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Cryptocurrency and UBI – the perfect partnership?

Crypto UBI

Table of Contents

Introdution

The terms “technological unemployment” and “basic income” crop up a lot lately. Presidential candidate Andrew Yang is even basing his 2020 campaign around basic income. 

These are not new concepts; the term technological unemployment was popularized by Keynes in the 1930s, and basic income concepts were first proposed by Thomas Paine in the late 18th century (there’s some debate over the exact coinage) .

A definition of basic income is provided on the basic income earth network website, or BIEN for short:

 “A basic income is a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.”  

Language is important here and the words unconditionally, all and individual should be stressed. The BIEN website is a great source for news and information on basic income from around the world. 

According to a 2013 Oxford study, around 50% of all jobs will be replaced by robots in the next 20 years. There will be important regional factors that will cause variations in the statistics between countries. Regardless of the variation between countries, many believe that the global displacement of jobs will be unprecedented.  Basic income is one solution to the problems this poses. It’s not the only idea and not some sort of silver bullet, but it could be an important component as political and economic policy grapples with these problems in the future. 

As an idea, it crosses the political divide and has proponents from the left, right and center. From an economics point of view, it’s advocates come from different schools of thought and for varying reasons. Economists such as Friedman, Hayek, Piketty, Varoufakis and Stiglitz all advocate a form of basic income. Industry leaders like Elon Musk, Bill Gates, and others are all talking more about basic income. In terms of social activists, in 1967, Martin Luther King, Jr. wrote:

“I am now convinced that the simplest approach will prove to be the most effective – the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”

Crypto UBI

UBI and Crypto

What are the benefits of UBI?

The benefits are both direct and indirect. A natural effect is the reduction in poverty.  In addition, things like reduced crime, greater education participation and labour market flexibility are also possible benefits.

So how does crypto fit into all this?

Many in the world of basic income think that cryptocurrencies and the technologies that underpin it are a natural fit for a global UBI system. The inherent characteristics of a public blockchain make it a natural technological fit – it’s open, permissionless,  decentralized, censorship resistant and borderless. To implement a UBI within a country, or indeed globally, these properties are desirable.

How would a crypto basic income system work?

There’s many different proposals on how the system would operate, but the philosophies underpinning are similar. A periodic, unconditional payment is made to all individuals in the form of a token with some value. 

Identity management mechanisms are important and blockchain technologies lends itself well to this. Preventing Sybil attacks, i.e. a single user creating many  accounts to receive multiple incomes is something that the system would need built in. Taking this a step further you can also imagine a future where Self Sovereign Identity (SSI) is a reality with users in true control of their digital identities.

In addition to identity management you have the added benefits of security, decentralization, and immutability that open blockchains bring. Smart contracts can also be used to automate the payment distribution process.

From a funding perspective there’s a couple of options within the design of the cryptocurrency that can be used.

Inflation funded

You can use code to define the size and growth rate of the token supply. In this case monetary inflation is distributed in the form of a basic income to all. Note that monetary and price inflation are different and more tokens issued does not necessarily lead to prices going up. 

Transaction fees 

Transaction fees can be collected and used to fund the basic income stipend.  However, high fees discourage spending and encourage hoarding which is probably not desirable when you’re trying to get a crypto UBI off the ground in the bootstrap phase. 

Aside from token inflation and transaction fees, there’s other mechanisms that would require backing outside of crypto. For example:

  • A citizen’s dividend (see georgism). Funds raised by taxing land and other natural resources that, according to Georgists,  should belong to us all collectively.
  • Redirecting some existing social welfare payments. Basic income does not mean the eradication of all forms of social welfare, but some funding can come from people coming off social welfare and receiving a basic income instead. 
  • Value Added Tax (VAT). Democratic presidential candidate Yang is proposing the introduction of VAT of 10% to help fund a UBI. 
  • A “Robot tax”. An idea that has the support of people like Bill Gates. This would be a new tax levied on robots that replace human jobs. 
  • Quantitative Easing (QE) distributed as a UBI. Similar to the idea of “helicopter money”, coined by Milton Friedman in the 60’s. This would see central banks give new money directly to the people in form of a UBI payment instead of the existing “trickle down” system.

Projects in the Crypto and UBI Space

Several projects across the world have started to leverage blockchain technology to try and make basic income a reality. Let’s take a look at a few here.

Grantcoin was the first cryptocurrency to distribute a basic income type of grant. It was created as a modification of Peercoin, a fork of Bitcoin, and uses the same SHA-256 proof-of-work mining. The currency was renamed to Manna in 2015. Eric Stetson is the Founder and Executive Director of “The People’s Currency Foundation” – the organization that developed Manna. 

Manna describes itself as:

“the first blockchain-based currency to be created and distributed by a tax-exempt nonprofit organization, and the first digital currency to implement a Universal Basic Income as its primary method of distribution.”

In order to receive the Manna basic income, users must sign up on Mannabase. The code is open source on Github and as of July 15th 2019, 1 Manna is trading for 9 satoshi.

The project has a centralized model for distributing funds and props up the price on exchanges which raises some questions on how decentralized this project really is:

“we use all donations beyond that to support the price of Manna on markets where it trades, through gradual buybacks of the token.”

For more details, read the full Manna white paper here.

Circles describes itself as a:

“decentralised Universal Basic Income platform based on personal currencies”

Circles has a few unique characteristics that separate it from other UBI crypto coins.  Firstly, It is based on individualized personal cryptocurrencies and trust between these currencies. When a user joins, the system creates and assigns them a unique currency. This personal currency continuously mints new coins at a defined rate which is the same across the board for all users. This is the UBI element of the system. 

The cryptocurrency also has built-in resistance to Sybil attacks and an inflation target of 5% per annum to discourage hoarding. You can read more about Circles here.

Greshm, not to be confused with the hotel in Dublin,  gets its name from Gresham’s law, which is the economic principle that “bad money drives out good”. Alex Howlet is the creator of Greshm and according to the website the plan is to organize the project as a non-profit.

The project uses a stablecoin, which is a cryptocurrency that’s  pegged to some less volatile asset. In the case of Greshm (XGD) it’s pegged to the USD so that:

 “A dollar within the Greshm system is worth the same as a dollar outside of the Greshm system.”

According to the Greshm whitepaper:

“Project Greshm manages the Greshm (XGD) currency for the benefit of society. We maintain a reserve of USD to back up its value. XGD is pegged to USD at par (one-to-one). After a period of time (e.g. 30 days), XGD matures into USD from the reserves. This rule enforces the peg. Whenever a unit of XGD changes hands, its term to maturity restarts. Circulation of XGD therefore lessens the impact on our USD reserves.”

You can read more about this project here.

ZeroPoverty is an interesting organization that aims to support the growing movement toward cryptocurrency universal basic income. 

According to the website:

“Our goals are to inspire and activate the design and adoption of UBI and cryptocurrencies in ways that enable humanity to evolve to a world of plenty for all.”

Philip Silva founded the Zero Poverty project and is actively involved in the Crypto UBI space. You can learn more about Zero Poverty here.

Some common criticisms of UBI

Naturally, with an idea this big there’s going to be quite a few criticisms. Rutger Bregman’s TED talk video discusses basic income and addresses some of its criticisms. 

The quote mentioned by R. Buckminster Fuller stands out and is worth restating:

“…we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors. The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living.”

 

Let’s briefly look at three common concerns that people raise:

  • The “something for nothing” objection 

One of the criticisms is the notion that money is our only motivator to work.  If you give people unconditional money, they won’t work.  People tend to throw around statements like this, but they would be outraged at the suggestion that they would follow this behavior. An example of what psychologists call the“false uniqueness effect”

  • UBI is too expensive argument

Another question mark raised is around the financial feasibility, but it looks like the numbers can add up to make this possible – particularly when you think of it as a tax rebate and not in gross terms. Karl Winderquist does a good job of explaining the numbers in a post here and why it should be viewed as a tax rebate.

“We need to get rid of any attention to this meaningless gross cost and focus on the one cost of UBI that matters: its net cost.”

  • Inflation will result

The logical concern is that adding new money to the economy causes inflation. Price inflation occurs only when the amount of spending on goods and services outstrips the economy’s productive capacity. As mentioned already, monetary and price inflation, although often related, shouldn’t be conflated.

Conclusion

Will blockchain be the tech that enables a global UBI it to be a reality? Only time will tell, but the initial experiments look interesting. 

Implementing a global crypto based UBI raises question marks around global macroeconomics. Specifically, what it means for monetary policies, fiscal policy, exchange rates and international trade. 

Basic income is certainly going to be a tough sell for some people, but perhaps partnering with crypto tech will allow experiments at scale. 

Further reading

https://medium.com/@pauljlamb/can-universal-basic-income-through-cryptocurrency-save-our-economic-future-2057e49663b8

https://citizensincome.org/research-analysis/basic-income-and-cryptocurrency/

https://basicincome.org/news/2019/05/cryptocurrencies-gooddollar-the-first-blockchain-related-ubi-conference-talk/

https://www.gooddollar.org/wp-content/uploads/2018/11/GD-Wealth-Distribution-Position-Paper.pdf

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Bryan

Bryan

Based in Ireland, Bryan is the founder and CEO of Boinnex. He has worked for almost a decade as an IT Project Manager contracting across finance, banking, insurance, tech, and healthcare industries. He found his way into the crypto space in 2017 when he started a contract role with IOHK — the dev company behind the Cardano blockchain. Since then, he has continued to be actively involved in different projects in the crypto and blockchain space. He enjoys learning, writing, and sharing knowledge about all things crypto.

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