Will barter replace money? A review of the Anoma Network

I recently came across a new crypto-economic system - you know, those systems using mathematical rules to incentivise particular behaviour - called Anoma Network.

It is interesting because it questions a quite fundamental aspect of modern society: the need for money. The Anoma team argues in their whitepaper that there are two main deficiencies of money which direct barter may be able to overcome. Let's find out if that is indeed the case!

Deficiency 1: Centralized intermediaries lead to monetary capture

In order to use money, someone needs to issue it, whether its a centralized bank or a decentralized cryptocurrency mining protocol. If currencies have large returns to scale and are a winner-takes-all-phenomenon, then you can argue these systems inevitable lead to too much centralization of power:

"the centralization of control brings with it inflexibility and the opportunity for abuse. Centrally issued fiat currencies tie individuals and firms to the local economic and political system, and they can be leveraged by the issuing authority as an instrument to enforce economic and social policies and sanction individuals."

The above quote leaves out the proliferation of cryptocurrencies which are only increasing in importance, thereby creating, for the majority of liberal countries in the world, a healthy competition when it comes to monetary policy. Still, the fact that money is used poses a risk because a governing entity can try to use it for their aims.

Deficiency 2: Computational intractability of impact

This deficiency is actually a public goods problem, and goes by the other name of externalities. To me this seems more fundamental a problem to money, because although deficiency 1 is about the misuse of money by certain external actors, this deficiency is about any use of money:

"The dimensionality reduction which is the source of money’s usefulness is simultaneously the cause of money’s failure to accurately represent the underlying value. [...] Money fails to express the full implications of economic agents’ behavior (trade, production, and consumption), resulting in systemic divergence from the values of the participants at scale."

A specific example of such an externality:

"a rubber manufacturer who pollutes the local river may be able to make cheaper rubber than one which does not – thus the purchaser of a new pair of sneakers who picks the cheaper option may unwittingly contribute to this environmental damage, which then impacts their quality of life later on."

The solution: private barter?

The solution suggested by the Anoma team is a return to our roots, listen to our (great_1 - great_2 - ... - great_n) grandparents and to make use of bartering: directly exchanging goods with each other without using money in between.

Some things are considerably different in the modern age: given the ongoing digitalisation of the economy and the use of some fancy cryptography, the protocol aspires to facilitate bartering between an arbitrary number of parties involving an arbitrary number of goods.

Here is a simplified example from the Anoma documentation of the intents which could be bartered:

Intent 1: {
    "addr":"'$ALBERT'",
    "max_sell":"300",
    "min_buy":"50",
    "rate_min":"0.7",
    "token_buy":"'$BTC'",
    "token_sell":"'$ETH'"
}

Intent 2: {
    "addr":"'$BERTHA'",
    "max_sell":"70",
    "min_buy":"100",
    "rate_min":"2",
    "token_buy":"'$XAN'",
    "token_sell":"'$BTC'"
}

Intent 3: {
    "addr":"'$CHRISTEL'",
    "max_sell":"200",
    "min_buy":"20",
    "rate_min":"0.5",
    "token_buy":"'$ETH'",
    "token_sell":"'$XAN'"
}

We can match these intents as a linear program, and end up with the following traded amounts:

• Albert sells 100 ETH for 70 BTC
• Bertha sells 70 BTC for 200 XAN
• Christel sells 200 XAN for 100 ETH

Evaluation

Though deficiency 1 arises from the use of money, I don't think it is unique to the use of money and doubt that Anoma would resolve it. If any particular state can enforce the use of a currency, they can probably also ban a private bartering network such as Anoma. It is however one more 'tool' in the liberatarian toolbox to defend against centralized control, and other decentralized protocols like Bitcoin and P2P filesharing also remain alive around the world.

I do think Anoma is a contender to resolve deficiency 2, and time will tell to what extent it will be used alongside the many other initiatives which aim to get rid of externalities, such as:

• Organisations trying to directly price impact (TruePrice, OpenPhilanthropy, governments)
• Organisations trying to create impact transparancy (Questionmark, certifications, labels).

What Anoma, impact pricing and impact transparancy projects all require, is trustworthy information regarding the impact of certain goods. And not just on the short-run impact, but also the long-run impact. This is difficult, as your actions can have large consequences, but it is essential to achieve optimal decisions. The information can be objective physical measurements, but also any subjective evaluation based on the tokenised representations of value which we're sending around (votes, money).

The three approaches, to me, do not seem to be mutually exclusive. One can create an intent to barter, indicating a particular (1) price, (2) TruePrice and (3) certificate. In a way, Anoma is a way to ensure you can have your own digital economic representative agent. You feed it preferences, it observes the world and takes decisions. Some kind of utilitarianism as a service. Anoma could handle the integration & computation of impacts across large supply chains, building on top of lots of other useful standards for measurement, and provide a single interface to abstract away all the boring supply chain details when it comes to making complex value decisions.

Concern: can bartering have enough liquidity?

The biggest concern of bartering, and indeed a problem which money resolves, is that of liquidity: can you actually find counterparties which are willing and able to engage in a particular barter? Anoma seems to acknowledge this issue, indicating that "most intents will never result in transaction settlement".

They do envision the usage of matchmakers and market makers to facilitate trades. Given the fact that Anoma can accept flexible intents (including offering some money anyway to facilitate a trade), the system is likely able to be scaled up without requiring a giant bootstrapped bartering network. Moreover, any asset could be committed to any number of intents (leading to new interesting types of systemic risk which should be monitored once a particular asset is used up and its related intents vanish).

If every exchange would happen on the Anoma ledger, this would also have the side-effect that every asset would get an orderbook:

Conclusion

It will be exciting to watch the Anoma protocol develop. It could be an important tool to both express and satisfy everyone's preferences in the world.

But remember the caveat: be careful what you wish for. Value is complex, so such a future may well go wrong in as many ways as a complete dictatorship would, and it may take some time before we find a counterparty willing to take all of our money away.