What is a Circular Economy?

In the crypto context, a circular economy is one where people and businesses are using crypto money to pay for goods and services in such a way that the token comes "full circle" without the need to be exchanged for any other currency (be that fiat or another cryptocurrency).

For example below is a simple and idealized version of a circular economy for HBD.

1. A grocery store is accepting HBD from customers | Retail Acceptance
2. The store purchases their stock from a local supplier using HBD. | Wholeseller Acceptance, B2B payments
3. The wholeseller pays their staff a salary in part with HBD. | HBD Salary Payments
4. The staffworker is renting an apartment from a local landlord, and pays in HBD | HBD Rent Payments
5. The landlord does their personal shopping at the grocery store with HBD | Full Circular Economy

Obviously a real circular economy is more complex, with more participants and transactions, but the point is that money comes full circle without needing to be traded for other currencies (there can be many such 'full circle' paths.

Why is a Circular Economy Important?

Hive is awesome, but many of the benefits of Hive and especially HBD only emerge in a fully circular economy. For example, transactions in HBD are completely free*, which is an awesome advantage. However, in a non-circular economy, users frequently still have to change their HBD for other currencies in order to buy what they need, adding friction and cost, which essentially eliminates that advantage. In a circular economy, nobody has to exchange currency very often, and every participant saves money as a result.

Once a circular economy gets going, it can be self-perpetuating and self-sustaining. The larger it grows, the more powerful the network effects are, and instead of being something that we need to fund to help grow, it eventually adds immense financial value to the Hive ecosystem. A local circular economy is potentially what boostraps a global HBD economy.

Further, a circular economy means having HBD embedded in the lives of people and businesses. That means those people and businesses start to need to have HBD in their wallets to buy their necessities and to pay salaries etc. Even though the money is constantly moving, it is effectively sequestered away from exchanges - the net effect is to increase demand for HBD (and consequently Hive).

How close is HBD to a Circular Economy now?

Regular readers will be aware of the @hivesucre merchant onboarding project. The team at @hivesucre have gotten a whole bunch of retail stores in the city of Cumaná (in Sucre, Venezuela) to accept HBD for the purchase of goods and services. There have even been several cases of some of those retail stores making purchases in HBD from their suppliers (ie. B2B payments). Cumaná incidentally is the city with the highest penetration rate for active Hive users in the world.

Below is my impression of the current status of the economic model in Sucre at this moment.

1. Hive Sucre is funded by valueplan, in turn funded by the DHF (@hive.fund).
2. Hive Sucre provides merchandise support and onboarding, training to merchants (retailers, some of whom are also suppliers).
3. Bloggers in Sucre make posts, get upvotes from stakeholders which pay out as HBD.
4. Bloggers make purchases in local retailers with HBD (and may blog about it)
5. Some of those retailers use HBD to buy supplies
6. Bloggers, Retailers and Suppliers still mostly need to cash out to exchanges for fiat currency

As you can see above, we are not quite at a circular economy yet. It can now be described as a 'faucet and sink' economy, but the scaffolding is going up and the first parts are being built, that can eventually become a fully circular economy.

Circular Economy Milestones

The following table is a set of milestones on the path to creating a fully circular economy. I have put a ✅ where they are already achieved by @hivesucre. Most of these will take a long time to reach, especially in the sense of scaling them up, but every milestone is necessary and will be important on the way. There are some alternative paths I don't include, such as remittance payments and international purchases, but which likely wouldn't be core to a circular economy.

* As long as you have RC's, but it takes a very small amount of HP to have effectively free transfers, and that will continue to be true until Hive reaches a very large scale. Even when Hive reaches its scaling limits, the RC model works much better than the fee model when it comes to managing congestion, and transfers will still be one of the cheapest transaction types.