controlled by the protocol. In this paper we introduce the principles that underlie grassroots currencies; show that they naturally admit basic fiat currency measures regarding foreign trade such as foreign debt, trade balance, and velocity, and basic accounting measures such as cash ratio, quick ratio, and current ratio; elaborate economic scenarios enabled by these principles for grassroots currencies issued by natural and legal persons; relate grassroots currencies to extant work, including notions of personal currencies, community currencies, cryptocurrencies, and inside money; formally specify grassroots currencies as digital entities, governed by the Grassroots Currencies Protocol; discuss the security (safety, liveness, and privacy) of the protocol; and prove that the protocol is grassroots. An implementation of grassroots currencies via a blocklace-based payment system is described elsewhere.