Redesigning Money, using CryptoCurrencies to provide a Universal Basic Income
Money is one of the oldest technologies out there but yet only few of us truly understand how it actually works. In today’s world, money has become so complex that in most capitalistic societies, the rich have access to better ways of making more money and this create a huge wealth gap between the rich and the poor.
Which is why as of recent, concepts such as Universal Basic Income (UBI) have started gaining popularity as a way of bridging this wealth-gap (aside from also bringing people out of poverty and living less stressful lives)
In this post, I document my initial thoughts and experiments with UBI and on creating a fair money ecosystem using cryptocurrencies which:
- Does not widen the gap between the rich and poor and
- Is fully decentralised and self-sustainable.
- Is smart-enough for us to develop contracts or write code on top of it.
The problems with Bitcoin and Blockchain today
One of my main issues with Bitcoin is the fact that it’s wealth is far too centralised. Over 95% of all Bitcoins in circulation is held by only 4% of all registered wallets. This distribution is in fact, worse than the wealth gap in South Africa which is regarded as the world’s most unequal country.
While Bitcoin is doing a great job of taking power away from the banks/governments and redistributing it back to the people, it’s centralisation of wealth is a big problem when it comes to being an asset that can say, compete with Gold.
It is very often seen on many crypto-exchanges that there’s a lot of market manipulation that happens with Bitcoin by large traders who can easily move the market with a few million dollars. Compare this to Gold, where such trades are a drop in the ocean.
Aside from that, most public blockchains out there today are quite slow. If you were to buy a cup of coffee using Bitcoin, it’d take you about 30 minutes for you to verify that your transaction has gone through. We won’t discuss about scalability in this post, because there’s a lot of active research happening to solve those issues.
Using blockchain/cryptocurrencies to implement a UBI-based system is nothing new. With the decentralisation of Blockchain and with the programmability of cryptocurrencies, one could easily create a UBI-based cryptocurrency. (see this BitcoinTalk thread for a list of such currencies). However they face major issues, each of which I list below (and provide solutions to some).
Preventing Sybil Attacks
This is by far the most important problem of creating a UBI-based cryptocurrency. How to prevent the network from being attacked by a large number of fake nodes (or Sybil nodes) from claiming multiple UBIs from fake accounts.
Generally, to prevent a Sybil attack, we need to make it simply extremely hard and expensive for an attacker to perform such an attack.
A few UBI-based cryptocurrency (like CirclesUBI or UBIC) have attempted to solve this issue by either:
- asking for KYC-documents from users to identify themselves or
- by having have a trusted network of “validators” who are people who’ll allow new participants in a network.
However, these networks mostly face the issue that they are either too centralised or take user-identifiable information (like your Passport #, Government ID etc.) which become publicly exposed on the blockchain.
To prevent a Sybil attack, a completely different solution needs to be made which does not take user-identifiable information to confirm the identity of a user, nor should it have any network of “validators” but at the same time be able to identify real “humans”.
BrightID (whitepaper) by Adam Stallard and team seems to provide the right idea. It works by creating a decentralised network of users who cross-verify and rate themselves by forming real human groups. The more “human” the groups are, the higher the score they’ll get.
So individuals with a high score can be considered as genuine “humans” and would be eligible to receive a UBI.
Moreover imposing an account creation fee which is set to a considerable about (like 5–20$ per wallet) should make it considerably expensive for an attacker to create a large number of fake accounts.
This in combinations with restrictions defined to receive a UBI (defined below), should make it very hard for a dedicated attacker to try and game the network. I hope to find more ways to figure out how to make it also expensive to attack the network (maybe figure out a way to penalise bad actors?).
Conditions to receive a UBI
To make our system of Universal Basic Income sustainable, we should also define a few basic conditions for a person to make himself available to receive a UBI.
An income which is given to every user irrespective of how much effort they put in to contribute to the growth of the society is like giving away free money without any commitments. This sort of activity would most definitely reduce the value of the society. So the goal is to find how much effort a user should put in his society to justify receiving a UBI such that it’s:
- Not too much such that value of the work is valued more than the amount being given out as UBI.
- Not too less such that the UBI being given out is not devaluing the entire network as a whole.
I’d like to propose that every user who has an active account, which
- Has and maintains a high BrightID score
- Has made at least one transaction within the last 30 days
is eligible for a UBI.
Moreover if the UBI that is received is not spent within the next 90 days, then it should be refunded back to the network.
This allows us to give a UBI to only those users who are actually interacting within the system and also allows us to give the UBI to only those people who really need it.
Imposing a global wealth tax on users of the network
To even out the wealth gap that exists in Bitcoin and other fiat currencies, I’d like to propose a global wealth tax that will be imposed on the all users participating in the network.
This means (for example) at the end of every year, all wallets will pay a 1% tax to the network.
The money collected from this tax would then be redistributed back to all the users as their Universal Basic Income.
Since the wealth tax is a fixed percentage and the UBI for every person is a fixed amount, what happens is eventually as time goes by, wealth will get transferred slowly from the rich to the poor.
However, a wealth tax is not something the top wallet holders will appreciate and I have yet to figure if this will work or if we can find a proper incentive for them to pay the tax.
Having a cryptocurrency with UBI is not enough. Adoption is needed for it to survive
UBI is a concept that would work well within a society transacting in fiat currency like the US Dollar.
The reason is that the fiat currency itself has a lot of purchasing power. Which is why giving away a UBI paid out in a cryptocurrency that has no value at all would make no sense at all. There needs to be something that a person can do with the cryptocurrency for it to have some value for the person to consider.
Bitcoin found it’s early value in the online black markets (silk road) and eventually that helped drive it’s value up over time.
As of writing, I don’t know what would appeal a merchant to accept a new cryptocurrency (which promises UBI) when they can already use Bitcoin/Ethereum. Which means a UBI-based cryptocurrency will face major issues with adoption unless there’s something else unique about it.
Conclusion
UBI is a concept that at its core is attacking our greed for money which at many times can do more harm than good. Creating a system that supports a UBI is not going to be easy for any government to implement and it will face a lot of resistance from those in the top 1%. Which is why I believe going the decentralised route (with the use of a blockchain) is the only way forward.
While I figure out and explore more about what it takes to create a cryptocurrency with the promise of a Universal Basic Income, I’d like to encourage readers to share their thoughts with me and help me build this with your help, together. Once all parts of the story are made clear, I hope to complete a prototype of blockchain that supports a cryptocurrency that provides a UBI
