Crypto And Basic Income: Proof Of Stake In One Country
By Nick Avramov on ALTCOIN MAGAZINE
Seems like that was the first article on the topic (at least I couldn’t find earlier one), so I am not pretending in any way on the originality of the attitude. Though I think I can elaborate a bit more on the subject and suggest a sort of imaginary situation or like economists say “model” of how basic income can be contemplated and released by using tokenomics and crypto in general.
[First released: 23:35 GMT+3 14 October 2019]
Step 1: Digital Transformation
First, let’s imagine that one particular country introduced a digital version of its local currency and informed the population that this type of currency becomes the only:
- Legal tender, or a medium of payment officially recognized by a legal system to be valid for meeting a financial obligation.
- Fiat Money, a currency without intrinsic value that has been established as money.
This condition is necessary to replace the already-establish fiat currency with a digital one. From a technical perspective, this cryptocurrency should make use of Proof-of-Stake consensus algorithm, though we will discuss it in detail in the next part. The exchange of fiat to newly established digital currency is set at 1:1.
What is particularly important here is that the implementation of a digital currency should come along with relevant legislation to prevent the emergence of black/grey currency markets. In this regard, I believe that the countries from Tier 1 can be those first to initiate such an experiment, because of relatively stable economies with low-interest rates on government-issued bonds, etc. All that will save the citizens of the country from potential shock and, again, prevent them from running across to the enemy side. To maintain fiscal and monetary policies, to payout teachers, doctors (if the state supports free healthcare) janitors, etc. All in all, to sustain.
Step 2: Introduction Of PoS and Staking
Well, half of the job is done.
Hell no.
To approach a semblance of basic income, we first have to figure out what PoS and staking are.
According to Investopedia,
Proof of Stake (PoS) concept states that a person can mine or validate block transactions according to how many coins he or she holds. This means that the more Bitcoin or altcoin owned by a miner, the more mining power he or she has.
Unlike Proof of Work that is used in many cryptocurrencies, like Bitcoin and Ethereum (though they have plans for migration to PoS), you do not need extreme computing power to participate in the consensus and get rewards for finding the next block. Practically it means fewer electricity costs, a much friendly attitude towards the environment and much inclusive access to the lottery of finding block/getting reward. When you lock some amount of coins for a time and thus start participating in the consensus, you are staking, just that’s it.
But, everything comes with a cost, no exception. As one might bethink, Proof of Stake consensus essentially leads to the situation when “rich get richer”, since the amount of coins you have is boosting the chance you will find the next block and get a desired number of coins as a reward. Seemingly complex, I believe that the problem could be solved with a kind of taxation (I am not in that way libertarian guy or admirer of Atlas Shrugged, as the old joke says, nobody knows who would build roads under anarcho-capitalism). Later on, we will discuss taxation as well.
Step 3: Staking Pools And Taxation
Here starts the most interesting (at least for me) part. As said before, the Proof of Stake type of consensus leads to the situation when wealthy-enough individuals leave out of the game those who try the like as marketing managers (here’s I am, keen on joking on myself). That’s why, to calibrate the system, we impose a proportional tax on the income individuals or a corporate entity are getting while staking. This is primarily true for banks that have accumulated (by default) large currency reserves, otherwise, the system wouldn’t work as stakers with small amounts of currency even being involved in the staking pool (described further) won’t have any chance to compete with staking pools of banks. Indeed, there should be some limitations on banking staking pools, but I do not consider it here.
So, staking pools. The staking pool is designed to encourage retail stakers (just regular people, not crypto billionaires or whichever rich guys) to participate in the staking (consensus) process. I am not sure if there should be a set of staking pools to compete with each other or not, but let’s think that there’s at least only one staking pool every citizen is linked to. In that case, of course proportionally to the stake, but still on a regular basis, one will receive a part of the reward for finding the next block in the blockchain, a part which is set as a proportion of one’s stake in the pool. Given the proportional tax on those with high stakes, being reinvested into the state economy, I believe, that is the basic income every citizen can obtain.
Basically, here’s how I think tokenomics can suffice the needs of digitalization, automatization and etc. As basic income tackles the following domains of tension in our society:
- Automation. There become more and more duties that can be fully automatized by machines or algorithms, no need for humans. I think it’s kinda clear.
- Aging. The total population in the EU is projected to increase from 511 million in 2016 to 520 million in 2070. However, the working-age population (people aged between 15 and 64) will decrease significantly from 333 million in 2016 to 292 million in 2070. And the problem won’t be solved by solely increasing the retirement age.
- Behavior change. I will not be here even much spread. Consumption, savings, habits and many more — everything is changing.
That’s why I believe that staking in PoS coins might be a kinda Basic-Income-as-a-Service solution for the contemporary world. There’re still things like code auditability to make sure the coin you’re investing is not another scam, but I put it below the scope of this work.
One very thing is that the model I proposed here is essentially an exchange-economy (for the lack of a better world I would say Tauschwirtschaft, but not from a barter economy, but from Tauschwert or exchange value and that’s crucial here) because for the very first perspective it’s hard to build credit institutions, foreign trade mechanisms, etc. Though I will think about it in a meanwhile.
There’s a number of objections that might arise along the line of the reasoning presented, and I heard some of them, but as it happens I didn’t manage to write them down and discuss here. Let it be that this article is a work in progress, every time I update it there’s a time stamp upside indicating the first version and the latest version date.
The opinion of the author may not coincide with his point of view.
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