In the process of setting value, perception is a hugely significant factor. Take a day for example; in time terms each one is 24 hours long. But if one day is sunny and the other is wet, most people would ascribe greater value to the sunny day. The same applies to currency. A £20 note and twenty £1 coins hold exactly the same monetary value and must by law be accepted as payment by all vendors within England and Wales. Yet to a person who prides themselves on their wallet capacity conservation, the £20 note holds more value.
Coining it in the digital age
The point is that the value of something is heavily dependent on how it is perceived. And that is why a single unit of a digital currency called SolarCoin can be both a tradable monetary unit and a driver of solar power generation. While solarcoin is new, the idea goes back a number of years. In a paper titled DeKo: An electricity-backed currency protocol, Nick Gogerty, who is a key figure within SolarCoin, and Joseph Zitoli proposed that governments could hold electricity-backed assets against the currency issued. The theory, as laid out in the paper, remained just that; a theory that no central bank chose to implement in practice.
Tokelau, an island nation in the South Pacific, is the first to completely able to support itself with solar energy.
But then digital or alternative currencies, most notably bitcoin, started to take off. And digital currencies do not require the backing of a central bank. So Gogerty and a team of volunteers from across the world established the SolarCoin Foundation and, using the same technology that underpins bitcoin, created a DeKo-like currency for the digital age, called the SolarCoin or SLR for short.
As solarcoin has only recently been released, it is difficult to illustrate how it works when compared with traditional and well-known currencies such as pounds and dollars. But BitCoin, which is both established and operates in a very similar manner, can be used instead. At the time of writing £1 is priced at $1.63 while 1 bitcoin, is priced at $839.7. Even though the £1 coin is legal tender in the UK it’s perceived by the market as far less valuable than a bitcoin. At the Pembury Tavern pub in Hackney, it is also perceived as an acceptable payment method for a pint of beer, while American Express is not.
There are a number of factors behind that, most of which require a firm grounding in either economics or computer science to make any sense of. But this article will focus on just two.
First of all, the philosophical driver of the bitcoin and broader digital currency movement is that currency and its value should not be dictated by governments and central banks, but by the people that use it. It started out as a way for those in the movement to conduct digital transactions between one another, but has gone on to be in such demand that at one point a single coin was valued at $1,242.
The second factor is that while a bitcoin is currency and possesses many of the components that legal tender does, it also has a commodity element to it, in that there is a finite supply of bitcoin and getting them requires mining. For gold that means trucks, mining licenses and geological studies; for BitCoin it’s a fully digital affair where computer power is used to solve mathematical problems that, when solved, reveal a string of code that can be redeemed for currency.
Like BitCoin, SolarCoin has ideological drive and also the potential for its currency to be deemed more valuable than a £1 coin. But instead of seeking to reduce global reliance on central banks, SolarCoin aims to reduce reliance on fossil fuels by driving investment in solar power. The way it does this, and what differentiates it from BitCoin in terms of how it operates, is including an extra way of generating currency. In addition to mining, which will produce less than 1% of solarcoins, third-party verified proof of generating solar power can be exchanged at the rate of one SLR for every 1MWh of solar power generated. Currently only the Solar Renewable Energy Certificate (SREC) ID from the US is accepted but as things develop other international equivalents could be validated.
So to what degree might SolarCoin drive solar energy generation? Well, that all depends on how valuable the currency is perceived to be. In a trade carried out on Twitter, a user operating under the handle @JMGranola purchased 1000SLR for $50, putting the value of 1SLR at just $0.005. So at that valuation, 200MWh would need to be generated in order to earn the equivalent of just $1.
Although solar power is packed with potential, prices are kept impractically high because output drops to zero after sundown..
Such low valuations of a currency are always going to occur in the early days though, so it is unlikely to stay at that level. At the low point of the target value set by the SolarCoin Foundation to start incentivising solar, a generator would receive the equivalent of $20 per 1MWh, so not huge, but not insignificant, especially to someone who already has solar panels and is already receiving subsidy from their government. But if, and it is a big if, the perceived value of solarcoin reached $839.7, the current value of bitcoin, then the extra incentive for people to start generating solar power would be quite significant.
Whether SolarCoin will stay low, hit the target, or reach the lofty value of bitcoin is impossible to predict. But what will dictate it is certain and was detailed by Gogarty and Zitoli in 2011: "The value of a currency as a unit of exchange is driven by faith in the currency as a representation of value held by everyone that uses the currency."