Using Bill-of-Exchange as a Kind for Mutual Credit transactions

[Sakamatlakobata]

Dear reader,
How do we go about adding another NIP and a new Kind please?

I would like to contribute a commercial document (Bill of Exchange) and Kind structure in order to do Mutual Credit transactions
Attached, please find some details about the proposal

Thank you
[email protected]

bill of exchange.docx

[weex]

Can you share that in pdf or even image form? I'm not sure many people want to open a random docx from Github.

[Sakamatlakobata]

Hi David,
Thank you for your interest

Here is the PDF
Also there is a proposed NIP-66

bill of exchange.pdf

[Sakamatlakobata]

NIP-66

Mutual Credit Accounting

INTRODUCTION

Mutual Credit (MC) is simply frictionless bookkeeping without interest

Using MC focuses economic activity on providing goods and services rather than scrambling to
service debt. What gives Mutual Credit its value are the products and services provided

Persistence

In the spirit of Nostr, clients to not maintain a ledger of bookkeeping transactions (and
therefore can be run in a browser), but make use of (private) relays for this purpose

Kinds

Typically, an acquisition process would be a chain of documents such as Quote, Order,
Delivery, Invoice, Payment, Returns, etc., but to simplify this NIP we propose only:

• Invoice and,
• Payment kinds (please see structure below)

Tags

e – Event ID of Invoice (if Payment), or previous correspondence
p – Pubkey of corresponding partner
i – Internet ID of corresponding partner
r – Reference number (typically from bookkeeping application)

NIPs

01 – Basic protocol
02 – Contact names (esp. Internet ID (05))
03 – Timestamp
04 – Encrypt the content of an event
05 – Internet ID
25? – Reputation
42 – Authentication of client to relay (since it is storage of transaction history)
56 – Reporting (such as outstanding invoices, part payments, payment terms, etc.)

Relay

A private relay persisting only MC events, would perhaps be more efficient than requesting
reports from a public relay with all sorts of events

Discussion

https://monetaryprosperity.files.wordpress.com/2023/05/bill-of-exchange-2.pdf

PAYMENT

While gold and bitcoin have intrinsic value from mining, this proposed payment uses the legal
construct of a Bill-of-Exchange, which has (like gold) been used (and tested) for centuries

• Bill of Exchange – This is a written order binding one party to pay a fixed sum to another
on demand or at a predetermined date. They are similar to checks and promissory notes,
and are usually transferable by endorsement2

o A bill of exchange is a written order binding one party to pay a fixed sum of
money to another party on demand or at some point in the future.

o A bill of exchange often includes three parties—the drawee is the party that pays
the sum, the payee receives that sum, and the drawer is the one that obliges the
drawee to pay the payee.

o While a bill of exchange is not a contract itself, the involved parties can use it to
specify the terms of a transaction, such as the credit terms and the rate of
accrued interest.

• Promissory Note - A promissory note is a written promise by one party to pay another
party a specified sum of money either on demand or at a specified future date. It is
commonly used in business as a means of short-term financing3.
For example, when a company has sold some products but not yet collected payments for
them, it may ask its creditors to accept a promissory note that can be exchanged for cash at
a future time (or eg. an IOU to overcome coincidence of wants in barter4).

• Mutual Credit – Bookkeeping and settlement (without the banks, bureaucrats, or
blockchains) of credits granted to partners for goods and services provided

STRUCTURE

Initial proposed structure in the payload of an encrypted event message

Kind-xx, Bill of Exchange (BoE), NIP-66

1. Document: Sequential document number from drawee (The Bill is issued by
   the drawee)
2. Date: The date when the bill is issued
3. Payee: The person or organization who will receive the payment
4. Drawer: Entity issuing the bill, and who is responsible for making the
   payment
5. Drawee: Entity ordered to make the payment (could be same as Drawer)
6. Amount: The amount of money that is being paid
7. Currency: The currency in which the payment is being made
8. Due date: The date on which the payment is due
9. Endorsement: The signature of the payee approving payment to another
   party
10. Reference number: <varchar(40)> An optional field for the purpose of tracking and
    record-keeping
11. Acceptance: The signature of the drawee
12. Hash: Running hash of this transaction plus previous running hash

Product or service

13. Quantity: The quantity of product or service rendered
14. UoM: Unit of Measure
15. SKU: Product number
16. Delivery: Delivery terms, shipping method, payment of shipping (FoB, CoD)
17. Warranty: Length, coverage
18. Score: A reputation (satisfaction) score per transaction

Settlement terms

19. Payment: Payment terms, due days from invoice (eg. net30)
20. Late: Late payment penalties or rates
21. Discount: Discount on early payment
22. Payment: Payment method required, CC, BTC, wire

Bookkeeping

23. Debit: Account number debited
24. Credit: Account number credited
25. Cost: Cost collection account
26. Description: Explain the performance delivered and payment agreed on

TRUST

The balance of participants can go negative, in other words receiving “mutual credit” from the group decided by participants, in the same way banks provide credit (to enjoy the same trust as bank money), but without interest

By using a Bill-of-Exchange, we have legal precedent for recourse, endorsement, etc.

Mutual Credit, like money, is simply a proxy for products and services that can be bought, and ownership, like bitcoin, is decentralised

[weex]

I'm not clear yet on how NIP IDs are assigned but perhaps you'll want to change away from 66 as it's maybe taken by #230 ?

[Sakamatlakobata]

Oh no, thanx for noticing

[weex]

As to the content, it seems you want to create a general contract structure to handle these various financial operations. I can see why you list the reputation NIP as a dependency as it'd be pretty important. Otherwise, I don't know well enough what's in scope for NIP to say if this should be one as it's very general, and also the space has a lot going on with lightning, Bitcoin, and chaumian e-cash, plus the fact that notes are signed in the first place might be enough to link to whatever reputation system arises.

[Sakamatlakobata]

Hi David,
Thanx for your comment

PAYING WITH BTC

Paying with Lightning, Bitcoin, Gold, durable food, etc., is essentially barter, ie., trading my specific product for a more generally acceptable product (commodity). The snag is, to obtain sats, we have to find someone willing to part with sats for our product at this moment, ie., the coincidence of wants problem that money is supposed to solve

PAYING WITH MUTUAL CREDIT

Mutual Credit is simply bookkeeping that imposes no impedances on a transaction. If a supplier and customer agree on the product and terms, then the transaction should take place with frictionless bookkeeping

REPUTATION

Trust is required for others to accept a form of money. One bank agrees to accept money created (out of nothing) by another bank on the strength of collateral and credit analysis. Mutual Credit adds other means of acquiring the required trust such as reputation and community (mutual) support granted to (and vouching for) participants

LEGAL PRECENDENCE

Another way of increasing trust is by using the legal constructs available to Bill-of-Exchanges (which have been tested over centuries of payments to remote people), rather than simply an IOU (successfully used in Mesopotamian (clay tablet) money). This means that we also have the courts available to enhance the trust in this money

We are not in competition with each other, but with a ravenous monetary system dispossessing us and destroying our planet. We need to test alternative monies in an effort to improve our lives, and make our world a better place to live

Thank you, and have a grrreat weekend