Incentive-Compatibility in a Distributed Autonomous Currency System

Peer-to-peer complementary currencies can be powerful tools for promoting exchanges and building sustainable relationships among selfish peers on the Internet. i-WAT[10] is a proposed such currency based on the WAT System, a polycentric, real-life complementary currency using WAT tickets as its media of exchange. Participants spontaneously issue and circulate the tickets as needed, whose values are backed up by chains of trust. i-WAT implements the tickets electronically by exchanging messages signed in OpenPGP[3]. This paper claims that the design of i-WAT is incentive-compatible as to protection against moral hazards, or threats caused by selfish peers because they may take advantage of the rules; such hazards are defused in i-WAT if the participants react against misbehaviors of others by pursuing their own benefits. A reference implementation of i-WAT has been developed in the form of an XMPP (Extensible Messaging and Presence Protocol)[4][5] instant messaging client. We have been putting the currency system into practical use since June 2004.