Creating a UBI (Universal Basic Income) system using Blockchain — Part 2

With the disruption in both creation and distribution of money through cryptocurrency, we are proposing a Blockchain agnostic UBI protocol. This basically means that the economic model proposed in this series of articles can be applied on any Blockchain by proposing an improvement such as the BIP series for Bitcoin. The Tezos Blockchain could be a starting point for this system because of the governance mechanism that is in place that can fold in protocol upgrades to the Blockchain.

UBI trials are so far country specific due to different economic conditions as well as different currencies. In my view, cryptocurrencies are poised to be an alternative to fiat currencies, hence an UBI system built on top of cryptocurrencies can truly be universal. If the UBI system is incorporated into the Blockchain protocol (For example, if it is stated that for every block of BTC that is mined, 0.5% of the mining reward would go toward a UBI contract that is then distributed at given time intervals), that would then make it a fully trustworthy and decentralized system. The missing piece is identity, since the user identity needs to be linked to a particular private key; also there would have to be simple backup mechanisms for contingencies where people lose their keys/identity documents.

UBI is like imposing negative tax on all citizens of a state. Each person is entitled to a certain sum of money even though they do nothing to earn it. Now that money has to be generated from somewhere; in the case of a country giving out UBI to it’s citizens, that money is generated from taxing the wealthy a higher amount to ensure that the money is more evenly distributed. For say 100% of the work done by a person, they would get only 99% of the value back to themselves in terms of money, and the rest 1% would go into the “UBI account” which is then distributed to all citizens of the state. Let’s assume that work is defined by: Mining blocks of transactions through which miners perform a service of validating transactions and keeping the network live. If the miner reward is 100% earlier, it would then become 99% or 99.5% now, and the remaining would go to a UBI fund that would then be distributed at a given time interval to everyone signed up for the network.

Beyond the technology behind Bitcoin, the economics behind it was what made it as revolutionary as it is today. Miners provide a service of confirming financial transactions, which was previously done by banks, and in return are rewarded with Bitcoin. Double spends are disincentivized, and sybil attacks are made hard through PoW. There’s a limited supply of Bitcoin, and with more people accepting it as a method of payment, the more utility it develops.

The growth of decentralized currencies, with the right governance and incentives in place, could create a decentralized way to create and distribute money evenly to people around the world.

One of the problems with cryptocurrency being a solution to at least pilot a UBI based system is that if the cryptocurrency is forked at a later date, it devalues the cryptocurrency which would defeat the purpose. The cryptocurrency should have just one version, without having multiple versions. What is needed is a way to ensure widespread distribution of the cryptocurrency while maintaining fast transaction times and more importantly transactions must be free or with very minimal cost to ensure an easy way to spend it.

What I think is required for an UBI system:

1. Even distribution of the currency, crypto or otherwise;
2. Constant value of the distributed currency;
3. Low transaction fees for using it as payment;
4. Decentralised in the creation and distribution of the currency — not under the control of any single party or a group of parties;
5. Ease of entry into the system by anyone in the world;
6. Only one account per person;

Given these conditions, it would seem that many cryptocurrencies come close to ticking off some of the above points. However, this is what I feel is lacking in the current crypto ecosystem when it comes to creating a UBI system on cryptocurrencies:

1. Cryptocurrency prices can be easily manipulated, and PoW based blockchains have the disadvantage of potentially becoming a centralized place to create money.
2. PoS or dPoS are good ways to confirm transactions, but still lead to some form of centralization since only those who have enough Tokens can stake and confirm transactions. PoS consumes less electricity, but the argument that PoW systems are energetically expensive does not hold in my opinion, as I have not yet seen a comparison study on how the alternatives are any better (fiat money/digital payments).
3. Forking of blockchains creates confusion and holders of the cryptocurrency might lose trust with the various forks and new promises of each fork.

Is there a protocol that can be implemented on top of an existing Blockchain — which has been proven to have value — that can enable 1. Identification of unique accounts and people through a decentralized ID management system; 2. Provide a consistent stream of that Blockchains native crypto on a regular basis to all users; 3. Enable smart contracts to build in a cryptoeconomics logic of balancing out the total number of Tokens that are going to be distributed; 4. Accomodate new users while not diluting existing users’ tokens.

These points may sound simplistic, but I believe that there is a strong crypto-economic model that can be designed to enable the Blockchain to have true universal value and provide a UBI while keeping identification and distribution as decentralized as possible.