By Daniel Mermelstein 2nd July 2019Share
Those who try to introduce change (into organisations or into any other community) know that it is wise to do it gradually and, if at all possible, while pretending that nothing much is actually changing. This is because they know that most people, most of the time, are resistant to change. Humans are conservative creatures and, as a species, this has served us well in the battle for survival. So, when you hear that there are people out there who are trying to combine the concepts of Citizen’s Basic Income and cryptocurrencies into one package, you can’t help marvelling at the enormous optimism and sheer ambition of the whole endeavour.
Citizen’s Basic Income asks you to question a lot of very deeply (and probably unconsciously) held notions about the nature of work, of poverty and of fairness, among others. Cryptocurrencies ask the same of even more mysterious concepts such as money, value, trust, and even power. Putting the two together could leave you wondering if you know anything for certain about a lot of things you thought were incontrovertible.
Let’s start with cryptocurrencies. The fact is that most of us, when we go for a loaf of bread at the bakery and hand over a £5 note to pay for it, never pause for a moment to think about the magic that has just happened. A total stranger, who got up at 3 a.m. to bake an actual loaf with real flour and water and yeast, is totally happy to hand you the fruit of her labour in exchange for a brightly-coloured piece of paper (or plastic these days) and let you take it away. Try drawing a picture of the queen on a napkin and attempting to get the loaf in exchange for that brightly-coloured piece of paper!
The magic, of course, is the magic of trust. Apart from you and the baker, there is a third party in that transaction: a mysterious entity called The Bank of England, that imbues the brightly-coloured piece of paper with its magical properties. The baker knows that she can take the paper with her and trust that other people will accept it in exchange for flour and yeast – because the Bank of England says the paper has value, and we all believe that it does.
But what if there were no intermediary? Could you operate in an environment where there was no trusted third party to vouch for the supply, or to guarantee the value, of your money? In a digital world, where it is trivially easy to make endless copies of, say, a digital £5 note, this is hard. The problem of the double-spend has bedevilled attempts at online currencies in the past. Put simply, I could buy your real loaf with a digital token, but unless it is impossible for me to use that digital token again for something else (double spend), you will not be willing to take it in exchange for the loaf, because you do not know if it will have any value tomorrow. This is the problem that was so successfully solved by Bitcoin 10 years ago and that kickstarted the crypto explosion that we see today.
Bitcoin and Blockchain
Often the words bitcoin and blockchain come together. Bitcoin relies on a blockchain but they are not the same thing: there are many other blockchains and not all of them have to do with cryptocurrencies.
In simple terms, a blockchain is a ledger, or a database. You can think of it as a massive spreadsheet. In the case of cryptocurrencies, this ledger contains all the transactions made with the cryptocurrency. When Alice pays some cryptocurrency to Bob, the transaction (out of Alice’s account and into Bob’s) gets recorded on the ledger. When Bob gives some of that to Carol, that transaction also goes in the ledger, another row in the spreadsheet.
Every transaction has to be verified before it becomes ‘official’ (that is, someone needs to check that Alice has enough funds to pay Bob). These verifiers are powerful computers called ‘miners’. They verify by gathering multiple transactions together into a ‘block’ and then racing against other miners to be the first to verify this block. They do this by doing some difficult cryptographic mathematics where the solution is very hard to find but, once found, is very simple to check. Once a miner finds a solution, their newly verified ‘block’ gets added to the chain of other blocks, hence the name blockchain. Each new block has a reference to the previous one, so you can follow the chain of blocks into the past and back to the present. And the process starts again for the next set of transactions. The beauty of it is that the miners are compensated by the process itself. Every time a new block is added, it comes with some newly-created bitcoin that belongs to the miner who was the first to verify it.
This is, of course, a massive oversimplification of a much more complex process. But the amazing thing about the whole bitcoin ecosystem is that no one is in central control, but everyone is incentivised to be a ‘good actor’:
- Anyone can be a miner. All you have to do is install some open source software on a powerful computer and join the party.
- Anyone can have a bitcoin account. All you have to do is generate a valid account (known as a ‘wallet’) and people can start sending you bitcoin.
- The ledger of all the transactions (the blockchain) is public, so anyone can verify the history of all bitcoins.
- Because you need a copy of the ledger to verify transactions, there are hundreds of thousands of copies around. Bitcoin is virtually indestructible.
- Because every block in the blockchain is cryptographically related to the previous one, tampering with blocks is practically impossible without detection. Bitcoin is basically tamper-proof.
- Because the rate of creation of blocks is pre-determined (again, using some clever cryptographic mathematics), the supply of money is controlled, and known.
All of the above means that the baker could sell her bread for bitcoin safe in the knowledge that her bitcoin is as unique as a £5 note and that she would be able to spend it on flour and yeast tomorrow.
Bitcoin was, to a large extent, a libertarian, anti-statist project. It is de-centralised and trust-less by design. It is no coincidence that it emerged in the wake of the financial crisis of 2008. It questions the role and probity of banks, and even whether they need to exist at all in the process of making money and keeping its value. It makes us think about how value is created and stored and therefore about what makes the British pound or the US dollar so special. Its borderless nature, and its focus on anonymity, challenge the authority of the state and its ability to control its own currency and collect taxes from its citizens.
And what about Citizen’s Basic Income?
On a website and in a publication dedicated to the understanding of Citizen’s Basic Income, the notion itself requires less explanation: but it is worth pointing out that Citizen’s Basic Income is, in some sense, just as challenging a concept to large parts of society as cryptocurrencies are.
The idea that everyone should receive a regular amount of money without any strings attached is perhaps as foreign to most people as the idea that a piece of software, and not a committee of the Bank of England, should decide how much money is in circulation. In the case of Citizen’s Basic Income, large segments of society sincerely believe that there ought to be a link between welfare and work. This is why most state welfare programmes require claimants to prove that they are actively seeking work or, alternatively, too sick or disabled to work.
Having said that, Citizen’s Basic Income has a far longer history that cryptocurrencies and, inasmuch as it has been tried, a better track record. Cryptocurrencies have had a much rockier ride in their short history, having been associated with criminal enterprises and some major volatility in prices.
Not as foreign as you think
Once you look into them, however, Citizen’s Basic Income and cryptocurrencies are perhaps not as alien as you might initially think. We have had universal benefits, like Child Benefit, before. Similarly, you may think that a cryptocurrency is odd, but you have probably dealt in ‘currencies’ generated by non-state actors without batting an eyelid. Your Nectar points, or similar loyalty card points, are a form of private currency, ‘minted’ by a consortium of businesses. They issue the tokens and they are accepted as a valid currency in certain places. And you have to trust that they won’t suddenly and arbitrarily change the rules (which they often do). Similarly, with the Air Miles programmes of most airlines.
So why mix the two together?
For Citizen’s Basic Income enthusiasts, there is an obvious appeal in cryptocurrencies – they are as universal as Citizen’s Basic Income wants to be. No borders, no controls, no corrupt central banks or other middlemen. Given that a cryptocurrency can be created from scratch, Citizen’s Basic Income enthusiasts could design one that closely matches the aims that they want to achieve for Citizen’s Basic Income. Once designed and launched, like Bitcoin and other cryptocurrencies, the rules are known and cannot be tampered with, reducing the likelihood of corrupt practices in the management of the currency.
For cryptocurrency lovers, there is the ubiquity appeal: if you could put even small amounts of a currency in the hands of many, many people, then would they start to use it on a daily basis? So far, cryptocurrencies have been the preserve of a relatively small group of currency speculators and enthusiasts (which goes some way to explaining their wild price volatility). These people have, for the most part, been hoarding it, like gold, rather than spending it, like a normal currency. I once tried to buy a camera with bitcoin and it turned into a nightmare. But if you started giving it away to everyone, could it turn into an instrument of daily trade?
So, is this a marriage made in heaven or a hellish union?
Only time will tell. So far, there appears to be only one functioning UBI cryptocurrency. It is called Manna. You can sign up on their website and start receiving a weekly stipend, the size of which depends on how many verified recipients exist that week. You can send your Manna to other Manna holders, and you can even trade it for US dollars on this exchange. The foundation behind Manna is working to get merchants to accept it as payment, and credit card issuers to allow you to store Manna in a debit card, then instantly spend it even at businesses that do not accept Manna or digital currency. In 2018, they raised $100,000, and they claim to have more than 100,000 users already. They have ambitious plans for 2019. They are not without their critics, however. Some have pointed out that the way the currency giveaway is structured is designed to make its creators extremely wealthy if it takes off (a sort of ‘thin trickle-down effect’).
Other Basic Income cryptocurrencies are well behind Manna. The people behind https://www.coinisseur.com have recently produced a very good summary of these projects and it is worth having a look. The main takeaway from it, however, is that these projects are very much in their infancy. The majority are at the whitepaper stage, that is, there is no real implementation yet, and no way of knowing whether they will ever get off the ground. Some, like Swift and Value Instrument have some Alpha (very early stage) implementations that don’t give much away in terms of their future potential.
Even if one of these cryptocurrencies were to start gaining traction, there remain serious challenges to widespread adoption, most of which have more to do with the current nature of cryptocurrencies than with Citizen’s Basic Income itself:
- Citizen’s Basic Income is designed to pay individuals, but cryptocurrencies are mostly anonymous (or at least pseudonymous) by design. The currency is in wallets and it is very difficult to connect a wallet to an individual. Any successful Citizen’s Basic Income cryptocurrency would have to find a way to solve this issue, so as to avoid paying people more than once.
- If the aim is universal adoption (and with cryptocurrency this becomes possible), it will be the most-needy who will be harder to reach. Owning cryptocurrency requires a level of technological adoption (like access to smartphones, and basics like electricity, for example) which puts them out of reach of a significant chunk of the world’s population.
- There is a big challenge around scale for any cryptocurrency. The volumes of transactions Bitcoin currently handles are putting a huge strain on the system. And the number of Bitcoin users is still tiny compared to the potential number of users of a fully-fledged Citizen’s Basic Income coin. Lots of clever people are thinking hard about this problem at the moment, but there is no clear solution in sight yet.
- There is still a big question mark, as pointed out above, as to whether these cryptocurrencies can become daily instruments of trade. It requires enough people to have them, and enough merchants to trust them and accept them, for the virtuous cycle to be created. This will always be a challenge.
- And governance is always a big issue with cryptocurrencies. Although it is true, as mentioned earlier, that there are no middlemen and the rules are transparent, there is always a core of people somewhere who govern the ecosystem (in the case of Bitcoin there is a core group of developers who have a lot of influence, for example). When a cryptocurrency becomes popular, the issue of who is at the core of the development becomes tense and contested. These tensions will inevitably be part of any Citizen’s Basic Income-related cryptocurrency.
In sum, mixing two socially, economically and even psychologically disruptive concepts, and then trying to get acceptance for them, is always going to be tough. On the other hand, if either one of them starts to gain mainstream traction, it might serve to raise and validate the other. It is a risky gamble, but one that could pay off handsomely for both Citizen’s Basic Income and cryptocurrencies.
Daniel Mermelstein is a technical architect and consultantShare