Bitcoin, eh? This wonderful new technology, given to us by the mysterious character that goes by the name of Satoshi Nakamoto. A “peer-to-peer electronic cash system”, bound to revolutionise the way we exchange value between one another.
Cryptocurrencies have already shown us what they are made of, but have they delivered their full potential yet? I don’t think so, and in this article I’ll try to explore the possibility of how a cryptocurrency could be used for universal basic income. Two main questions are taken into consideration: how should such a currency be valued, and how can we guarantee individuality. Please keep in mind that the ideas that I’m about to present here are merely to be taken as food for thought. I’m not an Economics Nobel laureate, nor do I have a PhD in cryptography. Either way, bear with me.
Universal basic income
That’s a pretty straight forward and easily understandable definition. Let’s dig down a bit more:
That is, basic income has the following five characteristics:
1. Periodic: it is paid at regular intervals, not as a one-off grant;
2. Cash payment: it is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on;
3. Individual: it is paid on an individual basis;
4. Universal: it is paid to all, without means-test;
5. Unconditional: it is paid without a requirement to work or to demonstrate willingness-to-work.
In a nut-shell, this is it. So, the question being is: how can a cryptocurrency fulfil this? A periodic, universal, and unconditional cash payment is easily achievable. But what about individuality? How do we make sure that each and everyone of us gets only one payment reference in such a system, without the need for third parties? I’ll discuss that further on, but first lets try to dissect the financials of this protocol — and by dissect I mean throw a couple of fancy words and terms around.
If such a protocol was to exist, the first thing to consider is the fact that currency has different value depending on where you are using it. Having a couple of bucks in the USA would allow me to buy a meal, for example. But the same amount would take me a long way in some rural parts of Africa. Even in the same country, distribution of wealth can be a problem. A payout to a middle class individual would have a different value than a payout to a low class individual.
Moreover, there is the issue of the value of such currency, and the risk of it being volatile. Even though cryptocurrencies have taken a centre stage in our world, we are still experiencing periods of high variations. Although I believe that this will, at some point, cease to be a problem, it is still something to be considered.
I’ve thought about volatility for a while, and here are my thoughts. Up until not so long ago, currencies had a direct relation to the value of gold. This was known as the gold standard. What this meant was, for example, if a government using this standard set the value of 100 units of its currency to have the same value as 1oz of gold, then the currency would be worth 1/100th of an once of gold.
So, could this be achieved for a cryptocurrency? The answer is yes… in theory. First of all, there is an issue with pegging an unlimited supply currency to the value of a limited supply commodity. Secondly, who would decide on what the value of 1oz of gold would be? There are multiple sources around the globe that can tell us the price of gold, but how would you go around to solve this? One way could be to build oracles into the base protocol, that would pull gold prices worldwide. From where to pull this information could be decided and voted by the users.
This doesn’t sound like a far fetched idea on paper. But we still have the problem of the value of the currency itself. And for that, I’m afraid I haven’t thought about what to do… Even the gold standard idea seems a bit crazy. I guess I’ll leave it to the experts.
Clearly economic theory is a very complex and broad subject. So let’s change to another one… Cryptography! Much easier right?
Before we dig into that, let’s do a quick 101 on Public Key Infrastructure (PKI)— one of the basic blocks of Bitcoin, and the one that allows for users to have Bitcoins associated to them, and to send them to others.
So, you are a new user, and just created your first Bitcoin wallet. Amazing, right? But then you start thinking: “What does this address mean? Why is it so strange, and impossible to memorize?” Great question! Whenever you create a new “account” in Bitcoin, what actually happens in the background is the protocol generates a key pair: a public key, and a private key. Along with that, an address is generated — created from a portion of your key pair. The address is used so that other users can send you funds. If you want to send funds to other users, what happens is: you create a transaction, attached to your public key, and sign it with your private key. This allows for anyone to check that you actually sent that transaction, just by knowing your public key! Cryptography, am I right? I know, it’s a bit confusing, so I won’t dwell more into it.
PKI, as amazing as it can be, suffers from one major problem: if you ever lose your private key, you lose access to your funds. Forever. There is no “Recover private key” option in Bitcoin. There is no “Reset password”. Yes, one can argue that exchanges and wallets safely secure this information, and the user will always have a safeguard… But come on, let’s be realistic! Currently, there are a couple of solutions to help with this, one of the safest being hardware wallets — offline, physical wallets that store your keys. But still, there is a minor chance that you can lose them.
That being said, why did you need to know all of that you ask? Simple: the solution for individuality, in my opinion, would have to be one that merged together PKI and biometrics. Imagine this: what if you (your fingerprint, your face, your iris…), were actually your key pair? Both the public and the private key? Both those values could be mathematically derived from inputs that represent you, and no one else, and only you would be able to reproduce.
What would this mean? Well, first of all your keys would never get lost. Never, ever, again — although there is a case to be made around the chance of yourself being compromised, thus compromising your keys, but that would be a whole other chapter. Secondly, there wouldn’t be a need to go through any middleman to gain access to the system, and prove your identity, thus removing control, and risk, from unwanted parties — again there are issues here, mostly related to impersonation and key compromise.
Another argument against such a system, mostly around the technical implementation of it, would be that it is currently hard to rely on biometric data to generate key pairs, since this data is analog, varying with environmental conditions, or even the person’s condition, therefore containing errors. Non-static data produces non-static outputs, and this is a major hurdle. Amongst others.
Will technology help in solving world peace, poverty, discrimination, …? I like to think so. Can cryptocurrencies be a solution to basic income? This is still a fairly young subject… So I’m going with maybe.
We are on the verge of something big! Technological growth is insane, and if we take a look at the latest Gartner’s hype cycle for emerging technologies, it’s clear that change is just right around the corner. What is not so clear is how that change will look like. By the end, how much of an impact, and I mean positive impact, these changes will have in our lives is only up to us.
I’ve thrown some wild thoughts around. What I presented here will probably be taken somewhat seriously by some, and laughed at by others. But hey, as long as it gets people talking, I’m happy with it.
“Imagination will often carry us to worlds that never were. But without it we go nowhere.” — Carl Sagan