The article “Digital Money Options for the BRICS” proposes a shared digital currency for the BRICS nations - Brazil, Russia, India, China and South Africa. The BRICS currency aims to integrate with the existing monetary systems of the member nations, creating a unified economic area and exchange market. The value of the BRICS currency is derived algorithmically by combining various economic factors of the member nations. While the article suggests the impossibility of realizing such currency as a cryptocurrency, in this text we challenge this claim. We explore how using a public blockchain with smart contracts is not only feasible, but a natural match. By further combining this with Zero-Knowledge Proof (ZKP) protocols like zkSNARKs and zkSTARKs, an additional layer of privacy, legal compliance, and interoperability is added. Although ZKPs can be used outside of the blockchain, their practical value is maximized when combined with the blockchain.
Moreover, integration with protocols like zkLocus enables a programmable cryptocurrency that can leverage geolocation as a real-world asset (RWA), enabling features like associating each transaction with a geolocation while fully preserving end-user privacy. This also enables geolocation-based value incentives for the currency, such as location-based fees and taxation, which can further be used to incentivize participation within the economic network.
As such, the BRICS digital currency can not only be realized on smart-contract blockchains like Ethereum, Cardano, and Mina, but also leverage these technologies for broader, simpler, and more efficient achievement of its goals. Throughout the rest of this article, we will explore exactly how.
Digital Currencies Are Here To Stay
As we further extend all aspects of our lives into the digital realm, so will our systems for the exchange of value. While it’s true that the vast majority of the financial world operates on technology, the underlying implementations are still based on the archaic monetary systems of physical currency. This is one of the reasons why cross-border and cross-currency transactions are still a challenge in 2024. Not to mention that the banks still do a bulk of the processing in batches after closing hours.
A vast amount of resources are spent on dedicated systems, specialized hardware and proprietary protocols in order to allow for something as simple as making a digital payment. Even if this is not a problem in your region, it is a problem at a global scale. You can verify this by travelling across different coutries, and you don’t have to go far: just try transiting across the member countries the European Union (EU). The solutions that do exist are still insatisfactory to many businesses, especially small and medium enterprises (SMEs), due to the fees involved.As such, they often exhibit a preference for physical currency or alternative payment methods, which are often region-specific. Despite all of the challenges, a global and interoperable payment system is a highly desirable artifact.
Limitations of Existing Solutions
While all of the problems above can be solved with technology, it is a challenging task. The core of the problem is the elevated difficulty and cost involved in achieving agreements, trust and maintaining the infrastructure running. The blockchain technology combined with smart-contracts and Zero-Knowledge Proofs (ZKPs) provides a platform that addresses the aforementioned challenges. As such, it makes this platform a prime candidate for the implementation for digital currencies.
The BRICS Digital Currency
The BRICS digital currency can leverage the blockchain, smart contracts and ZKPs to both achieve its goals, and enable a massive value proposition in terms of transparency, trust, upgradeability, interoperability and privacy. This currency’s primary goal is to provide a unified exchange medium for the BRICS nations, enabling seamless cross-border transactions and economic cooperation. While it’s initial use-case will be for nation-level trade and transactions between the member countries, it’s reasonable to expect its extensions at a larger scale for the general public of individuals and businesses.
Deriving Value from Member Economies
The core principle of the proposed BRICS currency is that it derives its value from the collective economies of the member nations and their local currencies. This requires a dynamic BRICS currency supply that adjusts based on the economic performance of each participating country. As such, the economic value of the BRICS currency is a derivative of the economic value of the member nations. This economic value is defined by a formula, which will will explore in the next section.
Consider this scenario: if the economic value of a BRICS member nation increases, the supply of the BRICS currency will increase proportionally. Conversely, if the economic value decreases, the supply will decrease. In essence, the BRICS currency can be viewed as a derivative of the joint economic state of its member countries. As I’ve previously explored in DeFiDe, my ETHLisbon 2023 hackathon project, blockchain technology significantly simplifies the creation of derivatives. By tying the value of the BRICS currency to the economic performance of member nations, it becomes a derivative instrument that reflects the collective economic strength of the BRICS bloc. The term bloc refers to a group of countries with common interests who have formed an alliance. So, the BRICS bloc refers to the member countries of the BRICS acting together for their mutual benefit.
Such an approach brings numerous benefits over the existing FIAT currencies, with the most obvious one being the decentralization of the currency supply, as it’s governed by a multiple entities, instead of a single one. This also allows to hedge the risk and reduce volatity at larger scale than of existing FIAT currencies. An economic downturn in one country can be offset by growth in another. This is in contrast to the local currencies, where their value and supply is generally controlled by single entity, either in the form of a central bank or a government.
The BRICS Currency Supply Formula
The BRICS digital currency employs an algorithmic and dynamic supply mechanism that adjusts based on the economic performance of the member nations. The total BRICS money supply is expressed by a formula formula that takes into account various economic factors:
M = ForT + FDI + PI + ForEx + G&EX + InterSec + Der + ForDeposit + EuroCurrency + MTransfer + Etc.
Each component in this formula represents a key economic indicator:
ForT: Foreign Trade, encompassing the total value of exports and imports between the BRICS nations and the rest of the world.FDI: Foreign Direct Investment, capturing the inflow and outflow of investment capital.PI: Portfolio Investment, including investments in stocks, bonds, and other financial instruments.ForEx: Foreign Exchange Transactions, representing the volume of currency exchanges.G&EX: Gold and Foreign Exchange Reserves, a crucial component that partially backs the value of the BRICS currency with an asset holding intrinsic value - gold.InterSec: International Securities, such as bonds issued by BRICS nations in international markets.Der: Derivatives, financial contracts deriving their value from underlying assets or benchmarks.ForDeposit: Foreign Deposits, the total value of BRICS currency held in foreign accounts.EuroCurrency: Eurocurrency Market Operations, capturing the BRICS nations’ activities in other currency markets.MTransfer: International Money Transfers, the flow of funds between the BRICS and other nations.Etc.: Other relevant economic indicators as needed. The article doesn’t develop on the specifics, but you can imagine one of those factors as being the country’s Bitcoin reserves.
The formula aims to create a BRICS currency supply that dynamically responds to the collective economic state of the member nations. When we mention economic value in this text, we refer to the economic value, as defined by the formula above. We will explore several scenarios that illustrate how this mechanism works in practice, but first let’s zoom-out and look at what is value and the process by which value is defined.
Supply, Demand, Value & Oranges 🍊
We can get as fancy with economic talk and theories as we want, but that won’t chage the core fact of the value of something being defined by the ratio between the supply and demand. Let’s say you live in an isolated town, and you are the firt person to have an orange tree. The people in your town love the fruit, and the tree produces more than you consume, so you decide to sell your oranges. The supply of oranges is limited, as you tree can only produce a limited number of oranges per season. What determines the value of your oranges is the demand for the oranges in your town. If the town experiences an increase in demand for the oranges, then that demand will drive the amount of value people are willing to exchange for your oranges up. In other words, they’re willing to pay more for your oranges. As such, an increase in demand, without a corresponding increase in supply, will lead to an increase in the value of the oranges.
Now, let’s say that after looking at how your organge business is booming, your neighbour decides to plant an orange tree as well. Now, there are two people in town who have orange trees. The supply of oranges has increased, but the demand has stayed the same. Even if the previous clients are still willing to pay the same price for the oranges, the amount of those clients is limited, and those clients will purchase a limited amount of oranges. Some people aren’t willing to pay a price higher above a certain amount for the oranges. As such, this will leave you and your neighbour in a situation where you either don’t profit from the remaining oranges that you have, or you lower the price on the oranges, thus being able to address the demand for a new sector of the market: one that is only willing to pay a lower price for the oranges. As such, an increase in supply, without a corresponding increase in demand, will lead to a decrease in the value of the oranges.
However, consider a third scenario, where both, the supply and the demand for oranges increases proportionally. In this case, the value of the oranges will remain unchanged. The BRICS currency supply formula aims to maintain a constant or increasing value of the currency, while having a dynamic supply. This is achieved by adjusting the supply based on the economic performance of the member nations, ensuring that the value of the BRICS currency reflects the underlying economic value of the BRICS bloc.
BRICS Supply During Economic Boom
Imagine that the BRICS nations experience a period of robust economic growth. Foreign trade surges as exports rise, foreign direct investment pours in, and portfolio investments in BRICS financial markets soar. The foreign exchange reserves of the BRICS central banks, including their gold holdings, expand significantly. In this scenario, the BRICS currency supply formula would compute a higher value for M, leading to an increase in the circulating supply of the digital currency. This expansion in supply aims to reflect the increased economic value of the BRICS bloc, thus the increased demand for the BRICS currency, since the bloc both, operates on that currency and defines its value.
BRICS Suppply During Economic Downturn
Now consider the opposite case, where the BRICS economies face challenges. Trade volumes contract, foreign investments are reduced, and capital outflows increase. Central bank reserves are drawn down to support local currencies. In this situation, the currency supply formula would result in a lower value for M, triggering a contraction in the BRICS digital currency supply. This reduction helps offset the decreased demand and economic activity, thus reducing or preventing devaluation of the BRICS currency.
Gold-Backed BRICS Currency
If you’ve paid close attention to the formula above, you have noticed the inclusion of gold in the G&EX component. Unlike FIAT currencies, whose value is defined at will (this is what the word fiat means in Latin), gold is not a currency, but rather money, as it has intrinsic value. While it may be incorrect to claim that the BRICS currency is backed by gold, it is correct to claim that the BRICS currency is partially backed by gold. As such, this makes the proposed BRICS digital currency at least partly money, by the very defintion of the word money.
Gold has been used as a form of money for over 5,000 years, making it the longest-standing form of money in human history. Its intrinsic value, scarcity, and durability have made it a reliable store of value and medium of exchange. When a currency is backed by gold, it means that the supply of that currency is a direct reflection fo the underlying collateral in gold. In practice, this means that that a unit of that currency is convertible to a fixed amount of gold. This not only provides extra stability to the currency, but also serves as a hedge against inflation. The value of the currency is tied to the value of gold, which is a tangible asset with intrinsic value.
Gold-Backed United States Dollar (USD)
Gold-backed currencies are not a new concept. Many countries have used gold-backed currencies in the past, including the United States. Under the gold standard, the US dollar was directly convertible to gold at a fixed rate. This system was formalized in the Bretton Woods agreement after World War II.
The Bretton Woods agreement established a system of fixed exchange rates, where countries pegged their currencies to the US dollar, and the US dollar was pegged to gold at a rate of $35 per ounce. This meant that foreign governments could exchange their US dollar reserves for gold at this fixed rate. However, in 1971 the direct convertibility of the US dollar to gold has been halted. This effectively turned the US dollar into a fiat currency.
BRICS - Trust No One, Profit From Everyone
By allowing member countries to perform trade either in their local currencies, or in a currency which partly derives their value from the country’s local currency, instead of enforcing a trade in a currency mostly controlled by a third-party, the BRICS digital currency is an attractive option for both, emerging and developed markets. Besides enabling member nations to at least in part, use a their local currency, it also enables those nations to increase the value of their currency by leveraging the native liquidity pool in BRICS.
Such a monetary system is a move towards decentralization at a global scale. It allows for the BRICS members to have a currency that is not controlled by a single entity, but rather by a group of entities. This is a move towards a more decentralized financial system, where the control over the currency is distributed among the member nations. This presents a sharp contract to the majority of existing financial infrastructure, where the control over the currency is centralized in the hands of a single entity, such as a central bank or a government.
BRICS Digital Currency as a Cryptocurrency on a Public Blockchain
The BRICS digital currency, as described in “Digital Money Options for the BRICS” can be implemented as a cryptocurrency on a smart-contract enabled public blockchain. Such an approach not only reduces the cost and the complexity of the implementation, expands its utility and reach, but also presents a move towards a fully decentralized and trustless global financial system. The blockchain provides a verifiable computational model, where every participant can be sure that rules encoded within the smart contracts are followed. This means that the participants don’t need to trust each other to perform their obligations, both at an individual level, and at the group level. My article zkSNARKs & zkSTARKs: A Novel Verifiable Computation Model explores the disruptive concept of public verifiable computation models and their practical implications in more detail.
BRICS Digital Currency and Zero-Knowledge Proofs
While Zero-Knowledge (ZK) may not be strictly required to address the implementation details of the BRICS digital currency as described in the article, using it will empower it with several benefits. First, it will further reduce the complexity and cost of the implementation. Second, it will trivialize its interoperability not only with other blockchains, but also “legacy” systems, such as the COBOL-based systems still in use by many banks, and Web 2. Third, it will enable a realm of applications in decentralized identity (DID) and decentralized finance (DeFi) that are impossible or infeasable with approaches that don’t include ZK.
In practice, Zero-Knowledge proofs allow for private data in public computations. For example, in the realm of DeFi it means that it’s possible to publicly perform a monetary transaction without revealing neither the identities of the partipants, nor the amounts, while still allowing anyone to verify such a transaction does not violate any national or international laws. When I say “anyone”, I don’t just mean only the participating BRICS nations, but really anyone: you, me or even an IoT device. If we use ZKP protocols like zkSNARKs and zkSTARKs, we can express this verification in just a couple of kilobytes of data, instead of requiring to download and store hundreds of gigabytes of blockchain data to perform a single verification. This is precisely how zkLocus leverages the Mina Blockchain to provide a geolocation as a programmable real-world-asset (RWA) with a self-sustainable on-chain business model powered by the $ZKL token.
While the benefits of a public blockchain combined with Zero-Knowledge proofs may seem “too good to be true”, this is precisely what a disruptive technology does. Building the next era of finance atop them provides benefits for the human society as a whole, by enabling a more trustless, transparent, efficient, inclusive, privacy-preserving financial system. By being conretized as a cryptocurrency, the BRICS digital curerncy can not only achieve its present and future goals, but also enable a more decentralized and interoperable financial system that aligns with the principles of Web3.
How To Implement BRICS Currency as a Cryptocurrency on a Public Blockchain
In this section, we will explore precisely how the BRICS digital currency can be implemented as a cryptocurrency on a public blockchain. You may have noticed that this section is short, and I am inviting you to connect it to my previous argument of how much simpler, more efficient, and less complex the implementation of it is as a cryptocurrency, compared to alternative approaches.
The crux of the nature of the currency is its value. The value is defined by the ratio between the supply & demand. Supply is defined by the currency suppply formula that we explored above: M = ForT + FDI + PI + ForEx + G&EX + InterSec + Der + ForDeposit + EuroCurrency + MTransfer + Etc.. The supply can be algorithmically controlled by a smart contract, and ZKP protocols like zkSNARKs & zkSTARKs can be used to verifiably and privately bridge data from any digital source. The demand derives from the incentives created for participating in the BRICS economic network. In order to participate, one must typically comply with certain demands and act according to the rules of the network. All of these demands can be realized as self-executing smart contracts.
The explanation of how to implement the BRICS digital currency as a cryptocurrency on a public blockchain is summarized in the paragraph above. We’ll now explore the implementation in a little more detail.
Dynamic Supply Mechanism of The BRICS Cryptocurrency
As we’ve already seen, the supply of the BRICS digital currency follows a well-defined formula. Algorithmic stable coins and automated money makers (AMMs) implement similar approaches. You may be familiar with Uniswap V2’s x*y=k formula, which algorithmically defines the price of assets in the pool. The daily trading volume of such decentralized currencies on decentralized exchanges (DEX) is in the billions of U.S. dollars in value. These same, empirically-proved mechanisms can be employed for the BRICS digital currency as well.
Realizing this dynamic supply mechanism on a blockchain would involve smart contracts that fetch economic data from trusted sources for each member nation. These data points could encompass the factors outlined in the article’s proposed BRICS currency supply formula:
M = ForT + FDI + PI + ForEx + G&EX + InterSec + Der + ForDeposit + EuroCurrency + MTransfer + Etc.
The set of smart contracts on a public blockchain would be responsible for controlling the suppply of the BRICS currency. Zero-Knowlege proofs greatly simplify the integration process, by allowing this data to be verifiably fetched from various digital sources, such as APIs, databases, oracles, and even other blockchains.
Legal Compliance On-Chain
All of the rules and regulations related to the participation and operation within the BRICS economic network can also be expressed as smart-contracts on a public blockchain. This allows for an implementation automated enforcemenet of the law fully on-chain. Besides massively reducing the cost and complexity, it is also possible to remove the need to run or maintain any infrastructure, by creating incentives for the network participants to execute it.
zkSafeZones provides a practical example of how legal compliance can be automated on the blockchain. In the whitepaper, we present a system designed to safeguard civilians in conflict zones, by enabling them to share their geolocation in an authenticated and private manner onto the Mina blockchain, and then use this data to enforce international laws, such as the International Humanitarian Law (IHL). We are proposing this project to the United Nations, and the International Committee of the Red Cross (ICRC). If you are interested in contributing, please reach out to me at hello@illya.sh, or using other mediums at https://illya.sh.
The approaches of zkSafeZones can be extended for the needs of the BRICS digital currency as well. By encoding the legal compliance rules as smart contracts on a public blockchain, the BRICS nations can ensure that all participants in the economic network adhere to the agreed-upon regulations. This not only simplifies the enforcement of laws, but also provides a transparent, verifiable and privacy-preserving mechanism for ensuring compliance.
BRICS Currency, zkLocus & DeFi
Previously in this text we’ve explored how zkLocus can empower DeFi by allowing to associate geolocation data with each transaction, while preserving the end-user privacy. Effectively, zkLocus turns geolocation into a programmable real-world asset (RWA), and allows it to be used within smart contracts. This section explores this integration in more detail, and how it can be integrated with digital currencies like BRICS and ERC-20 tokens.
zkLocus is natively implemented on the Mina Protocol blockchain, while remaining compatible with any other blockchain, such as Ethereum, ICP and Cardano. One of the value propositions of Mina is the ease with which you can bridge its data onto other blockchains. zkLocus geolocation proofs are raw zkSNARK proofs, and as such they themselves can be directly used by other blockchains. As such, integration with zkLocus can be done by either bridging data from the Mina blockchain, or by verifying zkLocus proofs directly on the blockchain of choice. Integrating through Mina has the benefit of using the on-chain’s protocol features such it’s native token $ZKL and bounties, which allow for the incentivization of submission of zkLocus proofs on-chain, thus enabling to outsource the on-chain data compression and submission to third-parties. This presents a tremendous benefit of removing the need to manage complex infrastructure by having all of the computation performed by a large pool of nodes.
Conclusion
The BRICS digital currency, as proposed in “Digital Money Options for the BRICS”, can be realized as a cryptocurrency on a public blockchain. By leveraging smart contracts to encode a dynamic supply based on a algorithmic currency supply formula, tokenizing assets like gold, employing Zero-Knowledge Proofs for privacy and compliance, and integrating geolocation-based functionalities through RWA protocols like zkLocus, the BRICS nations can create a more efficent, interoperable, decentralized and inclusive financial system.
Embracing public blockchains and Zero-Knowledge technologies empowers the BRICS nations to pioneer a new era of finance that achieves its goals more effectively, by leveraging the Web3 principles. Such a financial system presents a value proposition at a large scale not only for the participants of the BRICS economic system, but for our global society as a whole, by shaping the environment of our value exchange mechanism in the form of currency to be more trustless, transparent, inclusive and privacy-preserving.
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