As well as working as a kind of social means of exchange, social currency is also a tool for measuring value. In that respect, it resembles money’s traditional function as a “unit of account.” Although money can be used to store and exchange value, it can also be used in a purely abstract sense, as a unit of measure, like an inch or a kilogram. The proliferation of social currencies online points to a similar possibility: that of measuring the various types of social value we come to rely on in interacting, and transacting, with one another.

However, as discussed in a previous post, the analogy between money and social currency is not to be taken too literally. There are some significant differences between money and social currency. I’ve already looked at those in relation to social currency as a means of exchange: it turns out that we create and provide social currency likes jokes and stories as abundance-based gifts which circulate in social networks, earning social capital for their originators and transmitters along the way. In this post, I want to look at how social currency as “unit of account” differs from money.

What social currencies measure

The first major difference between social currencies, online or offline, and money as a unit of account is what is being measured. Money measures the value of goods and services which are inherently scarce and can be exchanged. One legitimate criticism of the monetary system is that it is blind to other types of value, which have equal significance in the way economies function.

Social value, or “social capital,” is the value created and sustained through our relations in social networks. While it’s tautological that the rich have lots of money compared to everyone else, it’s less recognised that they are also usually socially wealthy as well. They enjoy connections to other rich and powerful people, which help them get into private schools, high paying jobs and access to other social and economic opportunities.

Money as it is defined today encourages us to see the world in financial terms, and to ignore the myriad other forms of wealth which contribute to wellbeing. One of the functions of social currencies, which makes them compelling to anyone interested in transcending the limitations of an economy viewed solely through money, is that they make visible otherwise intangible forms of social capital, like trust and reputation, for the world to see. This brings us to the second feature of social currencies.

Recorded trust

While social capital is a very useful type of asset, it has some limitations which don’t tend to affect the type of value measured by money. One of these is that, historically, social capital has mainly existed in people’s minds, rather than on paper.

In medieval times, the majority of economic life took place in the context of social networks of trusted participants. There was an honour code, for example, in the medieval Islamic merchant trade networks. According to David Graeber, transactions in goods and services between merchants were secured “with a handshake and a glance at heaven”:

If there were problems, they were referred to sharia courts with no power to have miscreants arrested or imprisoned, but with the power to destroy a merchant’s reputation, and therefore, credit-worthiness, if he were to refuse to abide by their rulings.

David Graeber, How Debt Has Defined Human History

In other words, deals were highly dependent on trust. Honour therefore had a very tangible economic importance: without it, a person couldn’t secure access to credit, and would find themselves excluded from vital trade networks.

Social networks record trust of their participants an informal, implicit ways which don’t scale easily. What’s more, when someone behaves in the wrong way, the information doesn’t spread so quickly through word of mouth. Trust-worthy people who are not known to people they wish to deal with, or who do not have trusted friends to vouch for them, will find it hard to secure trust.

The first social currencies as units of account were attempts to solve this problem, by creating a symbolic representation of trust, or social capital generally, which others could rely upon in deciding whether to trust the bearer. This happened long before the internet: it’s important to realise that social currencies online are just an extension and refinement of an age-old idea. In their older forms, there are all sorts of symbols which stand in for trust, attempting to solve the scaling problems associated with social assets. The commercial trade example is just one of many: medical degrees, Nobel Prizes, club memberships, gold stars in classrooms, getting “made” in the Mafia are all forms of social currency. They record social capital in a way which is commonly accepted within a network, and so encode trust and make it visible for others to see.

It is this function of “making visible” social capital which sets social currencies apart from money. While money measures value, it isn’t primarily used in order to display wealth to others. People do show off wealth to each other, but primarily through things which they own and flout (so called “Veblen goods.”) Social currencies, on the other hand, exist not just to measure social wealth, but also to display it to others. That’s the point: by making recorded trust visible, they enable new trust-based interactions with other people outside of their networks. They enable social capital to scale.

Quantitative and qualitative

Money measures scarce value in a quantitative manner. Social currencies don’t always. As I’ve mentioned before, many types of symbols operate as social currency without being the kinds of things which count anything: Nobel Prizes, for instance, or a review of a hotel. These types of symbols are more qualitative: they represent something without trying to quantity it too precisely. Perhaps this is because such forms of value can’t be too easily quantified: they try to record intangible types of value, which can’t be bought, sold, or measured in any straightforward way.

Perhaps one of the major opportunities the internet brings is the ability to create quantitative social currencies. eBay reputation points are an excellent example: each successful transaction on eBay increases your reputation score by a point, and conversely. By measuring qualitative judgments about individual interactions, eBay is able to summarise a person’s degree of trustworthiness in their community with a number. The proliferation of platforms for collaborative consumption is making quantitative social currencies ever more common. Wherever trust is required to enter into transactions, these symbols help to bridge the gap.

At the basis of a quantitative social currency is the ability to measure gestures, directly or indirectly, from participants, which can be taken as indicators of trust. The ability to aggregate numbers of gestures into an overall metric creates an abstract measure of social value within a network. Sometimes, the recorded gesture is an explicit vote of confidence, in the case of eBay transactions. Other times, the gesture is a byproduct of another, related action, such as following someone on Twitter. In some cases, the record of trust is quite abstract: consider the cumulative consequences of linking to a web site, and the effect on its position in search results.

Abundance-based, but not fungible

Finally, there are two more characteristics of social currencies which are different from money in important ways. One is their abundance-based nature.

Money can be more or less scarce, depending on the type of monetary system in use. Credit-based money can be created abundantly, but is often subject to the lending practices of banks. Since those interested tend to diverge from the needs of the economy in general, we can speak of a de facto scarcity in the money supply. The availability of money is dependent on factors which don’t bear much relation to people’s actual needs. Under commodity money systems, the problem is worse, since there money literally consists in a ‘thing’ which needs to exist prior to the transaction, in order for it to take place.

Social currencies don’t suffer from the same type of scarcity. It costs nothing to create a digital symbol, like a reputation point, or a club membership. These types of tokens of value can be created abundantly: the only thing which needs to govern their creation is a system of rules which guarantees the perception that they mean something. The scarcity of Nobel Prizes is not to do with a lack of paper, but rather in the need to preserve the (perhaps misplaced) perception that Nobel Prizes are valuable social symbols. The scarcity of eBay reputation points is not to do with physical or digital limitations of the availability of numbers. They are limited to one per transaction in order to ensure their long-term meaning and value.

For very similar reasons, it seems that social currencies, unlike money, are inalienable from the people who originally earn them. You can’t buy things with your eBay reputation points, or legitimately transfer them to anyone. The reason is the value of social currencies lies in their ability to represent a social consensus about reputation. Reputation is inseparable from identity, and identity is never going to be legitimately transferable. While there are many reasons to try to earn social currencies, the ability to spend them is not one of them.

Eli Gothill is the author of Webisteme, a blog about the future of money.

The post More Thoughts on Social Currency, Part II appeared first on P2P Foundation.

While this analogy is useful, it isn’t perfect. In a number of important ways, social currency does not function like money. In this post, I will focus in on the “means of exchange” view of social currency. Exploring how social currency behaves differently to money can help shed light on what it is, and isn’t.

What kind of exchange?

To recap on my last post on this subject, what we could describe as “means of exchange” social currency is what we share in social contexts in order to earn social capital. A simple example is someone telling a joke at a party of people they don’t know very well. If it arouses some laughter, it will typically result in some people thinking slightly better of the joke-teller. It could be the entry point into a conversation.

One of the problems with the money analogy, is that this type of exchange (joke for reputation) is unlike a typical monetary exchange. When money changes hands it is usually in the context of a transaction: giving someone money implies a corresponding and explicit quid pro quo: there is something which must be handed back in return. The acid test of a transaction, rather than a looser form of exchange, is people’s reactions when one half of the exchange isn’t upheld. In the context of a transaction, there would be a legitimate sense that the person spending money had been wronged in some way.

Compare this to telling a joke at a party. If someone doesn’t laugh at your joke, and doesn’t think any better of you, they haven’t wronged you. There is no explicit bargain that they will think better of you because of your joke. In that respect, the exchange is non-transactional. You are not buying social capital with social currency.

A better way to characterise social currency is as a gift, not a form of payment. When gifts change hands, there is no guarantee of reciprocation, or that the person will think better of the gift-giver. You don’t buy gifts with gifts, and nobody has wronged you by not returning a gift, though there might be some less explicit kind of disappointment at non-reciprocation. Formally speaking, though, there is no explicit obligation to reciprocate – this is perhaps a defining characteristic of a gift exchange, versus a transaction.

What kind of gift?

However, if social currency is a gift, we run into another problem. We should probably dispense with the term altogether if there isn’t something which distinguishes social currency from all types of gift giving. Talking about social currency as a means to acquire social capital won’t cut it: all kinds of gift giving serve this purpose in part. So there must be something else which makes social currency what it is, and not just like any other type of gift.

I think there are two related things which make something social currency, as opposed to any other type of gift. The first necessary (but not sufficient) condition is the fact that social currency is abundance-based, rather than scarcity-based. When you give someone a physical book, the artifact can’t be reproduced infinitely from the initial gift. What’s more, convention dictates that your friend can’t just give the book on to someone else (this goes against the spirit of gift giving.) Social currency, on the other hand, consists in things shared which can be infinitely re-shared. Jokes, information, stories and other things don’t suffer from scarcity constraints like physical things do, and aren’t governed by the same conventions. You can pass them on.

This brings us to the second characteristic: pass-on value. Unlike gifts, which we don’t normally pass on, social currency is partly valued because it can be re-used as a medium of exchange in future encounters. In other words, the good joke you heard at the party is something which can be retold with the same purpose of acquiring social capital. This is quite a lot like money: social currency circulates partly because it has pass-on value.

What kind of gift is social currency? There are two things: abundance-based supply and pass-on value. The purpose of the gift is to gain social capital in social contexts.

What kind of value?

So far, I’ve used examples relating to jokes, information and stories, and social contexts like parties. These are only simple examples, useful for illustrating the concept of social currency, but in fact only a small part of the story.

The kinds of things which become social currency are the kinds of things which are abundant, easily shared, and which have pass-on value. Party banter are a small subset of these things. What makes social currency such an interesting and timely concept is the internet. What is the internet for, after all, other than a medium for sharing digital artifacts with large numbers of people at no cost? It’s an ideal environment for social currency to circulate.

As such, the kinds of things which we could call social currency are endless and varied: blog posts, tweets, thought pieces, short films, eBooks, and so on. We could say that jokes really live at the low end of the value spectrum. This isn’t to deny that jokes have their uses. However, we could assume a rule of thumb which says that the amount of social capital you can generate is roughly proportional to how valuable your social currency is. In the age of the internet, we are free to create refined value and share it online – we can print our own social currency.

This brings us to a few thoughts on the role of content creators in a digital environment. While we hear a lot about how the internet is undermining creative business models which make the production of cultural goods profitable, we hear less about the corresponding potential the web has created. While it’s harder to sell books, CDs and DVDs in a world where digital goods can be reproduced and shared at little cost, there are benefits to sharing, rather than trading culture. Giving creative works away creates social currency: things which people can pass on and share. Creating social currency is a way of earning social capital, which can in turn be tapped into to find opportunities to trade in the scarcity-economy.

While old models of publishing are collapsing, thinking about how creative works become social currency might lead to better business models, which are fit for a digital age.

What kinds of motivations?

Finally, it’s worth pointing out that the reasons why people share social currency are complex, and not reducible to simple self-interest. We partly enjoy the pleasure of sharing. We like to have excuses to bond with people over shared interests. There is no simple explanation of social currency which reduces it to an exercise in self-promotion. It can also be helpful to consider social currency from a broader, network view: the exchange of social currency provides a means for weak ties to become strong, and for networks of trust to form between strangers. As such, we might find social currency to be an important concept when making sense of social network formation, and the many kinds of social cooperation which depend on stronger networks.

Eli Gothill is the author of Webisteme, a blog about the future of money.

The post More Thoughts on Social Currency, Part I appeared first on P2P Foundation.