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Dominic Williams: The First Commercial Bank Startup

Published on February 3rd, 2019 by Legendface66

The First Commercial Bank Startup “The big challenge is to get people using this on mass, deliver them something useful & a reason for doing it in the first place, and them keeping them using it . . . and I think this takes different technology and different tactics.”

Could you please explain the PHI protocol?

The narrative we’ve been told is that traditional fiat money isn’t backed by anything and it’s all gone to hell since we went off the gold standard Bitcoin on the other hand is backed by the guarantee that there is a limit of 21 million bitcoins. This is not a fair claim If you constrain supply the price also has to go up The dream of bitcoin was that through the pyramid effect people would we sucked in At the point bitcoin sucked in enough value and through futures markets bitcoin would become stable. Futures markets actually made bitcoin more volatile Value growth has lead to more volatility. We are seeing bitcoin progress through a series of bubbles. If we have a “crypto-fiat” that is actually used, people will see that speculation coins do not have that much value and they will decline in a lONG TERM BEAR market People will instead invest in the voting tokens that back systems that provide crypto fiat Those voting tokens will be volatile but the valuation will be based on the distribution of a share of the revenues of crypto-fiat systems There is a problem with constraining supply and hoping demand will inflate value because you’ll never get stable value. Money is three things: unit of account, medium of exchange, and store of value. You cannot do unit of account and medium of exchange successfully if your value isnt stable. All you can really do with cryptocurrency today is use them as a speculative store of value The term cryptocurrency is misleading as they are not really currency at all. People quite Friedrich Hayek who proposed that we have lots of competing currencies, but he said specifically that the most stable currencies will always win. Unstable currencies are bad for the economy because they distort pricing signals. You have to have fiat-like currencies to run an economy. Unstable currencies would send the economy into meltdown.

What is a fiat currency? The myth is that the government & central banks print money. This is a complete lie. 98% of fiat money is created by commercial banks when they issue loans. Money is created out of thin air, becoming a liability to the bank. The loan becomes an asset. The interest makes the asset more valuable than the liability. The system fails when the aggregate value of all of the loans is less than the liability of the principal due to the reality of credit default risk being higher than evaluated at the time of loan issuance. Despite its flaws this system is responsible for the growth of the world as we know it. It is also in part responsible for the industrial revolution. Some things are subverting this mechanism – banks operating in a greed/fear cycle which leads to the credit cycle. Corruption in the banking sector leads to anger and political problems without clear end. The way the system works is potentially threatening for global stability. Another problem is that this type of money has become digital and if you don’t have a credit card you can effectively be locked out of society. The banks are now taking it upon themselves to determine who can and who can’t participate in a society. – payday loans, adult industry performers, and now cryptocurrency businesses. This represents a major civil liberties issue. As money is only really accessible through financial services that can be turned off. Banks are also extremely expensive to run and we all pay for that. The mechanism of fiat creation is good. The commercial banking industry is bad. Enter PHI

You have an autonomous system running on Ethereum or DFINITY that loans in a mirror currency to that of the region the loan is being issued in. Validators place a deposit and random sequences of validators are used to validate and loans prior to issuance. Customer approaches validator and asks for a loan. Validator takes customers information and based on that proposes terms. If the customer accepts the validator submits application to autonomous PHI system. The random selection of subsequent validators then begins. In the case of 3 validators, interest from the loan is split 60% to the originating validator, 20% to each backup validator. If the loan represented by the application is bad, it will be rejected by a subsequent validator and an appeal process begins. If the originating validator loses, their reputation will be reduced resulting in a penalty of one more backup validator being added to their application process and the fee for that validator being taken from their cut of the interest. The loan is issued and must be repaid in, say, PHI USD. To enable debt collection, default cost is split proportionally between the validators who approved the loan. To enable the validators to recover funds in the case of default, during the application phase, a contract to repay the funds is signed between the originator and the customer, that can be legally exercised. In the case of default, the contract can be activated and sold to a debt collection agency. This is just a cost of doing business. There are always going to be some bad loans. PHI becomes like fiat – an aggregate IOU on outstanding loans. PHI is more accurate, judicious, responsible and is able to loan in a fear cycle while freeing us from the egregious cost of the banking system. The user experience can be augmented with additional services to avoid the customer ever having to handle PHI, only handling fiat. To build this we need unbounded decentralized compute There has never been a commercial bank startup. Fintech is lipstick on the pig.

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