alternative currencies crypto blockchain switzerland

Alternative Currencies: The Pros and Cons Explained

Community currencies, time exchanges, cryptocurrencies and bartering marketplaces provide an alternative to conventional means of exchange. This moneyland.ch guide takes a look at the available options and list the advantages and disadvantages of alternative currencies.

Almost all means of exchange in use today began as alternative currencies. In the past, towns, provinces, countries and empires created community currencies, bartering systems and time sharing schemes to supplement the physical commodities used for inter-regional trade.

Until the Swiss franc was issued as a nationwide currency in 1850, most trade in Switzerland was transacted using regional currencies or bartering. But since then, many people have come to accept the dominance of fiat currency, central banks and international monetary authorities over almost every aspect of trade without question.

But attempts to reestablish the concept of trade as a direct exchange between individuals have met with more success than they have in previous decades. The concept of taking responsibility for the affect our transactions have on the world around us has become more widespread. Recent technologies have facilitated the use of alternative currencies.

Types of alternative currencies

It is important to differentiate between various kinds of alternative currencies because while they all offer an alternative to fiat currency, there are major differences between various types of currencies.

1. Cryptocurrency

We will start with cryptocurrency because this is the alternative currency type which has been the most hyped up in recent years. A cryptocurrency is a currency which is entirely digital and uses encryption for added security. The most popular forms of cryptocurrency are those based on blockchain technology, such as Bitcoin and Ether. Today, hundreds of cryptocurrencies exist - with new ones being created on a regular basis.

Most of these are circulated within an online community and many of them are based on political or social aspirations. For example, the cryptocurrency Bitcoin is not controlled by any authority and allows users to remain anonymous and bypass the fees and charges levied by financial services providers – both of which are not possible in the realm of conventional electronic transactions. Freicoin – a centrally controlled currency – is programmed to lose value over time, making it unsuitable for holding wealth. Solarcoin, also centrally controlled, rewards solar energy producers.

Pros: The biggest advantage of cryptocurrencies is their global reach. Because many of these currencies are backed by online communities made up of users in many different countries, they allow for some measure of international exchange and conversion into fiat currencies.

Cons: The biggest downside of cryptocurrencies is that they are not backed by physical assets. Their value is only as strong as the demand from the community which accepts them, but this holds true for most other alternative currencies as well. Because cryptocurrencies can only be used to purchase good and services from the community which accepts them, they have to be converted to fiat currency in order to make transactions outside of the community. Another disadvantage of digital currency is that transactions are traceable to varying extents – depending on the currency used. Because these currencies only exist in electronic and not in cash form, they are potentially vulnerable to online theft and fraud.

2. Community currency

Community currencies are created by physical communities. The goal of these currencies is typically to prohibit the outflow of wealth which fiat currencies facilitate. They may also provide greater stability because they are typically free from the speculation and macro-economic factors which plague national and international currencies. As long as the community which issues and accepts the community currency is economically strong, the currency will normally hold its value.

Community currencies have no value outside of the community which backs them and are usually democratically controlled by their community. This helps prevent the outflow of capital from communities – as opposed to international finance which is designed to facilitate the free flow of capital. A number of community currencies are in use in Switzerland, including the WIR franc (WIR Bank), Farinet (Canton of Valais), Bonobo (City of Bern), NetzBon (City of Basel), Léman (Geneva), Eulachtaler (Winterthur), Isenau (Les Diablerets) and Steckborner Geld (used in the town of Steckborn, TG). REKA money is issued by the non-profit Schweizer Reisekasse which encourages trade within the Swiss travel industry and enjoys a large secondary market.

Pros: Community currencies are normally backed by fiat currency and can be exchanged for fiat currency at a fixed rate. If they reach a high level of adoption, community currencies stimulate regional economies and prevent the rapid outflow of capital. Community currencies may also benefit the environment by reducing the international manufacture and shipping of consumer goods. Most community currencies are available as cash, allowing for direct transactions without the involvement of a third party service provider or the creation of a digital footprint.

Cons: Because community currencies can only be used for the purchase of goods and services from the community which backs them, they must normally be converted to fiat currency when you make transactions outside of the community. If a community currency does not reach wide adoption, it may more closely resemble a voucher system than a bona fide currency.

3. Time exchange

The term “time is money” takes on a literal meaning in the time exchange system. In this system, individuals or businesses exchange services directly without converting time into money. The time exchange system is among the earliest forms of trade known to man. In its simplest form, time exchange works like this: You need bread, the local baker needs tax consultation. You spend one hour providing the baker with consultation and the baker spends one hour banking bread for you.

But trading time has become a great deal easier thanks to technology. Time exchange systems now let you easily track and exchange time with other participants. Example: You do not eat bread but the local carpenter does and you need work done on your house. You give the baker an hour of consultation, the baker gives the carpenter an hour of baking and the carpenter spends an hour repairing your home.

Some systems – but not all – allow you to barter, meaning that you may be able to receive more of other people’s time in exchange for your time if your services are in demand. Time exchange systems in Switzerland include Tauschnetz (Lucerne), Zürichtauscht (Zurich), Zeittausch and Zeitbörse, among others.

Pros: Time exchange is among the fairest means of exchange because profits are limited by time. Exchanging time eliminates the need for any form of money. Your social life may benefit from the interaction with other people.

Cons: Not everybody is willing to exchange their time for yours, so you may not find trading opportunities on demand. Time exchanges in Switzerland operate regionally, so the pool of trade partners is limited. The services you can offer individually may not be in strong demand. If you have more money than time, you may find it easier to pay for a service with money than to make time to exchange for it. Legal tieups including tax and social security obligations can make time exchanges complicated and therefore less desirable.

4. Bartering

Bartering, or the direct exchange of goods and services at an agreed price, is among the oldest means of trade. This system – which is based on supply and demand – has made a comeback in recent years thanks in part to an increase in environmental awareness and a backlash against consumerism. Neighborhood exchanges, classified pages and local bulletins are just some of the mediums used. Initiatives like walk-in closet, which holds clothes bartering events in Swiss cities, offer another opportunity for traders.

Online bartering platforms and mobile apps now match traders within a much larger pool than was previously possible and bring some interesting ideas to the table. For example, Exsila uses a points system which provide a medium between barterers using the Exsila platform. Goods can be traded for points rather than for other goods. Points can then be used to purchase the goods you want, when you choose to use them. This allows you to buy and sell at leisure without the use of money.

Pros: No dependance on any financial service provider whatsoever because goods are traded directly and are never converted into money. Goods are used to a greater capacity because they are passed on to another entity when you no longer need them. This results in less manufacturing, shipping, and consumption of resources, and therefore less damage to the environment.

Cons: You may not always find the items you need. You may not always find trade partners who are interested in what you are offering. Bartering portals and initiatives do not yet have widespread support, so their efficiency is limited. The majority of consumers are still accustomed to buying newly manufactured goods, even for one-time use. A shift in consumer behavior would be required for bartering to become an actual alternative to the conventional financial system

5. Precious metals

Rare metals have been the international currency of choice for thousands of years, and some precious metals (gold in particular) are still universally accepted in exchange for goods and services thanks to the ease with which they can be converted to fiat currency.

In Switzerland, gold bullion is classified as currency so no VAT is charged. Gold bars as small as 1 gram are minted – making gold an ideal alternative currency. However, the majority of precious metal owners hold their assets as a means of wealth preservation or speculation rather than circulating them as currency.

Pros: Global acceptance. No third-party service provider required. No digital footprint of transactions made. Quickly and easily converted to almost any fiat currency. Rare metals have physical value as commodities – as opposed to cryptocurrencies and community currencies.

Cons: Requires safe storage and physical transportation. The value of precious metals fluctuates in relation to the value of other currencies. Some countries restrict the ownership and transfer of precious metals.

Verdict:

While technology has changed the way in which we make financial transactions, trading is still dominated by established financial systems and new technologies are rapidly being appropriated by those systems. However, social initiatives and technology have brought new life to alternative trading systems which make direct trading between individuals viable, efficient and (in some cases) free from third-party interference.

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