Semi-Synthetic Commodity Moneys are fungible assets that are issued and transferred over a public blockchain by way of the colored coin protocol. They can be synthesized where industry stakeholders each contribute to the marketplace pools of commoditized goods and services where at least one service is the solving of blocks on a proof-of-work blockchain. These digital asset tokens can be traded peer-to-peer among industry participants, or by speculators and investors with highly efficient fees or fee free with a slight delay. Trades have zero counter-party risk. The blockchain is then an open, decentralized, border-less, network centric, flat public marketplace and an index that operates 24/7, immutable, incorruptible, highly secure, with no downtime.


What is money, what is non-money? This was pondered by the great Friedrich Hayek between 1976-1990 with his seminal tome [1]. He says that money, such as a private bank note, is valued by the “…aggregate price in terms of its currency of a particular collection of commodities..”[2] such as those traded at the Chicago Mercantile Exchange.

Gale Instruments defines money as a fungible asset that efficiently facilitates the exchange of value and solves the problem of the double co-incidence of wants.

Semi-Synthetic Commodity Money is not a type of fiat money, nor a digital asset claim[12] or instrument. Nor do they require broad acceptance as a means of exchange or to be issued by a central bank [10].

Although they meet the test of fungibility [5] the problem with using physical commodities like gold, salt, copper, soy beans, heating oil, etc, as money is that they need to be warehoused and transported. These costs are high and make them impractical as money, especially if they are to be traded internationally. (But they can be the underlying basis of derivatives or instrumental claims.)
At the heart of Hayek’s thesis is a dichotomy: Commodities, or aggregate list thereof, make for the best measure of value [3] but are impractical for the exchange of value [4].
But what if this problem could be solved by creating money that has both properties of measurability and exchangeability?
The answer, as I will propound, is to market semi-synthetic commodity money as compounded commoditized goods and services, where at least one service is the solving of blocks on a POW blockchain. (Note that not all industry produces commoditized goods or services.)


Commodity moneys have existed for thousands of years. The best known example is the gold coin [6]. We can decompose the gold coin as depicted at figure 1. Gold metal is a commodity good. Each gold atom is substitutable for another. The fungibility of the gold atom is the result of the physical laws of the universe [13]. Each minting of a coin is a commoditized service [8]. Only an electron scanning microscope can discern any difference. Minting can be divided further into commoditized services: one from the assayer (of the bulk quantity of gold used to mint the coins), the other the die maker and stamper. Their respective efforts are commoditized by thousands of mintings before the die is retired and a new batch of bulk gold is assayed.

(good and service)


GOLD METAL                               MINTING
(good)                                (service and service)

ASSAY                                COINING
(service)                         (service and service)


(service)                   (service)

Figure 1. Gold coin as commoditized goods and services.

Fiat cash is a fungible asset but not commodity money as there is no non-monetary use for the paper that it’s printed on. The gold coin, as used for most of antiquity, is a fungible asset and because the coins can be melted down and the metal used for all kinds of non-monetary purposes it is also a type commodity money. Salt is a fungible asset and because it can be used to cure (then expensive) meat, a very important requirement before refrigeration, it is also a commodity. It can be readily assayed by re-crystalization, is non-perishable, non-toxic, but it does have non-trivial transportation and storage costs. It’s ancient use as “salary” money relates to solving the problem of the “double co-incidence of wants” [7] that exists with pure barter economies.
So we can see that all commodities are fungible assets, but not all fungible assets are commodities.
With block solving we can see that it is a commoditized service. Because while each mining outfit may have differing costs like electricity, hardware, rent etc, that go into solving a block, each solved block that enters the permanent chain performs exactly the same standardized function.
For bitcoin [11,14], the currency, to fit the definition as a commodity money, Bitcoin, the protocol, also has to have a non-monetary use, and this is where the OP_RETURN [9] field comes in. It can be used for all kinds of applications such as notarization, title transfer, etc, some of which can be seen at opreturn.org. Known as the colored coin protocol[15] it embeds 80 bytes of information into a standard bitcoin transaction (about 250 bytes) where only negligible amounts of bitcoin, the currency, is transferred (about 5 cents). Here we can see how the underlying commoditized service of block solving is put to a non-monetary use.

1. “Denationalisation of Money: The Argument Refined”, 1990, Friedrich A. Hayek mises.org/library/denationalisation-money-argument-refined accessed July 2016
2. ibid pages 56-59.
3. ibid pages 75-76.
4. ibid page 55.
5. “When are assets fungible?”, Paras 93-94, Draft Taxation Ruling TR 2004/D25 http://law.ato.gov.au/atolaw/view.htm?docid=DTR/TR2004D25/NAT/ATO/00001 accessed July 2016
6. en.wikipedia.org/wiki/Gold_coin accessed July 2016.
7. en.wikipedia.org/wiki/Coincidence_of_wants accessed nov 2016.
8. “Commoditized services are those where standardized functionality is needed by all customers…where the cost of service for providing such features would be high and hence the service provider looks for the predictability of revenues by seeking to spread such costs over large volumes.” G.E. Mathew et al, p.269, Web Information Systems — WISE 2004 Workshops, Brisbane, Australia, Nov 22-24, 2004, Christopher Bussler et al, (Eds.), ISBN 3-540-23892-1
9. en.bitcoin.it/wiki/OP_RETURN accessed Nov 2016.

10. p.8, “Digital currency – A case for standard setting activity: A perspective by the Australian Accounting Standards Board.” Henri Venter, http://www.ifrs.org/Meetings/MeetingDocs/ASAF/2016/December/1612-ASAF-05-AASB-DigitalCurrency.pdf accessed Dec 2016
11.  “Synthetic Commodity Money”, George Selgin, 2013, http://object.cato.org/sites/cato.org/files/articles/synthetic-commodity-money.pdf accessed July 201612.

12.”The Emergence of Blockchains as Activity Registers”, August 13, 2016, http://www.coindesk.com/emergence-blockchains-activity-registers/ accessed Dec 2016

13. No tribunal can “unpack” the gold atom to assertain its ownership history.

14. “Bitcoin: A Peer-to-Peer Electronic Cash System”, Satoshi Nakamoto, 2008, https://bitcoin.org/bitcoin.pdf accessed Dec 2016

15. https://en.bitcoin.it/wiki/Colored_Coins

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