Sustainable Crypto Universal Basic Income
Universal basic income (UBI) is an interesting experiment. For those of you unfamiliar with the idea, it's "a form of social security system in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.". In other words, every person is guaranteed to receive a specific sum of money each month for just being alive. While this might trigger Red Scare in some people, lets take a free-thinker approach to this and explore this concept further in the concept of cryptocurrencies.
The first step towards discussion of Crypto UBI, is handling one of the hard problem in cryptocurrencies that relates to n-per-person coins. Vitalik created an excellent video on this topic (part relevant to our discussion starts around here).
When it comes to cryptocurrencies, a lot of people debate how the coins should be distributed. Bitcoin uses proof of work to distribute its newly minted coins to the miners. There are a lot of other distribution models - proof-of-burn (Counterparty), pre-purchase (Mastercoin), centralized token creation (Ripple), but probably the hardest problem to tackle comes from "n-per-person coins", sometimes also called national coins.
Auroracoin is perhaps the most well known example of such a coin. It aims to distribute a large portion of its coins to the population of Iceland, where each Icelander would be eligible to receive a certain amount of coins. Doing this in a centralized fashion is an achievable process - there are companies offering KYC services that can accomplish this, and any willing government could similarly perform such an undertaking. Solving the same problem in a purely cryptographical manner, however, is an open problem.
Unfortunately, I don't see any clear way of solving the issue of uniquely identifying a person in an objective and privacy-friendly manner, therefore we would have to assume a central or distributed ID verification party would have to be involved.
Another big issue that needs to be addressed by anyone talking about Universal Basic Income is the problem of inflation. If we assume everyone is getting X amount of money each month, that money has to come from somewhere. It can be created in a form of new money, but that would expand the money supply by a large amount each month. Alternatively, we could look at taxes or some other clever method of addressing the issue.
Lets say that we want to be clever and solve this issue in a new way. To prevent inflation, we need a system that:
While initially these restrictions appear to be excluding one another, it is possible to solve them by just using one trick:
Demurrage is a cost associated with holding currency over a given period. In other words, you lose a certain percentage of your money each month, year, or other period measurement. If we impose a 1% per month demurrage on holding money and give a person $1000 per month, he would pay $10 the first month. The second month, he would get another $1000, pay $10 for that money, but also pay $9.9 for the $990 he has from last month. Eventually, when the person has $100k saved up, he would be receiving $1000 and paying $1000 in a month and reach an equilibrium.
A more general formula is this: If you give away $X in a period and demurrage takes away Y%, your money supply will reach $ X/Y. For 1%, it's 100*X, for 10% it's 10*X, etc.
In other words, demurrage allows us to both give everyone their Universal Basic Income and ensure a fixed money supply cap.
The best part is, we can achieve this functionality in a cryptocurrency today. Ripple has supported demurrage for awhile, and more systems could similarly implement their own version of demurrage as needed.
Now that we have discussed the two components needed to create a sustainable Crypto Universal Basic Income system (unique user identification and a demurrage currency), we can ponder how a world that uses such a currency could look like.
Like it or not, we are headed for a more and more automated world where human labour might not be needed (for better or for worse). In a post-scarcity economy, UBI would probably fit in really well. In a dystopian future, it probably won't be welcome. However, lets focus on the here and now - why would anyone want to work if they received money for free?
As with any currency, it would only have value in relation to what you can buy with it. In a current world, what you would get from UBI wouldn't probably stretch much. It might be comparable to a welfare cheque - enough to survive, but without any luxuries. People would have the same incentive to work as they do now - to earn more and be able to afford more. The added benefit would come from being able to fall-back on UBI as needed.
If a lot of people decided not to work, then the value of labour would go up. People would have more inventive to work, and eventually we would find some balance of how much the currency is worth and how much labour is worth.
Now, knowing that everyone, no matter who they are, can afford to spend X amount per month would mean anyone supplying goods and services could aim for that income demographic. You could have housing built specifically for people living only on UBI, or have restaurants to serve affordable food. Such catering would once again depend on how many people live only off UBI - the more there are, the more the prices will cater to them.
Savings and loans would be interesting in UBI economy. Since by default demurrage would offer negative interest rate on holding the currency, banks could even offer zero interest rate and have people interested in saving with them. Similarly, loans could be given out at zero interest rate as well (well, not at the same time as zero interest rate saving perhaps), because this way the banks would be able to access the same amount of money in the future without suffering from the demurrage. Moreover, they would know that worst come to worse, the person in question would be able to make some payments on the debt from their guaranteed income.
The first noticeable thing about a UBI economy would be the wealth redistribution. Since everyone would be paying demurrage based on the amount of money they hold, obviously richer people would have to pay proportionally more. In order to keep rich, they would have to work harder and harder to maintain their elevated savings in comparison to other people. This would certainly be an equalizer in the society.
Understandably, some people will want to move their wealth from the demurrage UBI currency. Some might go into commodities, but those by themselves have a cost associated with storing them. Using Bitcoin or perhaps some other currencies would probably be a preferable option. This would make UBI currency less valuable, but if you consider how some countries engage in a "beggar thy neighbour" and currency wars approaches, this could make the country that uses UBI a cheap source of goods on the global market.
Another advantage of having demurrage built into a currency is that the system will naturally smooth out any extra money that is thrown into the system. This means that a country using UBI can finance public projects easily by creating more currency for just this purpose and paying the appropriate people to undertake it. This could mean building public green spaces, paying for healthcare and education, or anything else that is needed.
While we don't have a clear roadmap of how to achieve Crypto Universal Basic Income on a same decentralized level as Bitcoin, a centralized or semi-centralized solution that achieves a stable money supply is possible. While any country switching over to pure UBI approach might suffer greatly from the disruption of its current economy, perhaps creating a ground-up Crypto UBI might create an organic growth into an acceptable monetary system.
N-per-person coins
The first step towards discussion of Crypto UBI, is handling one of the hard problem in cryptocurrencies that relates to n-per-person coins. Vitalik created an excellent video on this topic (part relevant to our discussion starts around here).
When it comes to cryptocurrencies, a lot of people debate how the coins should be distributed. Bitcoin uses proof of work to distribute its newly minted coins to the miners. There are a lot of other distribution models - proof-of-burn (Counterparty), pre-purchase (Mastercoin), centralized token creation (Ripple), but probably the hardest problem to tackle comes from "n-per-person coins", sometimes also called national coins.
Auroracoin is perhaps the most well known example of such a coin. It aims to distribute a large portion of its coins to the population of Iceland, where each Icelander would be eligible to receive a certain amount of coins. Doing this in a centralized fashion is an achievable process - there are companies offering KYC services that can accomplish this, and any willing government could similarly perform such an undertaking. Solving the same problem in a purely cryptographical manner, however, is an open problem.
Unfortunately, I don't see any clear way of solving the issue of uniquely identifying a person in an objective and privacy-friendly manner, therefore we would have to assume a central or distributed ID verification party would have to be involved.
The problem of inflation
Another big issue that needs to be addressed by anyone talking about Universal Basic Income is the problem of inflation. If we assume everyone is getting X amount of money each month, that money has to come from somewhere. It can be created in a form of new money, but that would expand the money supply by a large amount each month. Alternatively, we could look at taxes or some other clever method of addressing the issue.
Lets say that we want to be clever and solve this issue in a new way. To prevent inflation, we need a system that:
- Can create new money each period easily
- Can guarantee there will be a cap on the money supply
While initially these restrictions appear to be excluding one another, it is possible to solve them by just using one trick:
Demurrage
Demurrage is a cost associated with holding currency over a given period. In other words, you lose a certain percentage of your money each month, year, or other period measurement. If we impose a 1% per month demurrage on holding money and give a person $1000 per month, he would pay $10 the first month. The second month, he would get another $1000, pay $10 for that money, but also pay $9.9 for the $990 he has from last month. Eventually, when the person has $100k saved up, he would be receiving $1000 and paying $1000 in a month and reach an equilibrium.
A more general formula is this: If you give away $X in a period and demurrage takes away Y%, your money supply will reach $ X/Y. For 1%, it's 100*X, for 10% it's 10*X, etc.
In other words, demurrage allows us to both give everyone their Universal Basic Income and ensure a fixed money supply cap.
The best part is, we can achieve this functionality in a cryptocurrency today. Ripple has supported demurrage for awhile, and more systems could similarly implement their own version of demurrage as needed.
World with Crypto UBI
Now that we have discussed the two components needed to create a sustainable Crypto Universal Basic Income system (unique user identification and a demurrage currency), we can ponder how a world that uses such a currency could look like.
Motivation to work
Like it or not, we are headed for a more and more automated world where human labour might not be needed (for better or for worse). In a post-scarcity economy, UBI would probably fit in really well. In a dystopian future, it probably won't be welcome. However, lets focus on the here and now - why would anyone want to work if they received money for free?
As with any currency, it would only have value in relation to what you can buy with it. In a current world, what you would get from UBI wouldn't probably stretch much. It might be comparable to a welfare cheque - enough to survive, but without any luxuries. People would have the same incentive to work as they do now - to earn more and be able to afford more. The added benefit would come from being able to fall-back on UBI as needed.
If a lot of people decided not to work, then the value of labour would go up. People would have more inventive to work, and eventually we would find some balance of how much the currency is worth and how much labour is worth.
Catering to the basic income
Now, knowing that everyone, no matter who they are, can afford to spend X amount per month would mean anyone supplying goods and services could aim for that income demographic. You could have housing built specifically for people living only on UBI, or have restaurants to serve affordable food. Such catering would once again depend on how many people live only off UBI - the more there are, the more the prices will cater to them.
Savings and loans
Savings and loans would be interesting in UBI economy. Since by default demurrage would offer negative interest rate on holding the currency, banks could even offer zero interest rate and have people interested in saving with them. Similarly, loans could be given out at zero interest rate as well (well, not at the same time as zero interest rate saving perhaps), because this way the banks would be able to access the same amount of money in the future without suffering from the demurrage. Moreover, they would know that worst come to worse, the person in question would be able to make some payments on the debt from their guaranteed income.
Redistribution of wealth - an equalizer
The first noticeable thing about a UBI economy would be the wealth redistribution. Since everyone would be paying demurrage based on the amount of money they hold, obviously richer people would have to pay proportionally more. In order to keep rich, they would have to work harder and harder to maintain their elevated savings in comparison to other people. This would certainly be an equalizer in the society.
Alternative savings currencies
Understandably, some people will want to move their wealth from the demurrage UBI currency. Some might go into commodities, but those by themselves have a cost associated with storing them. Using Bitcoin or perhaps some other currencies would probably be a preferable option. This would make UBI currency less valuable, but if you consider how some countries engage in a "beggar thy neighbour" and currency wars approaches, this could make the country that uses UBI a cheap source of goods on the global market.
Public projects
Conclusions
While we don't have a clear roadmap of how to achieve Crypto Universal Basic Income on a same decentralized level as Bitcoin, a centralized or semi-centralized solution that achieves a stable money supply is possible. While any country switching over to pure UBI approach might suffer greatly from the disruption of its current economy, perhaps creating a ground-up Crypto UBI might create an organic growth into an acceptable monetary system.
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