The idea of Universal Basic Income (UBI) has gained recent traction. It is no longer just a socialist idea, but can even be applied to capitalist form of economy. From US presidential candidate Andrew Yang to the World Bank, there are new theories and concepts about how to redistribute money for the benefit of society. This can come in different forms, but the main problem remains. How do you finance a UBI program that will truly work?
In its most basic form, a UBI is ideally meant to deliver cash to people for immediate consumption. The money is taken from a government fund with no conditions attached, and should not be for any political gain. It should be transparent like any public service, where accountability is always taken into consideration. It is meant to promote financial well-being to all regardless of socio-economic standing. The problem is how to enforce the transparency.
In the time of the COVID-19 pandemic, it seems that it is possible to implement UBI. The Feds in the US have already distributed trillions of dollars in stimulus packages. The problem is that even though the Feds can print money out of thin air, the trillions of dollars given away by the government did not exactly end up in the hands of their citizens. Instead, it went to the banks and corporations who would otherwise go bankrupt. It is a complicated matter and cannot be simply stated that it helped the rich and powerful more than the needy. Businesses do need stimulus as well, in order to pay furloughed employees and pay the costs of operations during the pandemic crisis.
Andrew Yang’s plan for UBI is called the Freedom Dividend. His position on UBI is to collect a 10% VAT (Value Added Tax) by consolidating welfare programs. This would guarantee a payment of $1,000 per month ($12,000 per annum) to US citizens above 18 years of age. The idea here is to redistribute wealth in a time when there will be many more displaced individuals due to the rapid pace of technology. Workers are going to be replaced with more automation, thus leading to less income generation for many people. As Andrew Yang’s website states:
This will get much worse as self-driving cars and other technologies come online.
Not to worry, but this can gradually happen over time. The idea here is for people to benefit from more automation through the collection of a simple value added tax. This will provide some income, but is not necessarily to live off of without working. People are still encouraged to find a job and work, so will UBI discourage the unemployed to just stay home and collect the benefits? That is the question. We don’t know exactly what will happen, which is what makes the Freedom Dividend idea not acceptable to all.
The World Bank came up with their own findings of UBI. Countries like Mongolia and Iran had temporary UBI, but it did not seem to be sustainable for continued success. The problem seems to be in finding the right balance approach to social problems and the economy.
According to the World Bank study:
… policymakers could consider tackling specific bottlenecks that hamper eligibility, access, coverage, or delivery within the existing system. If a UBI is to be considered, it may have to be motivated by objectives other than poverty-related ones (e.g., automation-driven job insecurity, social dividends, etc.)
Like in the Freedom Dividend, the UBI is meant to be a guaranteed form of payment. How you find that guarantee is the issue and main concern. Are the payments going to be possible without red tape and corruption? Whenever you have a large scale implementation like this, there are loopholes which bad actors can take advantage of. Distributing cash to millions of people is not an easy task for anyone to perform. It requires logistics for accounting, payment processing, and distribution.
Perhaps there is a way to resolve some of the problems, especially with accountability and transparency. Using smart contract based applications that use a blockchain is something that can be proposed for UBI implementations. Although it is a new concept, it has been in use since 2015 with Ethereum, a cryptocurrency that is for decentralized payments.
Using smart contracts allows for applications to execute on a decentralized network which cannot be manipulated or controlled by any single entity, in theory. The reason it would be ideal is because a decentralized network is more trustworthy in a trustless system. You can rely on it to not censor or tamper with your data. Decentralization allows the full cooperation of incentivized participants (called nodes) on the network to process the data honestly or else they will not get incentivized.
The data is then stored in a special type of database, which is the blockchain. It is transparent to all so that any transaction for sending UBI money is recorded on the blockchain for auditing purposes. It also verifies the recipient and the amount they received. The data is cryptographically secured and cannot be modified by anyone, since the blockchain was meant to be immutable. This stores historical provability of data which can help with tracking and accounting UBI transactions. It also prevents bad actors from trying to steal funds since all transactions are recorded in real-time and will be hard to impossible to tamper with.
It all sounds good, but does it make sense? Digital payments probably sound easier to implement with a blockchain compared to cash. It is not quite there yet since national currencies or fiat are for the most part payable in cash. Does this mean the system has to be modified for digital currency? It seems that is being explored. There are concerns though that this could lead to less privacy since digital forms of payment are easier to track. They can also be controlled if issued by a Central Bank, and not decentralized like Bitcoin. These are some points to evaluate.
A project called the GoodDollar is creating a solution to pay for a type of UBI or basic income. According to their website:
A sustainable economic model that uses interest made from capital to fund basic income, similar to social impact bonds or endowments.
One reason this is a better idea than a government-based UBI is it is more decentralized in theory. A government-issued UBI in the form of digital currency or CBDC (Central Bank Digital Currency) can be tracked and controlled. That would make payments easier and more efficient for UBI, but there are no guarantees of privacy and freedom to use the money for any purpose. If the issuing Central Bank decides for some reason (e.g. political issues, etc.) to freeze payments to a person they can easily do that, and there is no reason to say they will not do it. It is possible when you have a centralized system.
The GoodDollar project is a smart contract-based protocol for yield-generating income using the Ethereum blockchain as a platform. It uses the G$ cryptocurrency as a digital asset for transactions. It is then distributed to users on a daily basis. The G$ is meant to be a stablecoin and not a speculative asset. It should thus peg its value to fiat currency, like the USD.
Here is more information from Coinmarketcap:
At launch, each $G token will be backed by DAI. The plan is to diversify collateral so that each stablecoin is backed by a basket of cryptocurrencies. The UBI model is sustained by supporters who deposit underlying assets onto the platform and then yield farm on supported DeFi protocols. A portion of the accrued interest is returned to supporters, with the rest collateralized for new $G tokens that are distributed each day. GoodDollar is a non-profit funded by donations from eToro.
The G$ ecosystem does not rely on donations to sustain its funds. Instead, it uses decentralized finance (DeFi) protocols based on cryptoeconomic principles for generating daily income. It relies on users called “Supporters” to fund a reserve of G$ that earn from DeFi protocols. The fund they provide is what pays for the basic income to people called “Claimers,” who get the G$ for free. It incentivizes those who provide liquidity into the reserve while providing basic income to people who need it.
What we need to understand is whether this is scalable and sustainable. Is it possible the reserve runs dry after everyone collects their money? The owners of this project should have surely thought that one through before releasing it to the public. This appears to be good for opportunists who just want to claim. Will there be more claimers than supporters? You need to have balance for people who are willing to provide the funds for incentives and the claimers who want the money. It is too early to tell whether this will become successful or not, but the idea is quite refreshing.
There are still plenty of things to explore with UBI, but the time to begin is always sooner than later. A self-sustaining funding mechanism like a decentralized autonomous reserve of funds would be ideal for a global UBI that can pay anyone who wants a claim. Perhaps it is better off being decentralized since it won’t be under anyone’s control. That would make it a truly community-owned type of entity where everyone benefits.
Adding a blockchain is meant to make it decentralized, secure, and transparent. Systems that handle large amounts of money are often prone to corruption and so there has to be a system of checks in place to prevent that. It is also not a guaranteed solution if the implementation is not correct. If one part of the system is not truly decentralized (e.g. digital currency), then the system could be manipulated.
One very important thing with projects that provide basic income, is whether their coins will be supported by digital exchanges. It would be best if multiple exchanges can support the conversion of the coin to another token and fiat for most people. Payment processors should be able to provide ways to do this.
This reminds me that perhaps it might need a form of digital governance among those who use it. For example, the system should allow voting to increase or decrease the daily amount of income claimed. The users can even vote to implement new protocols to improve the system’s efficiency. In that sense, this also implements a digital democracy for policy implementations. Projects like the GoodDollar are going to become examples of whether blockchain-based basic income will work and whether DeFi is the solution.