Propagational Investment Currency SYstem (PICSY) : Proposing A New Currency System Using Social Computing

Propagational Investment Currency SYstem (PICSY):
Proposing a New Currency System Using Social Computing
Ken Suzuki
The University of Tokyo Graduate School of Arts and Sciences
March 2009
Acknowledgement
First, I convey my sincere appreciation to Prof. Takashi Ikegami, my supervisor at the University of
Tokyo. Without his guidance, encouragement, and comments, this thesis could not have been completed.
Discussions with him invariably present new perspectives and ideas to me. They put my thoughts into
shape to develop my own study further. I have learned from him that real studies emerge from each
researcher’s passion.
I would like to thank Prof. Kazuhiro Ueda, Prof. Yuko Fujigaki, Prof. Norio Sawabe, and Prof. Yutaka
Matsuo for their respective critiques of the whole paper. So many of our discussions were incorporated
based on their constructive suggestions.
I also thank the colleagues at the Ikegami laboratory for their frank comments and daily encourage-
ment.
This work was partially supported by the Exploratory Software Project FY2002, Information-technology
Promotion Agency of Japan. I appreciate Hiroyuki Ohta, Tomohiro Inoue, Asaki Nishikawa, Hiroaki
Teraoka, and Masanori Kusunoki (all are members of the PICSY Project http://www.picsy.org/).
I am also thankful to the following people for helpful discussions: Mr. Kazutoshi Ono, Mr. Koichi
Yoshie, Mr. Yusuke Narita, Mr. Masaki Morita, Prof. Yoichi Muraoka, Prof. Norio Konno, Prof.
Masahiro Endoh, Prof. Makoto Nishibe, Prof. Hitoshi Okada, Prof. Hirokazu Takizawa, Prof. Masahiko
Aoki, Prof. Katashi Nagao and Prof. Kojin Karatani.
Komaba, Tokyo
March 2009
Ken Suzuki
Contents
1 The Concepts of Computation 2

1.1 From the computer history perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.1 Human Computing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.2 When computers were human . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Designing social systems using computer technology . . . . . . . . . . . . . . . . . . . . . 5
2 The Importance of Propagation 7

2.1 Related work on currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1.1 Currency requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1.2 Flow-based complementary currencies . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 PICSY: a flow-based alternative currency . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2.1 Introduction of PICSY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2.2 Comparison with related works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3 Is PICSY human usable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3.1 PICSY demo: Verifying human understandability . . . . . . . . . . . . . . . . . . . 15
2.3.2 Trading game workshop using PICSY Lite: Verifying human usability . . . . . . . 16
3 Models 19
3.1 Static model as a general evaluation system . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1.1 Static model as matrix calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.1.2 Static model as a Markov process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.2 Dynamical model as a currency system (self-evaluation method) . . . . . . . . . . . . . . 21
3.2.1 Introduction of transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2.2 Adding and subtracting members . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3 Companies and their virtuality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3.1 Necessity of companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3.2 Virtual dissolution of a company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.3.3 Total purchasing power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.3.4 PICSY and SECSY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4 Central bank method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.1 Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.2 Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.5 Virtual central bank method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.5.1 Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.5.2 Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1
3.6 Comparison of three methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4 Applications 39
4.1 Personnel evaluation system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.2 Open contents: remix chain and value propagation . . . . . . . . . . . . . . . . . . . . . . 40
4.3 On-line game currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5 Discussion 43
5.1 Problems and solutions of installing PICSY . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.2 Distributed type models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.3 Large-scale optimization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.4 Soft launching . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.5 Advancement of fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.5.1 1) Micro view . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.5.2 2) Macro view . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.6 Improvement in productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.7 Virtualization of organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.8 Transformation of communication dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.9 PICSY as an extended consolidated accounting system . . . . . . . . . . . . . . . . . . . . 48
5.10 PICSY as a worldwide personnel evaluation system . . . . . . . . . . . . . . . . . . . . . . 48
5.11 Measurement of SECSY advantages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.12 Future works: gradual society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Glossary 52
Appendix: Relation between Google PageRank and PICSY 54
Bibliography 56
2
Chapter 1
The Concepts of Computation
In essence, specters don’t run away or disappear however we might uninterruptedly explain
every specter with science. Such explanation merely induces the appearance of specters whose
faces and bodies are gradually changed. As humans evolve, specters evolve too. However far
they evolve, specters are specters. Current scientists all around the world keep to their
laboratories every day and commit themselves to seeing through specters with their hearts.
However no limit of specters exists in the natural science area, and there is therefore no
limit of their faces. Sometimes what we see through a specter is merely a wizen willow, and
sometimes a wizen willow might be a specter. These mutual conflicts involving specters and
scientists are never-ending; thereby, humans and specters evolve forever.
Disbelieving in specters is superstition rather than believing in them. The universe is
filled with eternal mystery. All science books are picture scrolls depicting a night parade of
one hundred demons. Science would be dead if we had no mind to read them and frisson the
mystery.
Terada Torahiko, The Evolution of Specters [32]
The concept of computation has continued to evolve as long as science has developed. One example
is non-classical computation, as exemplified by quantum computation. The other is evolution of the
computation concept associated with a view of life. Scientists understand that the implementation of
intelligence and life is a difficult problem in spite of high-speed computation. Therefore, we seek not only
to replace life phenomena with computers but also to implement computers using life phenomena. This
chapter introduces the concepts of human computation and social computing.
1.1 From the computer history perspective
1.1.1 Human Computing
The idea that game-playing is convertible to work through a computer network was proposed and
implemented by Luis von Ahn in 2003. ’Erotic grid computing’, as invented by an e-mail spammer,
inspired the idea.
The Completely Automated Public Turing test to tell Computers and Humans Apart (CAPTCHA)
procedure might be familiar to free mail service or blog users (Fig. 1.1).
Anyone can create a new free mail service account using Yahoo mail (Yahoo Inc.) or Hotmail (Microsoft
Corp.). For that reason, spammers’ computers can collect numerous accounts automatically. Free mail
services therefore must distinguish between human requests and machine requests to protect their services
3
Figure 1.1. An example of CAPTCHA
against spammers. This problem is a kind of Turing test, which is a classic artificial intelligence problem.
Andrei Broder of AltaVista proposed a creative solution to the problem. What von Ahn [35] contributed
is designation of the idea as Completely Automated Public Turing test to tell Computers and Humans
Apart (CAPTCHA) and spreading it to the world. The idea is simple. First, an image of an adequate
string is converted to another image so that computer software is unable to solve it accurately. The image
is presented on a registration page. The registration is approved if an answer is correct. The registration
is rejected if an answer is incorrect. CAPTCHA is sufficiently effective and easy to install. Therefore,
Yahoo (Yahoo Inc.) and other large web sites adopted it; CAPTCHA became the de facto standard.
Nevertheless, spammers attempted to solve CAPTCHA automatically. One creative method is called
’erotic grid computing’. For porno sites such as those that spammers operate, visitors must solve
CAPTCHA images that are generated by free mail services to see the next erotic picture on the site.
Input information of registration is generated by machines automatically; only the CAPTCHA image is
solved by a human who accesses the porno site. Free mail services were unable to defend against this
method using real humans as problem solvers because CAPTCHA was originally conceptualized as a
method to distinguish between humans and machines.
Von Ahn learned of the method and sought to develop it to a more general computing concept using
spammers’ creative ideas. Von Ahn [36] developed an ESP game, which is an approach for developing
an accurate search engine by playing a simple game. First, a user sees a picture that is collected using a
search engine crawler. The same picture is presented to another user and both users imagine a word that
another user would write down (Fig. 1.2). In this game, users play Extra Sensory Perception (ESP).
When two words match, both players get scores and the word is adopted as a tag that is useful for
enhancing the search engine’s accuracy. Google adopted the ESP game and developed the Google Image
Labeler.
In 2008, von Ahn [37] published another important result. Project reCAPTCHA provides machine-
unsolvable OCR images to over 40 thousand sites: 440 million words are solved each year by humans
worldwide (Fig. 1.3). The project is able to solve four million words a day, nearly equivalent to 750
full time workers. Why CAPTCHA is adopted by so many sites is that the images are superior to
machine-generated CAPTCHA images.
Actually, von Ahn coined the research area ’human computation’, describing a computer consists of a
network of human elements, not only logic elements. From this perspective, a human is not a computer
user but a node for a computing process.
1.1.2 When computers were human
Sometimes, an apparently new phenomenon can be discovered to be closely analogous to some earlier
practice or device in history. Although von Ahn coined the term ’human computation’, computers were
4
Figure 1.2. ESP game
Figure 1.3. The basic mechanism of reCAPTCHA (reCAPTCHA: Human-Based Character Recognition
via Web Security Measures. Science, September 12, 2008. pp. 1465–1468)
humans in the science field for the first two hundred years of computing history. Electronic computers
5
were recognized as computers only fifty years ago. Grier [10] studied the history of ’human computer’.
Edmund Halley (1656–1742), the editor of Newton’s Principia, is famous as the discoverer of Halley’s
comet. Halley [11] predicted that the comet would appear in 1757, but the comet failed to appear.
Although he tried to solve the equation analytically, solving the solution was impossible because it
was a many-body problem that necessarily included perturbations caused by Saturn and Jupiter in its
reckoning.
In 1758, Alexis-Claude Clairaut (1713–1765) and his two friends computed the perihelion of Halley’s
Comet numerically for five months. He predicted that Halley’s Comet would reach its perihelion on April
13, 1759. The error was only 30 days.
Gaspard de Prony (1755–1839) was inspired by Adam Smith’s ’The Wealth of Nations’ [28], which
argued that the division of labor produced the ”greatest improvement in productive powers of labor.” He
transformed Clairaut’s numerical approach and organized a large computing team comprising 96 members
and three layers. The top layer, that of scientists, included several famous mathematicians, including
Legendre and Carno. The middle layer was of planners, who were less famous mathematicians. At the
bottom of the pyramid were the ’human computers’ whose job was to compute. The team computed
trigonometric and logarithmic tables for the revolutionary French government for six years.
In 1882, Charles Babbage (1792–1871) tried to replace Prony’s ’human computers’ with a ’machine
computer’. He insisted that a Difference Engine would have reduced Prony’s computing force from 96
to 12. In 1837, Babbage published the Analytical Engine, which was inspired by the French settlement
banking system ’Clearing Houses’ and the automatic looming machines of his time—the ’Jacquard loom’.
Babbage [4] published a book about economics and influenced the work of John Stuart Mill [21] and
Marx [19] .
That mechanization of ’human computers’ had been forgotten for a long time. ’Human computers’
reached their acme during World War II: groups of several hundred people were formed to compute
ballistics trajectories and food logistics. After the war, because electronic computers evolved rapidly,
’human computers’ had disappeared entirely by the end of the 1950s.
As described above, computer science and social science have evolved complementarily.
1.2 Designing social systems using computer technology
The network is the computer. This was the vision espoused by Sun Microsystems, underscoring
perhaps the latest paradigm change of computing. What we call a ’computer’ now is implemented as
merely a network of logic elements. Consequently, the whole internet, which connects hundreds of millions
of computers, can be regarded as a computer. Furthermore, if computer terminals are connected with
humans or natural phenomena, that whole system could be conceptualized as a ’computer’. The meaning
of computer is therefore changing from ’a machine which computes’ to ’something which connects natural
phenomena as a network and generates stable meaningful output for humans from input’.
Digital computers connect logic elements. From them, current study is expanding to human compu-
tation, social computing, and natural computation, whose computational nodes are natural phenomena
such as river streams and the intelligence of slime molds.
Social computing uses sociality, which is the result of more complex interaction among humans. That
contrasts starkly against human computation, which merely collects and processes according to individual
abilities. Forsythe et al. [8] developed a prediction market, which is a representative example of social
computing. Iowa Electronic Markets (IEM), the first prediction market operated by Forsythe et al., has
predicted hundreds of elections in the United States, yielding better results than polls.
Page and Brin [24] [5] proposed the Google PageRank, by which reputation values of web sites are
calculated by the hyperlinks which are embedded manually by humans. Actually, PICSY has many ideas
6
in common with PageRank (see Appendix after reading Chapter 3).
The perspective that a social system itself is an information processing system of a kind is not new.
The economic calculation controversy is a famous example by which economists discuss markets as
information processing system of a kind. Simon [27] argued that business organizations, like markets,
are vast distributed computers whose decision processes are substantially decentralized.
As explained above, human computation and social computing are apparently rather old perspectives.
However, I think something new exists in human and society augmented by digital computers. They are
the same as human and society augmented by natural language. In the following, I would like to explain
how existence augmented by digital computers differs from the old perspective.
Two main streams are discernible in modern studies of computer and intelligence. Artificial Intelligence
(AI) is a vision that human intelligence is producible in machines. The movement was begun by Alan
Turing [33] [34], Marvin Minsky [22], John McCarthy [20], Claude Elwood Shannon [26], and Newell [23]
et al. Intelligence Amplification (IA) is another vision by which current intelligence can be amplified by
machines. That movement was begun by Vannevar Bush [6], William Ross Ashby [1] [3] [2], Douglas
Carl Engelbart [7], Joseph Carl Robnett Licklider [17] et al. The two movements share a competitive
relation and have evolved complementarily.
Alan Kay [15] tried to combine the two streams. He insisted that the computer is a medium of a new
kind: a metamedium, whose content would be widely various and including already-existing and not-yet-
invented media. In other words, what appearance of digital computers provides to cause and effect in the
world is a middleware layer that is computationally universal. Although middleware is not sufficiently
strong to simulate the physical world and cognitive system completely, it can create a new cause and
effect that did not exist. The physical world already has cause-and-effect ’physical rules’. However, those
rules are restricted because of their constant rules. The middleware creates a new relation between two
phenomena which are mutually unrelated.
No reason prevents our adoption of the art of creating a new cause and effect to a social core system
such as currency systems, legal systems, and religion systems. Thereby, a new study area can be built
with which people can experience new perceptions of cause and effect in the world.
Over three hundred years were necessary for civil revolution after typography first appeared in western
history. Similarly, social core systems will be changed by new media technology, computers, and the
internet during the next couple hundred years. However, taking such a long time does not decrease the
value of current study to design new social systems.
The next chapter presents the Propagational Investment Currency System (PICSY), which actualizes
a worldwide personnel evaluation system as social computing.
7
Chapter 2
The Importance of Propagation
This chapter introduces the basic idea of PICSY and presents some insights developed through workshops
and two software developments by which the basic PICSY model was developed.
2.1 Related work on currency
2.1.1 Currency requirements
The use of currency emerged historically as a spontaneous order. Although fiat currencies had been
designed by governments, they are merely well-governed copies of spontaneous currencies that had de-
veloped among people. Electronic money is no exception in that it is merely a computerized form of
already existing normal currencies.
Jevons [13] explained that the essence of money is to solve the difficulty of a ’double coincidence of
wants’.
The first difficulty in barter is to find two persons whose disposable possessions mutually
suit each other’s wants. There may be many people wanting, and many possessing those
things wanted; but to allow of an act of barter, there must be a double coincidence, which
will rarely happen. A hunter having returned from a successful chase has plenty of game,
and may want arms and ammunition to renew the chase. But those who have arms may
happen to be well supplied with game, so that no direct exchange is possible. In civilized
society the owner of a house may find it unsuitable, and may have his eye upon another house
exactly fitted to his needs. But even if the owner of this second house wishes to part with
it at all, it is exceedingly unlikely that he will exactly reciprocate the feelings of the first
owner, and wish to barter houses. Sellers and purchasers can only be made to fit by the use
of some commodity, some marchandise banale, as the French call it, which all are willing to
receive for a time, so that what is obtained by sale in one case, may be used in purchase in
another. This common commodity is called a medium, of exchange, because it forms a third
or intermediate term in all acts of commerce.
W. Jevons, Money and the Mechanism of Exchange [13]
Such a double coincidence is a situation in which a supplier of good A wants good B and a supplier of
good B wants good A. A common commodity solves this problem of the double coincidence found in a
direct barter of goods.
8
Kiyotaki and Wright [16] described that agents accept fiat money in trade because they expect that
others will do the same. They proved the existence of Nash equilibrium, in which this is indeed the case.
Furthermore, they show that such equilibria are robust.
Karatani [14] and Iwai [12] take notice of the ’salto mortale’ by Marx [19]. Marx argued that receiving
money is like ’salto mortale’, which in the Italian language means flip-flop. However, the literal translation
of ’salto mortale’ is ’deadly jump’. ’Deadly jump’ is a dangerous act, whereas, ’flip-flops’ are easily acted
by a clown. Salto mortale, therefore, has a double meaning, of something that is easy and dangerous.
This contradictory situation is where a currency emerges. Receiving the goods is apparently a dangerous
act if one can not expect that others will take the same goods. However, once most people accept the
goods, receiving the goods is an easy act.
Money is money because money is money. This is the tautological essence of money. Money is
self-referential.
Iwai insists that depression and hyperinflation occur by nature when money is in crisis. During times
of hyperinflation, people become unwilling to accept money. In a depression, people believe that money
is the king and do not relinquish it. Depression occurs because money is money. Therefore, depression
stands as the real crisis of money economics.
However, they did not discuss the origin of currency. Yasutomi [39] simulated a goods exchange
model in which money emerges and collapses. A common commodity solves the difficulty of a ’double
coincidence of wants’. However, once people do not receive the common commodity, the commodity
becomes a mere good. Dynamics of emergence and collapse are simulated in this study.
These studies show ’flip-flops’ in human perception. The value of money emerges from trades, or flows
in other words. The essence of money is flow. However, once a common commodity becomes money,
everyone readily forgets that the value of money is based on flow. Believing that money has its own
value as its substantial nature creates a strong obsession with money. This is the core explanation of
how depression occurs.
In short, there exist two requirements for currency. One is to solve the difficulty of a double coincidence
of wants. The other is a self-referential convention. Thereby, currency is not recognized as a current of
value but is instead recognized as a store of value.
2.1.2 Flow-based complementary currencies
Some proposals of complementary currency are designed to make currency more fluent, as a stream
might be.
One example is derived from the concept of local currencies. Local currencies are currencies that are
not supported by a national government. They are common in human history. They are intended as an
adjunct to the national currency, rather than a replacement for it.
The Local Exchange Trading System (LETS) is a non-profit local currency system invented in Canada
by Michael Linton in 1983. In this system, local people set up an organization that retains their own
records of accounts. They made a directory of members’ offers and requests. All accounts started at
a zero balance. When a member makes a deal with another member, both credit notes are written.
Thereby, the total sum of the accounts remains at zero (Fig. 2.1). The credit note is sent to a LETS
bookkeeper, who adjusts both members’ accounts accordingly.
In fact, LETS could function in a depression in which a national currency would not circulate. Hun-
dreds of LETS exist all around the world.
Linton [18] defines five fundamental criteria of LETS:
• cost of service - from the community for the community.
9
+6000 +6000
＋5000 ＋5000
The total sum stays zero.
B D E B D E
A C 0 A C
Accounts start at zero. ‐1000
‐2000
‐3000
‐8000 ‐8000
‐10000
Figure 2.1. How LETS works
• consent - results in the ”flat start” of all accounts.
• disclosure - to ensure informed action by users
• equivalence to the national currency
• no interest - no commission
Equivalence to the national currency is a criterion that posits LETS as a complementary currency.
Others show LETS as a non-profit activity.
The time bank methods, such as Time Dollar and Ithaca Hours, constitute another example of local
currency. Time is an equal property because everyone has 24 hours a day to spend on different activities.
In these examples, people trade labor time, not goods; therefore time functions as local currency.
The WIR Bank in Switzerland is the most successful and sustained local currency in the world. It
exists only as a bookkeeping system. WIR was founded in 1934 by businessmen Werner Zimmermann
and Paul Enz. Over 62,000 people participate to WIR bank. The available money supply (currency code
CHW) was 839 million equivalent to Swiss Francs (as of 2005).
Founders of WIR bank were influenced by Gessel’s free money. Gessel [9] proposed free money, whose
interest rate is negative. He insisted that money with positive interest is not natural and that positive
interest promotes storage of money. Gessel designed free money not as local currencies but as national
currencies.
Basket currencies are another complementary currency mode used as a national currency of developing
countries. The dollar peg is an effective strategy for developing countries with low credibility of the
national currency. However, dollar peg is vulnerable to dollar risk. Basket currencies are systems of
multi-currency pegs, which ease the dollar risk. The European Currency Unit, the predecessor of Euro,
is also a basket currency of member countries.
10
Eiichi Morino proposed the WAT system. Money is fundamentally debt. WAT is a debt sheet that
anyone can issue. It can work as currency if a receiver of WAT believes it as real debt with sufficient
credibility. Actually, WAT requires no central management system. Saito [25] proposed peer to peer
currency iWAT, e-currency of WAT; it will be useful for easy recovery from a disaster.
These currencies are based on the concept that currency is fundamentally a flow. However, they are
merely complementary currencies whose main purpose is to support national currencies.
Indeed, Hayek [38] insisted that money should be denationalized and there should exist competitive
money systems. However, his assumption is that there exist currencies of similar kinds.
The next section presents a purely flow-based alternative currency ’PICSY’.
2.2 PICSY: a flow-based alternative currency
2.2.1 Introduction of PICSY
The modern economic system, which is based on capitalism, industrialism, and market fundamental-
ism, has accomplished the highest growth in the history of the world.
Apparently no alternative system remains to challenge it. Notwithstanding, many local currencies in
the world constitute an interesting phenomenon, but none can change the overall system. We can only
imagine either the traditional system or small improvements to the present system.
However, information technology still has not fostered an evolution of economic systems, as had been
originally expected. To change our lifestyle, we must create not only a convenient technology but also
core social systems such as currency and legal systems that incorporate the use of computers.
From this perspective, the author invented a flow-based alternative currency in which everyone is able
to perceive currency as flows in daily life.
The Propagational Investment Currency System (PICSY) proposed by the author [29] [30] [31] presents
another economic world and network society for the future.
Goods and services invoke subsequent reactions through a supply chain. Consumable goods are not
only a composite of innumerable goods but also intermediate goods for labor. From this perspective, no
’final’ goods exist in the world. The effects of goods and services are embedded in the subsequent goods.
Therefore, it has been natural to think that the value of goods is also embedded in subsequent goods.
We can readily observe a chain of value propagation through the supply chain.
Presuming three persons who connect through transactions, person A sells goods for 0.2 to person B
and person B sells goods for 0.3 to person C (Fig. 2.2). The value of the goods which person B sells
includes the value of the goods which person A sells. Therefore, person A is expected to obtain the
propagation product of two transactions.
This three-person model portrays the simplest case. Calculation of effects is solved through matrix
calculation when some loops and the system consist of the number of people who exist. An N ×N matrix
is the result of participation of N people. This is an accumulation of all transactions and is called an
evaluation matrix. We can obtain the eigenvector from the matrix. That value of the eigenvector denotes
a person’s contribution to society; eigenvector is called a contribution vector (Fig. 2.3).
A fair currency system is one that provides purchasing power in proportion to the contribution that
is made to the economic system.
In the PICSY framework, every transaction is an investment. The transaction is an investment in kind
from person A to B if person A sells goods to person B. Therefore, person A can obtain an investment
return from sales by person B.
For example, Ichiro Suzuki, a well known baseball player, earns 10 million dollars a year. The noodles
could be thought of as an investment in kind in Ichiro because, if Ichiro ate at a noodle restaurant every
11
propaga4on
=0.2×0.3
=0.06
money money
0.2 0.3
A B C
goods goods
Figure 2.2. Three-person simple supply chain and its value propagation
Evalua7on matrix
A B C D E … contribu7on
A 0.21 0.6 0.07 0.12 … A 0.72398
B 0.1 0.4 0.2 0.3 … B 1.2948
C 0.23 0.45 0.1 0.22 … C 2.39885
D 0.49 0.06 0.1 0.35 … D 0.12281
E 0.24 0.18 0.31 0.27 … E 0.454
… … … … … … … …
Figure 2.3. The eigenvector of a matrix is each member’s contribution to society
day when he was a high school student, his body became developed by the noodles. A restaurant owner
might therefore expect to have 100 thousand dollars a year as an investment return.
The following illustration explains the effect of PICSY in comparison to the Settlement Currency
System (SECSY), which is the normally used system of currency.
12
The Eﬀect of PICSY: Doctor Version
SECSY society
A part of a pa:ent's revenue
propagates back to the doctor
who cures the pa:ent.
Effect of PICSY: In a SECSY society, a bad doctor can earn money by selling superfluous medicines. In
contrast, because a good doctor can readily cure a patient without selling unnecessary medicine, they
13
would not be able to earn much money. In a PICSY society, the patients’ income affects the doctors’
income. Therefore, if the patient gets well and contributes greatly to society, then the balance of the
good doctor’s bankbook increases. The bad doctor, because his patient will still be ill in bed, will have
less income than before.
14
2.2.2 Comparison with related works
Currency requirements In fact, PICSY fulfills two of the currency requirements as explained in
2.2.1. First, PICSY solves the difficulty of double coincidence of wants because people need not seek
barter trading partners. Paying by PICSY fulfills the want of trading partner. Second, PICSY is based
on self-referential convention. After accepting PICSY as a common currency, people use PICSY because
it is expected that the next receiver would accept PICSY. However, once PICSY becomes unacceptable,
people would not believe that PICSY is valuable.
Flow-based currency The value of PICSY is determined by past transactions. The effect of a past
transaction is calculated and visualized to people. Thereby, people can understand that the value of
PICSY is flow-based.
Alternative currency However, a large difference exists between PICSY and complementary curren-
cies. Complementary currencies are designed as an adjunct to the normal currency, rather than as a
replacement for it. Actually, PICSY is competitive with normal currency.
The following figure portrays how these currencies differ (Fig. 2.4).
SECSY
Volume of rent
emerged by
accumula5on
of currency
PICSY
LETS
0% 100%
Ra5o of investment transac5ons in all transac5ons
Figure 2.4. Comparison with other currencies: the X-axis shows the ratio of investment transactions
among all transactions. In LETS and other local currencies, there is no investment and the volume
of rent is zero. In SECSY, because a few investment transactions using accumulation of money, the
volume of rent becomes large. In PICSY, all transactions are investments. Therefore, the ratio is 1.
Furthermore, little rent exists because a person who has no capital can invest labor.
Investment is a fundamentally significant factor for modern economic activities. Therefore, LETS and
local currencies must depend on the national currencies which are applicable to investment. Because
every transaction is an investment in PICSY, PICSY promotes investment by itself.
15
2.3 Is PICSY human usable?
Because PICSY is a new type of currency, we must start this research from verifying the following
question ’is PICSY really human usable?’ In this section, software developments and workshops using
PICSY are introduced and human understandability and usability are verified.
2.3.1 PICSY demo: Verifying human understandability
In 2002, we developed demonstration software that simulates PICSY. The ”PICSY demo” uses a self-
evaluation method and can verify the constancy of the contribution vector (Fig. 2.5). The software is
written in Java code and runs as a Java applet.
Figure 2.5. PICSY demo
The user can configure the initial population, natural recovery ratio, and so on. People can be modeled
as producing goods and trading goods mutually and randomly.
The main motivation to develop this software was to solve difficulties in explaining PICSY in natural
language. It shows how the PICSY matrix evolves as time goes on. The software has been understood
by many people at exhibitions and research conferences.
Development processes of the software also provide a chance to produce some algorithms that sustain
the contribution vector. We defined some terms such as evaluation, contribution, purchasing power,
natural recovery and the budget constraint as we developed the software. These terms and algorithms
are explained in the next chapter.
16
2.3.2 Trading game workshop using PICSY Lite: Verifying human usability
The ”PICSY demo” was demonstration software with which users were able to understand the main
concept of PICSY. It was not designed for people to experience it. To solve this problem, we developed
a workshop method as a second step to verify its feasibility.
We held a workshop of the first type twice in 2005 at the NTT Inter Communication Center (Fig.
2.6). The workshop adopted online-game gumonji, an MMO environment simulator, and the basic idea
of the trading game.
Figure 2.6. PICSY Workshop at Inter-Communication Center
We held a workshop of the second type three times in 2006 at GLOCOM and NTT data. This workshop
used goods in an original trading game.
The trading game was a workshop method originally developed by U.K. NGO Christian Aid. The 18
participants were divided into six groups that took roles of countries. Two were developed countries,
two were developing; the last two were the poorest countries. Developed countries had scissors, a piece
of paper, and a scale. Developing countries had many pieces of paper. They were therefore resource
countries.
country type initial items
A developed 2 scissors, a piece of paper, a scale, a triangle ruler, 2 pens, 2 compasses, and 500 dollars
B developed 2 scissors, a piece of paper, a scale, a triangle ruler, 2 pens, 2 compasses, and 500 dollars
C developing 20 pieces of paper, a pen, a scale, and 500 dollars
D developing 20 pieces of paper, a pen, a scale, and 500 dollars
E poorest a piece of paper, a pen, and 500 dollars
F poorest a piece of paper, a pen, and 500 dollars
Table 2.1. Initial items of the trading game
The original trading game was designed to distribute initial money unfairly because it was designed
to illustrate a structural gap separating developed countries and the poorest countries. However, in our
workshop, every country was given 500 dollars to make the game more interesting.
Countries traded mutually and produced goods such as triangular paper pieces or square paper pieces.
They experience Pareto superiority because they cannot produce goods without tools and resources.
The market, which was operated by the workshop organizer, purchased their goods at the prices shown
below (Fig. 2.7). These prices were changed by the game master, who introduced new goods at times in
the middle of the game.
We performed trading game experiments using both PICSY and SECSY. The first session is held on
SECSY; the second is held on PICSY. To set up workshops, we developed a web application ”PICSY
Lite” written in Ruby on Rails (Fig. 2.8). It shows the propagation flow that a transaction induces.
After the workshop, PICSY Lite shows how propagation affects the ranking (Fig. 2.9).
The main purpose of the workshops was to verify the availability of PICSY through use by real people.
An eight-year-old girl was able to understand differences between the two currency systems. She enjoyed
17
13 cm circle 9 cm triangle 7×13 cm square
$ 80 $ 50 $ 40
Figure 2.7. Market goods price
Figure 2.8. PICSY Lite: The table shows an evaluation matrix, effects of PICSY, and the budget
constraint. The text line below the table represents a propagation effect flow of the latest transaction.
The market pays the green team for 45; the effect of the transaction propagates to the white team,
and so on.
18
Figure 2.9. PICSY Lite: How propagation affects the ranking: The left side of the application shows
the ranking with the PICSY effect. The right side of the application shows the ranking without the
PICSY effect. Participants can understand the effect of PICSY after the workshop.
the workshop. Some participants said that transactions with PICSY were more active than those with
SECSY because they were able to imagine the future effect of propagation and that such an expectation
encouraged transactions.
Developing processes of the workshop also provide us with a chance to improve how to explain PICSY.
’Contribution’ was renamed ’money’, and ’purchasing power’ was renamed ’usable money’. Furthermore,
the redenomination of the amount of evaluation and contribution was necessary because the decimal
fraction format was an unfamiliar term for currency.
19
Chapter 3
Models
During development of software and workshops explained in the preceding chapter, we established a
self-evaluation method, which is the basic model of PICSY. In this chapter, self-evaluation method is
introduced first. Moreover, the model of a virtual company, a central banking method, and a virtual
central banking method are discussed. They have not yet been verified at workshops. Three methods
are compared in the final section.
3.1 Static model as a general evaluation system
3.1.1 Static model as matrix calculation
Assume that a community comprising N members exists. I define an evaluation by person i to person
j as Eij . It is possible to generate a N × N matrix E (called an evaluation matrix). The matrix has the
following restrictions.
Eij ≥ 0 f or all i, j (3.1)

N
X
Eij = 1 f or all i, (3.2)
j=1
Those restrictions mean that the sum of evaluations of all members by person i is one. Consequently,
evaluations must be relative.
The eigenvalue λ and the eigenvector ĉ = (ĉ1 , ĉ2 , ...ĉN ) of matrix E has the following relation.
ĉE = λĉ (3.3)
From the Perron–Frobenius theorem, it is known that there exists at least one solution such that the
eigenvalue λ = 1,
c̄E = c̄ (3.4)
c̄i ≥ 0 f or all i
where c̄ is normalized so that its Euclidean norm is 1.

N
X
c̄2i = 1. (3.5)
i=1
20
We introduce a ”contribution vector” c, which is given as
c = µc̄
N
X
ci = N, (3.6)
i=1
where µ is a constant.
We can derive the contribution vector from an evaluation matrix at a community consisting of N
members. This method is a general method that calculates evaluations by the community when members
evaluate it mutually. Consequently, we label ci as the ”contribution” of person i to the community.
3.1.2 Static model as a Markov process
The contribution vector of the model is interpreted as the stable state of the Markov process. A
Markov process can be understood well using an analogy from a system of mutually connected water
tanks (Fig. 3.1). The system includes N tanks that are mutually connected with N × N pumps. All
water in tank i is pumped through pumps Eij f or all j at each step. Water in tank i at the next step
is filled with water which was pumped through Eji f or all j. Identical processes are executed for all
tanks. The whole process corresponds to multiplying a vector by E.
Figure 3.1. Fluid in three tanks is pumped from one to another
After execution of many steps, the volume of water into tank i and that out of tank i will be equal for
all i, as
N
X N
X
Eji cj = Eij ci = ci f or all i. (3.7)
j=1 j=1
This is called the stable state of the Markov process and the process is called the power method in
matrix calculation. The water volume of tank i corresponds to ci in eq.(3.6).
21
The water volume out of tank i into tank j is Eij ci ; it depends not only on Eij but also ci . Therefore,
an evaluation by a large contributor to society has a greater impact than that by a small contributor.
The evaluation Eij is weighted by person i’s contribution ci .
3.2 Dynamical model as a currency system (self-evaluation method)
Although the static model is applicable as a voting system or a system for reviewing peers, it is
impossible to use it as a currency system because the values of the matrix vary from hour to hour.
Therefore, we introduce the idea of transaction and derive a dynamical model. The members can carry
on usual economic activities through a transaction that changes the evaluation matrix. Moreover, the
contribution vector remains constant when a new member joins the community or when a member dies.
3.2.1 Introduction of transactions
To derive a dynamical model, we add the idea of a transaction to the static model. It enables realization
of a loop ”transaction → resolution of contributions ≈ purchasing power → transaction” in the real-time
world. Furthermore, PICSY supports fixed prices, which are necessary for usual economic activities.
Budget constraint and natural recovery The evaluation of s by b increases when a buyer b buys
t+1 t + α, in which t is a step number. +α means a counter
goods from a seller s. In other words, Ebs = Ebs
t+1
value of some kind. According to the condition (3.2), the sum of Ebj (j 6= s) must decrease by α.
It is assumed that α (increasing amount from b to s) is covered by evaluations of other members by
b. This assumption presents a problem because the members who are evaluated by b are damaged when
b makes a large purchase. Actually, b has no budget constraint and is therefore able to make a large
purchase; moreover, the contribution does not constrain his purchasing power.
A budget constraint is necessary to resolve this problem. We must decrease all evaluations slightly in
steps and add it as the budget constraint. I label this method as ”natural recovery”.
Three methods of natural recovery Three modes of natural recovery are available: the self-
evaluation method, the central bank method, and the virtual central bank method.
In the central bank method, the evaluation target of natural recovery is a specific actor, such as the
central bank (Fig. 3.2). In the virtual central bank method, the specific actor is virtualized. These
methods are explained in greater detail in later sections.
22
budget constraint
social a
e
minimum
Central
bank
d
b
Figure 3.2. Budget constraint of the central bank method
Self-evaluation method In the self-evaluation method, the budget constraints are stocked in self-
evaluation Ebb (Fig. 3.3).
budget constraint
a
e
d
b
Figure 3.3. Budget constraint of the self-evaluation method
23
That is
t+1 t
Ebb = Ebb + β, (3.8)
where β signifies the amount of natural recovery. Natural recoveries are done automatically once a day or
once an hour. In addition, β represents the sum of collection from everyone except b. This is apparently
a natural method:
t+1 t
Ebj = (1 − γ)Ebj f or all j 6= b (3.9)
t+1 t t
Ebb = Ebb + γ(1 − Ebb ), (3.10)
t ) becomes. We can
where γ is the natural recovery ratio. The larger Ebb is, the smaller β = γ(1 − Ebb
prove that the contribution vector remains constant after natural recovery.
Proof of constancy
t + γ(1 − E t ) t t
 
E11 11 (1 − γ)E12 ... (1 − γ)E1N
 t
(1 − γ)E21 t + γ(1 − E t ) . . .
E22 t
(1 − γ)E2N 
22
E t+1 = 
 
.. .. .. .. 
 . . . . 
t
(1 − γ)EN 1 t
(1 − γ)EN 2 t t
. . . EN N + γ(1 − EN N )
= E t + γ(I − E t ) (3.11)
in which I is the unit vector.
c̄E t = c̄ ↔ c̄(I − E t ) = 0
↔ γc̄(I − E t ) = 0
↔ c̄{E t + γ(I − E t )} = c̄
↔ c̄E t+1 = c̄ (3.12)
Therefore, E t+1 has the same contribution vector as E t .
Transaction We have finished the basic idea of a transaction. Budget Ebb is generated through natural
recovery. The members can evaluate others within this budget.
How to trade To be more precise, if person b buys goods from person s, the evaluation of s by b
increases for the counter value.
t+1 t
Ebb = Ebb −α (3.13)
t+1 t
Ebs = Ebs +α (3.14)
Although this conversion changes only two cells, it changes all contributions of members as described
below (Fig. 3.4).
Price determination Then how can α be determined? The price can be decided through mutual
consent as in a transaction in SECSY. Many pricing systems exist: market, auction, bid, and fixed prices
are the bases of every trade. Fixed pricing is possible in PICSY. It is in fact very important because it
is a benchmark for the order of preference.
24
1 2 3 4 5 1 2 3 4 5
1 0.1 0.2 0.15 0.3 0.25 1 0.1 0.2 0.15 0.3 0.25
2 0.3 0.2 0.1 0.1 0.3 2 0.3 0.2 0.1 0.1 0.3
3 0.3 0 0.15 0.35 0.2 3 0.3 0 0.15 0.35 0.2
4 0.2 0.25 0.3 0.2 0.05 4 0.3 0.25 0.3 0.1 0.05
5 0.2 0.1 0.25 0.3 0.15 5 0.2 0.1 0.25 0.3 0.15
contribution 1.0697 0.7756 0.9910 1.2677 0.8961 contribution 1.1737 0.7711 0.9773 1.1622 0.9157
Figure 3.4. A transaction changes all contributions
Fixed price The evaluation by big contributors is heavier than the evaluation by small contributors.
Therefore α cannot be a fixed price.
The fixed price must be determined using a method by which a seller can gain the same purchasing
power independent from who the buyers are. An increment of contribution c can be a fixed price because
the contribution is expected to transfer the purchasing power according to PICSY’s basic principle.
Namely, there is a relation
ct+1
s = cts + δ, (3.15)
where δ is the fixed price and t is time. Hereinafter, when time notation is omitted, we might consider
that a time step = t.
The approximate relational expression between δ and α is derived as
αcb α + Ebs
δ = (1 − ) (3.16)
1 − Ess 1 − Ebb + α
if no strong loop exists between a buyer and a seller.
Proof No strong loop exists. For that reason, the net input volume to b (which is obtainable by
cutting of the effect from the self-loop Ebb ) is invariant:
25
N
X
Ibnet = Eib ci − Ebb cb
i=1
(3.17)
XN
t+1 t+1 t+1 t+1
= Eib ci − Ebb cb .
i=1
The input volume is equal to the output volume, as shown in (3.7),
Ibnet + Ebb cb = cb (3.18)

Ibnet + (Ebb − α)ct+1
b = ct+1
b ; (3.19)
therefore,
1 − Ebb
ct+1
b = cb . (3.20)
1 − Ebb + α
The input incremental volume to the seller is the output incremental volume from the seller, as
α + Ebs
(Ebs + α)ct+1
b − Ebs cb = αcb (1 − )
1 − Ebb + α
= δ(1 − Ess ).
Consequently, δ is derived as
αcb α + Ebs
δ = (1 − ). (3.21)
1 − Ess 1 − Ebb + α
Therefore, the larger the seller’s self-evaluation, the lower the price it will be for the buyer: αcb (1 −
α+Ebs
1−Ebb +α ) is an increment of flow from buyer to seller. For that reason, the price is almost the increment
of inflow.
Purchasing power We define purchasing power as the amount of power that a buyer has relative
to an arbitrary seller. This amount is what is called ”gains” in the SECSY world; it would be natural
to define this as the value of Ebb Cb in a PICSY world. To obtain purchasing power, the buyer uses the
entire budget α = Ebb ,
1 − Ebb − Êbs
δ̂b = Ebb cb . (3.22)
1 − Êss
where δ̂b signifies the purchasing power, Êbs denotes the average of arbitrary Êbs , and Êss represents the
average of arbitrary Êss . Êbs → 0 if N → ∞.
The purchasing power is directly related to the contribution because cb signifies the contribution of
b. Actually, Ebb represents the self-evaluation and the budget constraint. It increases through natural
recovery and decreases when buying something. The purchasing power is directly related to the product
of Ebb and cb .
After a transaction, a buyer’s purchasing power decreases and a seller’s purchasing power increases.
The total purchasing power of the community decreases; it is recovered through natural recovery.
26
We can understand that Ebb is a ration ticket and that its unit value is directly related to a person’s
contribution to the community. Compared with a company’s shareholdings, if a company s has stock of
another company b, then the net asset value (NAV) of s includes the product of the share and the NAV
of b. The NAVs correspond to cb and cs , the share of stock b which s owns corresponds to Ebs , and the
company’s own stock corresponds to Ebb and Ess .
If every person issued their own stock and purchased goods using it, they would create a massive cross-
shareholding network. Those stock values would be determined dynamically through the network matrix
itself. Regarded in this light, PICSY is an extremely capitalistic system in which all people purchase
goods for stock, not for normal currency.
3.2.2 Adding and subtracting members
Member participation The use of a certain algorithm prevents the change of the contribution vector
and budget constraints of existing members before and after. In fact, these values do not change by
operation of the following matrix, when person N + 1 joins the community consisting of N members.
ct+1 = (c1 , ..., cN , 1), (3.23)

(1 − x)E12 (1 − x)E1N x(1 − E11 )
 
E11 ...
 (1 − x)E21 E22 ... (1 − x)E2N x(1 − E22 ) 
.. .. .. ..
 
E t+1 = .. . (3.24)
.
 
 . . . . 
 (1 − x)EN 1 (1 − x)EN 2 ... EN N x(1 − EN N ) 
PN
x(1 − E11 )c1 x(1 − E22 )c1 . . . x(1 − EN N )c1 1 − x(N − i=1 Eii ci )
P P
Eii ci Eii ci
In particular, when x = N1 , the budget constraint of the newcomer EN +1,N +1 = N = P
ci ,
which represents the weighted average of Eii .
Proof First we assume the following condition.
ct+1 = (c1 , ..., cN , 1), (3.25)

 
E11 (1 − x)E12 . . . (1 − x)E1N x(1 − E11 )
 (1 − x)E21 E22 . . . (1 − x)E2N x(1 − E22 ) 
 
E t+1 = .
.. .. .. .. ..
. (3.26)
 
. . . .
 
 (1 − x)EN 1 (1 − x)EN 2 ... EN N x(1 − EN N ) 
EN +1,1 EN +1,2 ... EN +1,N EN +1,N +1
Because the input flow to member 1 is the same before and after,
N
X
ct1 = c1 = E11 c1 + Ei1 ci , (3.27)
i=2
N
X
ct+1
1 = c1 = E11 c1 + (1 − x) Ei1 ci + EN +1,1 , (3.28)
i=2
the following expression is derived:

EN +1,1 = x(1 − E11 )c1 . (3.29)
27
Therefore, we can obtain the more general expression shown below.
EN +1,i = x(1 − Eii )ci (3.30)

PN +1
Because i=1 EN +1,i = 1, the following holds.
N
X +1 N
X N
X
EN +1,i = x ci − x Eii ci + EN +1,N +1
i=1 i=1 i=1
N
X
= xN − x Eii ci + EN +1,N +1
i=1
= 1 (3.31)
Then the following expression is derived:

N
X
EN +1,N +1 = 1 − x(N − Eii ci ). (3.32)
i=1
Death of a member Some members who are dependent on evaluations from a dead member might
sustain damage when the system excludes the dead member. The rule should be changed so that the
dead member would not be a target for natural recovery. Every evaluation by that person is constant;
thereby, the dead member’s contribution will fall close to zero. Then the system can carry the deceased
away from the matrix, and the attrition rate derived through this operation will be independent of the
members.
3.3 Companies and their virtuality
3.3.1 Necessity of companies
Only private individuals exist in the previous model. Therefore, they are unable to carry on large-scale
economic activities. Modern industrial development has only been made possible by large-scale economic
activities in companies. Consequently, if large-scale industrial activities become impossible, it becomes
impossible to apply PICSY to the modern real economic system.
Additionally, the existence of a company simplifies the interface of a transaction and reduces com-
plexity. It would indeed be too confusing if one would have to trade with every person involved in the
service, every time a service is received at a shop. Simplification of the interface cuts transaction costs.
From now on, a ’company’ signifies a specific meaning in PICSY. The ’company’ is the interface for
transaction; it shares out all evaluations for work behind it (Fig. 3.5). Evaluation by a person given to a
company is distributed to other persons and companies. This ’company’ does not discriminate external
vendors from company members.
Step 1 Company formation and investments If two founders a and b establish a company X,
then E aX
= E
EXb . The value of EXX is determined by founders arbitrarily (Fig. 3.6). The condition
bX
PN EXa
j=1 EXj = 1 is the same as that in the normal case.
28
b
0.2
b
0.2
0.3×
x
a
0.3 a
0.3×0.
c 8 c
0.8
company
Figure 3.5. Distribution of an evaluation by a company
0.4
founder
0.4 a
0.2
founder
0.2 b
e
0.1
x c
company
Figure 3.6. Step 1 Company formation
Step 2 Employment and purchase Transactions with the company are the same as transactions
under a normal scheme. The evaluation EXc and EXd must increase when company X employs person
c and purchases materials from person d (Fig. 3.7). Because budgets for both transactions are EXX ,
it decreases. Transactions between a company and another company are the same. This process means
that the company invests in its own business with capital.
29
0.1
founder
0.4 a
0.2
founder
0.2 b
e
0.1
x 0.2
employee
c
vendor
0.1 d
company
Figure 3.7. Step 2 Employment and purchase
Step 3 Selling Transactions with the customers are the same as in the previous case. Evaluation EeX
must increase when person e buys goods from company X (Fig. 3.8). The selling flow increases the
purchasing power of the company. It sets off expanded reproduction processes.
0.1
founder
0.4 a
0.2
consumer founder
0.2 b
e 0.05
0.1
x 0.2
employee
c
vendor
0.1 d
company
Figure 3.8. Step 3 Selling
30
The company budget constraint increases only at the time of natural recovery.
3.3.2 Virtual dissolution of a company
Dissolution of the company is another important topic related to its life cycle. Dissolution calculation
is necessary not only for actual dissolution but also for usual calculation of the contribution. Companies
have no contribution entities. Therefore, we must disband them to calculate people’s contributions (Fig.
3.9).
before dissolu,on a/er dissolu,on
Figure 3.9. Dissolution of the matrix through virtual dissolution of the company
Virtual dissolution must maintain some rules: the sum of contributions is conserved (conservation law);
a contribution from virtual dissolution can be added to the original personal contribution (superposition
principle); the algorithm is independent of the index (convertibility). An algorithm of virtual dissolution
that satisfies these rules is simple.
EXj
ÈXj = f or all j (3.33)
1 − EXX
Èij = Eij + EiX ÈXj f or all (i, j) (3.34)
The result is the same as the product of all evaluations for each path from person i to person j.
31
3.3.3 Total purchasing power
A company is always virtual. For that reason, founders a and b at step 1 merely entrust purchasing
power through entrusting a budget constraint. The total purchasing power of the society, which includes
a new company, remains unchanged.
Purchasing at step 2 is almost a group purchase. Founders can receive no unearned income with
company formation. Decreased volume of total purchasing power is the same as a normal purchase.
The company’s income from e at step 3 is distributed among all related parties. Not only founders
but also employees and vendors are investors in the PICSY world.
3.3.4 PICSY and SECSY
Virtual and real dissolution algorithms are identical. Therefore, a company in PICSY is virtual by its
nature.
In a normal currency (SECSY) society, people invest in companies, but can not invest in individuals.
Companies can accumulate capital through so-called industrial capitalism.
The opposite situation exists in PICSY society. Employees and vendors are treated as investors.
Companies are merely interfaces. Therefore, they can not be investees.
PICSY SECSY
company ×
individual ×
Table 3.1. Investee: PICSY and SECSY
3.4 Central bank method
The self-evaluation method includes a problem. Purchasing power depends on the volume of a buyer’s
self-evaluation, the volume of a seller’s self-evaluation and past transactions between a buyer and a seller
(equation 3.22). Although we can correct the effect, there exists a simpler solution to the problem. The
central bank method provides more sophisticated expressions.
3.4.1 Structure
If the population of a society is N , then we must set up an (N + 1) × (N + 1) matrix that includes

the central bank. In addition, i = 0 is allocated for the central bank.
Eii = 0 f or all i (3.35)

1
E0i = f or all i > 0 (3.36)
N
Therein, Ei0 is the budget constraint. Therefore, Eii must be zero. The sum of all flows to the
central bank is distributed to all members of the society. In fact, E0i provides basic contributions for all
members. They can be interpreted as a social minimum (Fig. 3.10).
32
budget constraint
social a
e
minimum
Central
bank
d
b
Figure 3.10. Structure of central bank method
3.4.2 Transactions
When a buyer b buys goods from a seller s, the transaction is calculated as
t+1 t
Eb0 = Eb0 −α (3.37)
t+1 t
Ebs = Ebs + α. (3.38)
Natural recovery changes the contribution vector as shown below.
t+1 t
Ebj = (1 − γ)Ebj f or all (j, b) (3.39)
t+1 t t
Eb0 = Eb0 + γ(1 − Eb0 ) f or all (j, b) (3.40)
In these equations, γ represents the natural recovery ratio; ct+1

0 is larger than ct0 . Therefore, some people’s
contributions decrease and poor people’s contributions increase because of the social minimum effect.
The form of the fixed price is simple.
ct+1
s = cts + δ (3.41)
Ist+1 = ct+1
s (3.42)
Is = cts
t
(3.43)
Ist+1 = Ist + αct+1
b (3.44)
In addition, because ct+1

b ≈ ctb is introduced, the fixed price δ = αctb . The purchasing power is Ebo cb .
33
Member participation The use of an algorithm can prevent change of the contribution vector and
budget constraints of existing members before and after. When person N + 1 joins the community made
up of N members, the following matrix does not change them.
 1 1 1 
0 N +1 ... N +1 N +1

 E10 0 (1 − x)E1N
... x(1 − E10 ) 
E t+1
= .. .
. .. .
. .
. , (3.45)
 
 . . . . . 
 EN 0 (1 − x)EN 1 ... 0 x(1 − EN 0 ) 
0 xc1 + ( 1−x 1 1−x 1
N − N +1 )c0 . . . xcN + ( N − N +1 )c0 0
ct+1 = (c0 , ..., cN , 1), (3.46)
N +1−c0
where x = (N +1)(N +1−2c0 ) .
Proof Assume the following condition.
 1 1 1 
0 N +1 ... N +1 N +1

 E10 0 . . . (1 − x)E1N x(1 − E10 ) 

E t+1 = .. .. .. .. ..
, (3.47)
 
 . . . . . 
 EN 0 (1 − x)EN 1 . . . 0 x(1 − EN 0 ) 
EN +1,0 EN +1,1 ... EN +1,N 0
ct+1 = (c0 , ..., cN , 1). (3.48)
Because the input flow to member 1 is the same before and after
N
c0 X
ct1 = c1 = + Ei1 ci , (3.49)
N
i=2
N
c0 X
ct+1
1 = c1 = + (1 − x) Ei1 ci + EN +1,1 , (3.50)
N +1
i=2
the following expression is derived.
1−x 1
EN +1,1 = xc1 + (− )c0 (3.51)
N N +1
Therefore, we can get a more general expression as shown below:
1−x 1
EN +1,i = xci + ( − )c0 f or all N + 1 > i > 0. (3.52)
N N +1
In that equation, i = 0 signifies central banking, as
N
X
ct0 = c0 = Ei0 ci , (3.53)
i=1
N
X
ct+1
0 = c0 = Ei0 ci + EN +1,0 , (3.54)
i=1
34
we derive EN +1,0 = 0.
Because N
P +1
i=1 EN +1,i = 1,
N +1
X N
EN +1,i = x(N + 1 − c0 ) + (1 − x − )c0
N +1
i=1
c0
= x(N + 1 − 2c0 ) +
N +1
= 1, (3.55)
the following expression is derived.

N + 1 − c0
x= (3.56)
(N + 1)(N + 1 − 2c0 )
Death of a member Natural recovery flattens the gap between rich people and poor people. The
contribution of dead members converges to the social minimum and the budget constraint increases. The
system removes the deceased after sufficient time so that anyone who receives a huge value flow from a
dead person suffers no negative effect.
Company Virtual dissolution of a company produces small self-evaluation loops, which are obstacles
to the central bank method. To resolve the problem, the system copies self-evaluations to the central
bank after normal virtual dissolution of company X as follows.
EXj
ÈXj = f or all j (3.57)
1 − EX0
Èij = Eij + EiX ÈXj f or all (i, j) (3.58)
Èi0 = Ei0 + E`ii f or all i (3.59)
Èii = 0 f or all i (3.60)
3.5 Virtual central bank method
3.5.1 Structure
By another central bank method, the central bank is virtualized. Consequently, the central bank has
no contribution element that decreases other members’ contributions when a natural recovery occurs.
Other members have self-loops because of virtual dissolution if the virtual central bank is a virtual
company. To resolve that problem, the virtual central bank should be personalized.
 
E11 E12 ... E1N
 E21 E22 ... E2N 
E= (3.61)
 
.. .. .. .. 
 . . . . 
E N 1 E N 2 . . . EN N
Therein, E is a evaluation matrix and Eii is the budget constraint, which represents virtual central bank
B,
35
 
E11 0 . . . 0
 0 E22 . . . 0 
B= . ..  . (3.62)
 
.. ..
 .. . . . 
0 0 . . . EN N
A new evaluation matrix E 0 is derived to distribute B,
BD
E0 = E − B + , (3.63)
N −1
 
0 1 ... 1
1 0 ... 1
D=. . . . , (3.64)
 
 .. .. . . .. 
1 1 ... 0
where D is the distribution matrix whose diagonal element is zero, which indicates that the self-loop is
also zero. Contribution vector c is derived from E 0 .
3.5.2 Transactions
When a buyer b buys goods from a seller s, the transaction is calculated as follows.
t+1 t
Ebb = Ebb −α (3.65)
t+1 t
Ebs = Ebs +α (3.66)
This is the same as the self-evaluation method. Natural recovery is also the same as the self-evaluation
method.
t+1 t
Ebj = (1 − γ)Ebj f or all (j, b) (3.67)
t+1 t t
Ebb = Ebb + γ(1 − Ebb ) f or all (j, b), (3.68)
In these equations, γ is the natural recovery ratio. Natural recovery changes the contribution vector.
Some people’s contributions decrease and poor people’s contributions increase because of the social
minimum effect.
The form of a fixed price is the same as central bank method δ = αctb . Purchasing power is Ebb cb .
Member participation One algorithm does not change the contribution vector and budget constraints
of existing members before and after. When person N + 1 joins the community made up of N members,
the following matrix does not change them:
36
N −1 1−E11
 
E11 ... N E1N N
 .. .. .. .. 
E t+1 =  . . . . , (3.69)
 
 N −1 EN 1 ... EN N 1−EN N 
N N
c1 cN
N ... N 0
N −1 E11 1
 
0 ... N E1N + N N
 .. .. .. .. 
E 0 t+1 =  . . . . 
, (3.70)

 N −1 EN 1 + EN N
... 0 1 
N N N
c1 cN
N ... N 0
t+1
c = (c1 , ..., cN , 1). (3.71)
Proof Assume the following condition.
 
E11 . . . (1 − x)E1N x(1 − E11 )
 .. .. .. .. 
E t+1 =  . . . . , (3.72)
 
 (1 − x)EN 1 ... EN N x(1 − EN N ) 
EN +1,1 ... EN +1,N EN +1,N +1
. . . (1 − x)E1N + EN11 x(1 − E11 ) + EN11
 
0
.. .. .. ..
.
 
E 0 t+1 = 
 . . . 
, (3.73)
 (1 − x)EN 1 + EN N EN N 
N ... 0 x(1 − EN N ) + N 
EN +1,N +1 E
EN +1,1 + N . . . EN +1,N + N +1,N
N
+1
0
t+1
c = (c1 , ..., cN , 1). (3.74)
Because the sum of input flows to a new member cN +1 = 1,
N
X Eii
ct+1
N +1 = [x(1 − Eii ) + ]
N
i=1
N
1 X
= xN + ( − x) Eii ci
N
i=1
= 1, (3.75)
the following expression is derived:
1
. x= (3.76)
N
Because the input flow to member 1 is the same before and after, then
N
X Eii
ct1 = c1 = (Ei1 + )ci , (3.77)
N −1
i=2
N
N −1X Eii
ct+1
1 = c1 = (Ei1 + )ci + EN +1,1 , (3.78)
N N −1
i=2
37
and the following expression is derived:
c1
EN +1,1 = . (3.79)
N
More generally,
ci
EN +1,i = . (3.80)
N
PN +1
Because i=1 EN +1,i = 1,
N
X
EN +1,N +1 = 1 − EN +1,i
i=1
N
X ci
= 1−
N
i=1
= 0. (3.81)
Death of a member An identical effect can be achieved using the same process of the central bank
method when the system must subtract one member.
3.6 Comparison of three methods
The following table (Table 3.2) compares the three methods. Compared with the self-evaluation
method, the central bank method differs in seven ways.
Two good points of central bank method
• The buyer’s contribution does not change before and after transaction.
• The forms of fixed price and purchasing power are simple.
Three neutral differences of central bank method (dependent on preference)
• The budget constraint of a new member is 0. It increases after natural recovery.
• There exists a social minimum.
• Natural recovery for a dead person is different.
Two bad points of the central bank method.

N
• If C0 > 2, then the natural recovery decreases the total purchasing power.
• The total contribution is changed after a transaction or natural recovery.
The virtual central bank method remedies these two bad points. Therefore, the virtual central bank
method is the best method in these three methods except for the preference.
38
type of method
operation attribute type member type self-evaluation method central bank method virtual central bank method
αcb α+Ebs
fixed price 1−E
(1 − 1−E +α
) αcb αcb
ss bb
purchasing power Ebb cb 1−Ebb−Êbs Eb0 cb Ebb cb
1−Êss
seller → → →
budget constraint buyer & & &
total & & &
seller % % %
buyer & → →
contribution near seller % % %
transaction near buyer & → →
total → % →
seller % % %
buyer & & &
purchasing power near seller % % %
near buyer & → →
total & & &
availability living available available available
dead not available available available
rich % % %
budget constraint poor % % %
total % % %
dead → % %
rich → & &
natural recovery poor → % %
contribution total → & →
dead & & &
near dead & & &
rich % % or & % or &
purchasing power poor % % %
total % % or & %
1 − x(N − N
P
budget constraint new member i=1 Eii ci ) 0 0
old member → → →
contribution new member 1 1 1
member increase old member → → →
purchasing power new member x(N − 1)× 0 0
(1 − x(N − N
P
i=1 Eii ci ))
old member → → →
Table 3.2. Comparison of the three methods: ’→’ means that the operation does not change a person’s
attribute value; ’%’ means that the operation increases the person’s attribute value; ’&’ means that
the operation decreases the person’s attribute value; ’near seller’ means people who receive value
flow from the seller; ’near buyer’ means people who receive value flow from the buyer; ’rich’ means
that a person’s contribution is greater than one; ’poor’ means that a person’s contribution is less
than one; ’near dead’ means people who receive value flow from the dead person.
39
Chapter 4
Applications
Although PICSY is designed for a general purpose currency, it is also applicable for specific purposes.
In this chapter, the possibilities of three applications are discussed.
4.1 Personnel evaluation system
PICSY can also be used for personnel evaluation systems in a company. All members evaluate each
other, and the result including the value propagation effect is calculated using a matrix. Because of
the effects of the value propagation, an evaluation by a highly evaluated person is heavily weighted.
An administrator can then determine their compensation using those values. Although many personnel
evaluation ideas exist, PICSY received higher evaluations from members of the company because highly
evaluated people’s opinions of others are highly weighted. Moreover, it is difficult to evaluate cross-
border contributions using other traditional personnel systems, but PICSY can be used for evaluating
them, which yields strong incentives for contributions from a more global viewpoint, and can change
communication dynamics in the company. The method is particularly useful for personnel evaluation of
a joint company project.
The first PICSY-type personnel evaluation system was used by the PICSY demo development project
of Exploratory Software Project in 2003.
Hatena Corp., a Japanese internet company, has been using a PICSY-type evaluation system since
2005. The PICSY Lite source code, written in Ruby, was presented to Junya Kondo (CEO, Hatena
Corp.), who ported it to Perl. Steps of the evaluation process are explained below.
1 All members of the company evaluated each other using a spreadsheet (Fig. 4.1). Hatena had 14–25
members. They had to spend half a day preparing evaluations of others. The sheet has rows corresponding
to each member and has columns for an evaluation point, main tasks, merits, and improvements. They
must grade all members on a scale of 1–100. The top person’s score must be 100; other scores are then
normalized to it.
2 A score vector is normalized so that the sum of a list is one. All score vectors are combined. Thereby,
an evaluation matrix is produced.
3 Software calculates the contribution vector. The company distributes a proportionate rate bonus.
40
Figure 4.1. Evaluation sheet used at Hatena
4 The score of a person is revealed only to herself. Therefore, no member knows any other person’s
score. Top ranking is opened for all members.
The members of Hatena Corp. valued the result of a PICSY-type evaluation system at convincing
appraisal. The Hatena Corp. management team values this system highly and continues to use it.
However, the result is too convincing for people at the bottom of the ranking. They felt the result is too
harsh and tended to lose self-confidence.
Additionally, it will be possible to apply the personnel evaluation system to knowledge and task
exchange systems in the company.
4.2 Open contents: remix chain and value propagation
Information goods and knowledge are the best goods for ready application of PICSY. Information
is replicable by its very nature. Therefore, it is difficult to name a price initially. The problem will
disappear if a price accords with the goods value for customers. However, if a price accords with the
goods production cost and if the primary material is also an information good, how can the price of the
primary information material be determined?
Information goods can be remixed easily. That consequently produces a remix chain as the open source
and open contents movements proved. Information goods cannot be priced before remixing and reuse.
The value will propagate back through a remix chain, which is the reason why a good chemistry exists
between information goods and PICSY.
We are developing a remixing t-shirt web service—’tmix’—by which users can track ancestors (Fig.
4.2). Because a remixed content is an investment in a remixing content, drop shipping revenue should be
distributed as an investment return through the opposite direction of the remix chain. The distribution,
which is called back propagation of value, will be implemented in the future (Fig. 4.3).
The original concept of tmix was developed through the C-shirts project: a joint project with Creative
41
Figure 4.2. Remixing t-shirt designer: the t-shirt is merely an example of turning digital contents into
money
Commons Japan. We have held several workshops at conferences such as Wikimania2007 in Taipei,
iSummit 2007 in Dubrovnik, iSummit 2008 in Sapporo, and Mozilla 24 in Tokyo to demonstrate the
efficiency of the concepts.
4.3 On-line game currency
Actually, PICSY is applicable to legal currency, local money, online game currency, and so on. However,
it will be difficult to apply it to a legal currency because of its influence. Therefore, we must manage it
as a local currency or an online game currency at first and monitor problems that might arise.
In particular, multi-user online games will enable us to manage large-scale PICSY with ease. In fact,
PICSY resolves some problems of traditional currency systems in online games.
First, PICSY curbs inflation. In most online games, the money supply increases to infinity when players
trade natural objects with non-player characters. In contrast, the money supply is related directly to the
number of players in PICSY.
42
remix
part of value
remix
part of value
value
Sold through drop shipping
Figure 4.3. Back propagation of value through the remix chain
Second, a seller has an incentive to satisfy a buyer to continue playing the game. In most online
games, it is more difficult to verify the quality of goods than in everyday real life. Therefore, the seller
has a positive incentive to sell poor quality goods if the buyer is a beginner. However, in the game using
PICSY, a seller has a strong incentive to sell high-quality and useful goods because of the investment
effect.
43
Chapter 5
Discussion
5.1 Problems and solutions of installing PICSY
• Cheat registration: Only new member registration creates a new contribution. Therefore, birth and
registration have immense value. In that regard, PICSY offers a strong incentive to register false
births and not to report deaths. It is difficult to prevent people from false registration merely with
PICSY itself. A state that employs PICSY must have strong administrative power to determine
the population accurately.
• Cheat transaction: Search engine optimization (SEO) is a common marketing practice in recent
days. Link farming is one SEO cheat method. A link farm is any group of web sites that all
hyperlink to every other site in the group. Markov processes accumulate value into the link farm.
Google penalize sites that participate in link farming, thereby preserving a fair ranking system.
However, because budget constraints exist in PICSY, an SEO-like cheat would be difficult.
• Credit creation: Credit creation is a vital way for sufficient money supply. The money supply must
increase along with economic growth. The money supply in PICSY is the same as the number of
accounts N . The only way to execute money creation is through registration of new participants.
The possibility exists that PICSY cannot adapt the money supply to economic growth without
population change. Internalization of the external economy is one situation without population
change. To adapt it, re-normalization to γN is required. However, another theoretical breakthrough
is necessary to determine the appropriate value of γ.
• Destabilization of microeconomic activity: Settlement cuts off economic relations. Although this
has a negative meaning from our perspective, relation cutting stabilizes microeconomic activity
because it prevents value from being lost through negative back propagation. Actually, PICSY
can make a SECSY-like currency using a company system. An ’assurance company’ aggregates
value flows from its members and becomes an alternative payer. The assurance company flattens
members’ risk.
• Freedom of individuals: Education is a valuable service in PICSY because education to young

talented children would produce huge value. Talented children would receive their education, but it
would be difficult to escape from expectations by contributors. In business-to-business transactions,
sellers do not take care of buyer’s final products because sellers need not take risks. This mental
state decreases transaction costs and promotes risk-taking innovation in the final products. Sellers
who do not want to assume risk should trade through an ’assurance company’.
44
• Freedom to exit: Actually, PICSY is a registration-type currency. Therefore, people are highly
involved in the system. Exiting must be permitted if we accept that anyone should have the
freedom to exit from any social system.
• Gap between rich and poor people: Whether the gap between rich and poor would be smaller or
larger than under a SECSY system is an open problem. Societies that offer a second chance at
success are desirable. It would be difficult for poor people to take a second chance if the gap were
too large. All transactions are investments in PICSY. Investments promote the gap between the
rich and the poor in general, but in a PICSY society, people who have little money can still invest
in kind in others. We can set a social minimum with PICSY, as explained in Chapter 3. The
results depend on parameter tuning.
5.2 Distributed type models
No one person can crack the whole currency system in SECSY. However, PICSY is a unitary database
system, which presents security risks. Some distributed types are PICSY models, as described below.
Real-time PICSY From now on, we will call the basic model ”dual-time PICSY”. Dual-time PICSY
has two time levels. One is real-time; the other is the Markov process time. Dual-time PICSY wastes
much computational time because resolving a stable state of the Markov process is costly.
The real-time PICSY does not resolve the stable state; rather it coheres to two time levels. It is merely
a Markov process that is represented in real time. Distributed processing is possible.
Propagational Investment Account (PIA) Propagational Investment Account (PIA) is an ac-

counting system that includes a basic concept of PICSY ”value propagation”. Imagining a PIA as the
settlement currency account in a bank such as yen and dollars. This account differs from the normal
account in one point. A constant rate of receiving is always transferred to the other account. A part of
the transferred value propagates to another account if the transferred account is also a PIA. Propagations
end up when a transferred account is not PIA or when a propagation value is smaller than its currency
unit.
5.3 Large-scale optimization
Dual-time PICSY uses a huge amount of calculations because it necessitates matrix calculation and its
matrix is not sparse. Memory capacity is another problem because a million-member PICSY necessitates
the use of at least 800 GB memory. Several methods present themselves to resolve these problems.
First, it is possible to expand the capacity without changing the core algorithm. The power method
is faster than resolving an analysis solution.
Second, if we made the matrix sparser, it would need less computational power. However, to do that,
we would have to change core methods, which presents a challenging problem.
Third, the real-time PICSY does not calculate the stable state. It is an ongoing Markov process.
For that reason, its computational cost is low. Furthermore, distributed computing over the internet is
possible.
Fourth, PIA does not calculate a stable state. It is merely a settlement accounting system. No
interference occurs in its implementation.
45
5.4 Soft launching
Revolution is one way to replace a social system. It is rarely achieved successfully, as evidenced by
the ultimate failures of the French Revolution or socialist revolutions. For that reason, soft launching is
desirable. Some conditions necessary to accomplish soft launching exist.
Start small It is an adequate way to start from a small community such as an online community,
online game, company, or local community.
Co-existence with SECSY Assuming a situation without SECSY is a distant idea. Instead, PICSY
should co-exist with it. For that reason, we must develop a currency exchange between PICSY and
SECSY. It is not a trivial problem whether PICSY could survive in such a system.
Co-existence with social sub systems In fact, SECSY has developed social sub systems over thou-
sands of years: accounting, tax, insurance, finance, etc. Developing an interface with social sub systems
is necessary. Co-existence is left as a subject for future study.
Easy to understand and use Even an eight-year-old child can understand and use PICSY. It would
be a respectable accomplishment to install it in a real social system. The author developed it based on
a simple illustration that was created to explain the effect of back propagation. A good way to develop
interaction designs would be visualization of the effects using game-like techniques.
5.5 Advancement of fairness
’How much you can buy depends on how much contribution you have made to the society.’ This is
reciprocity principle in this study. In other words,
purchasing power ∝ contribution
is the desired state of reciprocity. In fact, PICSY is based on this reciprocity principle. Therefore,
for this study, fairness is defined as ’the state in which purchasing power is correlated with a person’s
contribution to the community’.
The reciprocity principle generates two issues, ’how to measure the contributions’ and ’how to provide
purchasing power in proportion to the contribution’. The second was explained in prior chapters. The
first is examined here.
It is usually interpreted that a person’s property is representative of their contribution to the commu-
nity, but such is not always the case because of inheritance. Nevertheless, it is indeed natural to think
that a person who buys goods for 80 dollars and then sells them for 100 dollars has added a value of
20 dollars to the goods through location of a buyer with a greater need for the goods. That person’s
contribution to the community is 20 dollars. He can get 20 dollars’ purchasing power for that effort.
This interpretation supports the economic ethic of modern economics.
However, this is not the correct contribution for the following reasons: 1) PICSY is fairer because
PICSY calculates the contribution through the use of value propagation. 2) All transactions are invest-
ments in PICSY; it is difficult to increase rents, which are excess profits earned from market imperfections.
46
5.5.1 1) Micro view
Numerous transactions are made in the world, but these are not independent phenomena. To produce
goods, the producer must use many goods for parts and materials. These goods themselves are products
composed of other goods. This is a very complicated inter-industrial relation. Consequently, the profit
of each company does not represent the contribution to the whole society.
For example, the existing manufacturing industry has a hierarchical structure of contractor, sub-
contractor, sub-sub contractor, and so on. No guarantee exists to propagate its effect if the original
contractor turns a big profit because of the sub-contractor’s effort. The original contractor gains the
rent.
Because of value propagation, no such rent exists in the PICSY world. The direction of contribution
flow is the opposite of the value propagation.
contribution flow: sub-sub contractor ⇒ sub contractor ⇒ original contractor ⇒ consumer

value propagation: sub-sub contractor ⇐ sub contractor ⇐ original contractor ⇐ consumer
The inter-industrial relation is a contribution network. In fact, PICSY supports correlation of the
purchasing power to the contribution through value back-propagation corresponding to the contribution.
5.5.2 2) Macro view
All transactions are categorized as either investment transactions or non-investment transactions,

which are normal transactions. The present economy includes transactions of two types. Consequently,
rents emerge. Investment transactions have rents that originate from non-investment transactions whose
rents are zero. Therefore, if only investment transactions exist, it is more difficult to generate a rent
because rents need some non-investment transactions which are sources of rents. As explained before,
because all transactions are investments in PICSY, no rent exists (Fig. 5.1).
One example of an all non-investment transaction economic system is the Local Exchange Trading
System (LETS), which is one type of local currency. Actually, LETS is well suited to a simple life
that requires only primary products, but is not well suited for the present industrial society in which
production relations are complex.
Although PICSY is applicable to a society with highly specialized labor, rents are small. Investors
exist in the PICSY world, but every producer and seller is an investor in it; thereby, investors with
capital have no privilege of gaining the rent. All profits gained through the sale of goods feed back to all
contributors through the chain of manufacture.
5.6 Improvement in productivity
As described in the previous section, if the original contractor gains a profit because of rent, laborers
apply for jobs from the original contractor. The sub-contractor cannot employ laborers a sufficient
quality, thereby the optimal allocation of human resources is not entirely realized. Rents are decreased
in the PICSY world. Therefore, human resources are allocated optimally, and productivity will improve.
Nevertheless, some people will infer that transactions costs in the PICSY world are greater than in
a SECSY world and productivity will decline. Everyone must calculate the investment effects in the
PICSY world. Optimization of resource allocation might occur at a slower pace.
However, it is also reasonable to consider that calculating the effects of investment is necessary to
improve productivity. From this perspective, PICSY improves productivity.
47
SECSY
Volume of rent
emerged by
accumula5on
of currency
PICSY
LETS
0% 100%
Ra5o of investment transac5ons in all transac5ons
Figure 5.1. Relation between the ratio of investment transaction and the rent
5.7 Virtualization of organization
In SECSY, members in an organization will seek maximization of the organization’s profit based on
the assumption that a company exists for maximization of shareholders’ profits. The member’s share
of profits is awarded indirectly as a reward from the company profit. This assumption implies that the
balance sheet is the local target function for them; it deviates from the target function of the whole
society. Under such circumstances, they can increase their profits by decreasing contributions to the
whole society.
Actually, PICSY orients virtualization of organization from the nature of the currency system. The
company is merely an interface. Companies are always dissolved. Therefore, company members seek to
raise their contributions because cross-border contributions transfer their incomes. This property induces
strong incentives for multiple affiliations, ad-hoc affiliations, and ad-hoc organizations.
This effect will decrease by half if the personnel evaluations in an organization are the same. We must
therefore seek a seamless merger of a ”virtual company” and ”personnel evaluation system”.
5.8 Transformation of communication dynamics
The introduction of PICSY is expected to transform microcommunications in our economic society.

Microcommunications can include attitudes in daily business meetings, troubles, and the appearance of
new technology.
First, sales are investments in PICSY. Considering the relation between an original contractor and a
sub-contractor, the original contractor is a patron for the sub-contractor in SECSY. On the other hand,
the subcontractor is an investor in the original contractor in PICSY, which improves the balance of
power and healthy communications. Moreover, they start trying to maintain their responsibility after
the transaction. Thereby, such a relation might foster economic ethical behavior.
48
Second, the virtualization of the organization has the effect that people can support good things merely
because they are good. They will not act merely for the logic of their own organization but will act on
behalf of the interests of all.
5.9 PICSY as an extended consolidated accounting system
PICSY is a currency system with which all transactions are investments, not just normal settlements.
An overall system would resemble PICSY if people were to issue their own stock and pay debts with it.
Currently used consolidated accounting systems use a similar calculation. A company consolidates a
share of another company’s net asset value (NAV) in the consolidated accounting system. Contribution
Cb corresponds to NAV and the evaluation from buyer to seller Ebs corresponds to the seller’s share of
the issue which the buyer has issued.
In PICSY, all people issue their own stock and make transactions using this stock. Thereby, the whole
system builds a personal evaluation system.
5.10 PICSY as a worldwide personnel evaluation system
The contribution in PICSY is the barometer of how many people a person supports. For example,
a person whose contribution is 1 has social self-sufficiency. A person whose contribution is 2 supports
another person in addition to herself.
We normally apply personnel evaluation only in a company. Companies in PICSY are virtual. There-
fore, value propagation passes beyond the company’s border and enables people to evaluate each other
because of or in spite of their affiliations.
The contribution in PICSY is fair for every nation state. An international PICSY might decrease
the imbalanced international economic problem that is currently increasing because of globalization.
It is difficult to replace the current legal currency system because we have developed an institutional
ecosystem over so many years. It might take hundreds of years to replace it.
5.11 Measurement of SECSY advantages
Fundamentally, PICSY and SECSY must share a competitive relation, as Hayek discussed. In fact,
PICSY is suitable for use in a society whose economic network is tight. In a modern economic society,
supply chains are connected intricately. No one can live her life alone.
As explained in this paper, SECSY cuts economic relations. Although this property is presented as a
disadvantage, some people might insist that this is also interpreted as an advantage because people are
able to manage a risk and can create long-term plans in SECSY.
Actually, a firm must manage numerous risks such as exchange risk, market risk, climate risk, legal
risk. In addition to these risks, PICSY affects a client-portfolio risk. In fact, the only difference between
PICSY and SECSY is client-portfolio risk. This risk is limited because there exists no unlimited-risk
liability but a limited-risk investment in PICSY.
The client-portfolio risk depends on how a company depends on the largest client of the company. The
company depends on the client if the largest client’s share of a company’s sales is 30%. However, in this
case, the client-portfolio risk is sufficiently large in SECSY. The difference generated by the currency
system is small. The client-portfolio risk of the company is sufficiently small if the largest client’s share
of a company’s sales is 0.3%. The company must manage it if the largest client’s share of a company’s
sales is 3%.
49
Furthermore, SECSY-like currency can be made in PICSY using a virtual company. People set up a
payment company. Buyers become company members, and the company pays an evaluation to a seller.
The seller’s risk is diversified into all buyers (Fig. 5.2).
a
0.3 0.8 c
buyers x sellers
b
0.2 0.2 d
Payment company
Figure 5.2. Payment company
In short, the affected companies are limited. There exists a management way to avoid risk.
What are likely to be the influences upon innovation? Actually, the appearance of stock companies
promoted innovation because they obviated founders’ and investors’ risks of unlimited liability. In PICSY,
the effect of sales is zero at the worst because there exists no negative element in an evaluation matrix.
Therefore, founders and employees need not assume a risk of unlimited liability but instead take a limited
risk. Furthermore, people can expect unlimited success at best. Everyone is an entrepreneur in PICSY.
5.12 Future works: gradual society
Historically, the 20th century is the era during which our societies became segmentalized by organiza-
tion. Although some people say that social structures are being flattened by information technology, this
is not true. Organizations will remain necessary because organizations realize a cognitive ability that
isolated humans can not realize.
Actually, virtualization of organizations will alter the basic incentive by which members of an orga-
nization must affiliate. I would like to illustrate the future change and clarify the confusion that might
have been introduced in the discussion above. The following equation is a sigmoid function whose shape
is altered by λ.
2
f (λ, x) = −1 (5.1)
1 + e−λx
Step functions portray the world in which we live now. We belong to an organization and distinguish
friends from foes (Fig. 5.3). A flat function is what some visionaries conceptualize for the future (Fig.
5.4). However, the author believes that a gradual function is the most likely scenario (Fig. 5.5).
50
Figure 5.3. Step function: λ = 109.5
Figure 5.4. Flat function: λ = 0.0
Figure 5.5. Gradual function: λ = 22
Actually, PICSY makes organizations more gradual, but it is based on anthropocentrism and indi-
vidualism because no animals use PICSY and individuals are indivisible. Both isms presented above
promote step functions. The following ideas represent solutions for the problem. They are large-scale
future works.
Currency for all lives PICSY makes society gradual, but its membership is restricted to human
beings. The economy and ecosystem are strongly united. Therefore, as a next step, we must make the
human–animal border more indistinct.
Dividual democracy Modern democracy is based on individualism. However, An individual has

many individuals in her own brain and body. One-person one-vote is too simple a rule to coordinate
complicated political issues in modern society.
For example, the United States presidential election affects many people who are not permitted to
vote. A person’s only available means of affecting U.S. policy is to vote in their own country’s elections
and to gamble on international diplomacy to impart some influence on U.S. policy. This is too indirect to
51
affect U.S. policy. Direct democracy and indirect democracy should be united in a more gradual concept.
52
Glossary
human computing and human computer Human computing, a term coined by Luis von Ahn, is
a field of study in which computational elements are real humans. Human computer is a job title whose
work is to compute. Before World War II, almost all computers were humans. For that reason, historians
describe them as human computers.
Turing test In a paper[34] published in 1950, Alan Turing proposed an imitation game, which is a
test to identify a machine’s ability to demonstrate intelligence. In a Turing test, a human judge engages
in a natural language text-based conversation with one human and one machine, each of which tries to
appear as human. All participants are placed in isolated locations. The machine is said to have passed
the test if the judge cannot reliably tell the machine from the human.
prediction market It is a market for making predictions. The market price generally includes the
prediction of the future events. Using this property, a market organizer can determine the collective
intelligence of the market. Iowa Electronic Markets is the first prediction market and the market has
predicted over 1000 elections in the United States. The prediction market provides superior results to
those of public opinion polls 74 percent of the time.
rent Rent is the excess profit generated by an imperfect market. It is the difference between what a
factor of production is paid and how much it would have to be paid to remain in its current use. In
PICSY, rent generated by capital would be decreased because every laborer plays a capital role in the
market.
investment in kind We normally invest money. When we invest some good or service instead of
money, this is an investment in kind.
social minimum The social minimum is defined as the resources that a person must live and cope
with a minimally decent life in their society. When a government secures a social minimum of every
member, it is called a guaranteed minimum income.
PICSY and SECSY The Propagational Investment Currency SYstem (PICSY) is a new currency
system in which all transactions are fundamentally investments. Thereby transactions create a value
chain. Settlement Currency SYstem (SECSY) is a normal currency system in which all transactions are
fundamentally settlements.
consolidated accounting When a company holds stock of another company, accounting information
of these two companies can be consolidated to calculate the accounting of the shareholder company. This
procedure is called consolidated accounting.
53
Net Asset Value (NAV) The Net Asset Value (NAV) is the value of company’s assets net of its
liabilities. The left side of a balance sheet typically shows assets. However, the asset value includes a
company’s liabilities; it therefore does not present real assets. Liabilities are usually at the top of the
right side of the balance sheet. Thereby, NAV is presented in the bottom of the right side of the balance
sheet.
Liabili*es
Assets
Net Asset Value
(NAV)
Figure 5.6. Net Asset Value in a Balance Sheet
Search Engine Optimization (SEO) Search Engine Optimization is the improvement process of
traffic volume to a web site from search engines.
credit creation Credit creation is the process of money creation generated by bank lending.
54
Appendix: Relation between Google
PageRank and PICSY
In this appendix, after describing Google PageRank, the relation between PageRank and PICSY can be
explained as shown below.
Google PageRank
This section is the summary of a paper ’The PageRank Citation Ranking: Bring Order to the Web’[24].
Google calculates the importance of web sites using the web links network.
Figure 5.7. Simplified PageRank Calculation
Let u be a web page. Then let Fu be the set of pages u points to and Bu be the set of pages that point
to u. Let Nu = |Fu | be the number of links from u and let c be a factor used for normalization (so that
the total rank of all web pages is constant). R is a slightly simplified version of PageRank:
X R(u)
R(u) = c . (5.2)
Nv
v∈Bu
55
Let A be a square matrix with rows and column corresponding to web pages. Let Au,v = N1u if there is
an edge from v to u, and Au,v = 0 if not. If we treat R as a vector over web pages, then we have R = cAR.
Therefore, R is an eigenvector of A with eigenvalue c. In fact, we want the dominant eigenvector of A.
It might be computed by repeatedly applying A to any nondegenerate start vector.
A small problem is associated with this simplified ranking function. Consider two web pages that
point to each other but to no other page. Furthermore, presume there is a web page which points to one
of them. Then, during iteration, this loop will accumulate rank but never distribute any rank (because
there are no outedges). The loop forms a sort of trap which we call a rank sink.
Figure 5.8. Loop Which Acts as a Rank Sink
To overcome this problem of rank sinks, we introduce a rank source E (this E is not an evaluation
matrix in PICSY but a rank source in PageRank).
Let E(u) be some vector over the web pages that corresponds to a source of rank. Then, the PageRank
of a set of web pages is an assignment, R0 , to the web pages which satisfies
X R0 (u)
R0 (u) = c + cE(u) (5.3)
Nv
v∈Bu
such that c is maximized and kRk1 = 1(kRk1 denotes the L1 norm of R0 ) .

If E is all positive, then c must be reduced to balance the equation. Therefore, this technique cor-
responds to a decay factor. In matrix notation, we have R0 = c(AR0 + E). Because kRk1 = 1, we can
rewrite this as R0 = c(A + E × 1)R0 where 1 is the vector consisting of all ones. Therefore, R0 is an
eigenvector of (A + E × 1).
The definition of PageRank above has another intuitive basis in random walks on graphs. The simpli-
fied version corresponds to the standing probability distribution of a random walk on the graph of the
web. Intuitively, this can be conceptualized as modeling the behavior of a random surfer. The random
surfer simply keeps clicking on successive links at random. However, if a real web surfer ever gets into a
small loop of web pages, then it is unlikely that the surfer will continue in the loop forever. Instead, the
surfer will jump to some other page. The additional factor E can be viewed as a mode of modeling this
behavior: the surfer periodically ”gets bored” and jumps to a random page that is chosen based on the
distribution in E.
So far we have left E as a user-defined parameter. In most tests, we let E be uniform over all web
pages with value. However, different values of E can generate ”customized” page ranks.
56
PageRank and PICSY
If web sites correspond to humans and web links correspond to transactions, then PageRank has the
same mathematical structure as PICSY. A matrix A in PageRank corresponds to a matrix E in PICSY
and an eigenvector R0 in PageRank corresponds to an eigenvector c in PICSY.
A distribution matrix D in the virtual central bank method of PICSY corresponds to a rank source
E in PageRank. In PageRank, the rank source E is interpreted as the random distribution of the web
pages that a random surfer periodically jump to. In the PICSY framework, the distribution matrix
D can be interpreted as random contribution to the society and social minimum. PICSY contribution
is interpreted as fhuman rankf, and therefore PICSY is world-wide personnel evaluation system using
collective intelligence. PageRank can be used as money.
57
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Propagational Investment Currency SYstem (PICSY):

Proposing a New Currency System Using Social Computing

1 The Concepts of Computation 2

2 The Importance of Propagation 7

Appendix: Relation between Google PageRank and PICSY 54

The Concepts of Computation

1.1 From the computer history perspective

1.1.1 Human Computing

1.1.2 When computers were human

1.2 Designing social systems using computer technology

The Importance of Propagation

2.1 Related work on currency

2.1.1 Currency requirements

W. Jevons, Money and the Mechanism of Exchange [13]

2.1.2 Flow-based complementary currencies

• cost of service - from the community for the community.

Figure 2.1. How LETS works

• consent - results in the ”flat start” of all accounts.

• disclosure - to ensure informed action by users

• equivalence to the national currency

2.2 PICSY: a flow-based alternative currency

2.2.1 Introduction of PICSY

A 0.21 0.6 0.07 0.12 … A 0.72398

B 0.1 0.4 0.2 0.3 … B 1.2948

C 0.23 0.45 0.1 0.22 … C 2.39885

D 0.49 0.06 0.1 0.35 … D 0.12281

E 0.24 0.18 0.31 0.27 … E 0.454

Figure 2.3. The eigenvector of a matrix is each member’s contribution to society

2.3.1 PICSY demo: Verifying human understandability

Figure 2.5. PICSY demo

Figure 2.6. PICSY Workshop at Inter-Communication Center

Table 2.1. Initial items of the trading game

Figure 2.7. Market goods price

3.1 Static model as a general evaluation system

3.1.1 Static model as matrix calculation

Eij ≥ 0 f or all i, j (3.1)

ĉE = λĉ (3.3)

where c̄ is normalized so that its Euclidean norm is 1.

3.1.2 Static model as a Markov process

Figure 3.1. Fluid in three tanks is pumped from one to another

3.2 Dynamical model as a currency system (self-evaluation method)

3.2.1 Introduction of transactions

Figure 3.2. Budget constraint of the central bank method

Figure 3.3. Budget constraint of the self-evaluation method

in which I is the unit vector.

Therefore, E t+1 has the same contribution vector as E t .

3 0.3 0 0.15 0.35 0.2 3 0.3 0 0.15 0.35 0.2

Figure 3.4. A transaction changes all contributions

The input volume is equal to the output volume, as shown in (3.7),

Ibnet + Ebb cb = cb (3.18)

3.2.2 Adding and subtracting members

ct+1 = (c1 , ..., cN , 1), (3.23)

Proof First we assume the following condition.

ct+1 = (c1 , ..., cN , 1), (3.25)

the following expression is derived:

EN +1,i = x(1 − Eii )ci (3.30)

Then the following expression is derived:

3.3 Companies and their virtuality

3.3.1 Necessity of companies

Figure 3.5. Distribution of an evaluation by a company

Figure 3.6. Step 1 Company formation

Figure 3.7. Step 2 Employment and purchase