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Implementing a Basic Income via a Digital Currency

Jon Perry
By Jon Perry
The Decline of Scarcity

Posted: Mar 26, 2014

The idea of basic income is rather old, but it has gained renewed interest in recent times. A basic income is appealing as both a solution to poverty and possible future technological unemployment.

But how do you pay for a basic income? Could it be paid for through the very act of money creation?

Modern monetary systems typically feature mechanisms for both creating and destroying money. In virtual economies these mechanisms are referred to as “faucets” and “sinks” respectively. How you define faucets and sinks says a lot about how your monetary system works and who it benefits.

Let’s use Bitcoin as an example. Bitcoin creates money through a computationally intensive “mining” process, that leaks new coins into the system at a predetermined rate. This faucet rewards people who have a lot of computational power to spend on this mining process. It also rewards early adopters since the faucet is slated to be slowed down and eventually turned off. Bitcoin doesn’t really feature any sinks, other than the fact that once bitcoins are lost they can never be retrieved. So one might say that carelessness is a kind of sink under the Bitcoin system.

Rewarding early adopters and those with computational power does make a certain kind of sense. Early adopters need to be incentivized or else the currency might never take off. And computational power is a stable, scarce resource, that in the case of Bitcoin is used to perform critical maintenance operations that keep the currency running.

However, the dark side is that Bitcoin is destined to create a new moneyed elite made up of this coalition of early adopters and computational donors. On the surface, it does not strike one as necessarily the most democratized monetary system possible.

Instead, one might imagine a currency that creates an equal amount of money in everyone’s wallet, every year. Such a system has both upsides and downsides, and there would be a lot of kinks to work out. That said, I think I might prefer such a system to Bitcoin.

One upside is that a basic income would be built directly into the system of money itself. If properly executed, everyone using the currency would be automatically insulated from the worst kinds of poverty. You would get a social safety net without the taxes.

Another upside is that this is probably an even better incentive to early adoption then Bitcoin’s deflationary model. Start using the currency and start getting an income. For many people that would be hard to turn down.

One downside is that to ensure against abuses of the system (e.g. creating two accounts and collecting two incomes) you would have to lose anonymity. Anonymity is a big value for a lot of people. However, an even larger group of people probably don’t care that much about anonymity. They’ve already accepted and gotten used to our current not very anonymous monetary system, and for them, this would simply be a lateral move. Furthermore if you buy contemporary arguments about the inevitable arrival of a post-privacy society, then anonymity may simply be an impossible goal to strive for anyway.

Another potential downside is that you would need a centralized authority to manage such a system. Again, this is going to be a problem for certain libertarian-leaning users, but it may not be that much of a problem for your average joe. Arguably, transparency and accountability are more important than decentralization for decentralization’s sake. Those attributes could possibly be preserved in a well-designed centralized system. In addition, one could argue that Bitcoin, even though it is decentralized in theory, still leads to a form of centralized power—namely the early adopters and computational donors mentioned above.

Such a system might also need sinks to protect against inflation. One idea might be to give the money an expiration date. Another idea might be to have the central authority be empowered to sell some sort of useful product or service, and then simply destroy the money after the purchase is made. There are literally countless ways this could be designed. The possibility space is wide open, and that is what is most exciting to me about digital currencies. (Though of course one must contend with the fact that governments are not always going to look kindly on monetary experimentation…)

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I was just discussing basic income with a friend a couple days ago and how much I support the idea.

I think as technology advances, we’re just not going to have enough “manual labor” jobs for everyone without “make work” silliness.  Also, the whole catch 22 of existing welfare systems of you lose your income and security if you try to work yourself out of it before you actually attain skills and security in your job… It’s also hard to learn to do more when you’re spending 12+ hours per day in two jobs just working to take care of your family.

I think it’s pretty inevitable that we’ll end up at basic income eventually, but I’d be willing to push it much sooner myself… The only way to do that is to use a digital cryptocurrency instead of sitting around waiting for the politicians to get to it.

If we can come up with a way to prevent the sort of fraud you mention above, I’d personally be willing to help work on such a thing… However, that is the tough part isn’t it? smile

It’s a great idea.  How would one come up with a central authority?  Tapping the Linux community?

It’s only indirectly about currency or money or tax credits or any other financial instruments or manipulation.
It’s really about how the current global economic system functions in distributing paid work and basic resources for food, water, shelter, & healthcare.
But no one has as yet been willing to propose anything other than playing at the margins with creative financial instruments & manipulation.

The Economic Case for a Universal Basic Income (Part 1 of a series)

Creating additional money does not create additional wealth. It only makes all goods and services that much more expensive. Something for nothing is the oldest siren song in the book. Never works for reasons too long to cover. But the reasons are obvious to most children between ages 5-12. You won’t learn them in college econ courses, which are mostly nonsense.

Do you know what money is? It’s simply a good or service that is so universally desired that it has become the medium of exchange and the one good through which all other goods and services are priced. Money prices are essential for the entrepreneurial operations of any economy above a primitive level. Bolsheviks found that out the hard way.

The future, if we are to have one, will be quite different than you suspect. In order to have money, one will have to earn it by providing value for others. It’s called the Golden Rule or reciprocity. It’s also a basic tenet of Daoism and, according to Hillel, the basic tenet of the Torah. It’s not work or a job per se that will count. It’s the provision of value that others are willing to pay for. In what universe will that not be possible?

There are further problems with your suggestion that another commenter pointed out. E.g. that central authority. Hmmm. Those central authorities sure have worked well throughout history haven’t they? Future money will be competitively issued by individuals and companies. The market will sort out the best money or monies via a process that will ultimately be determined by consumer choice.

Centralized monopoly currency issue is a dead issue at this point. Doesn’t work. Never will. Coercive monopoly always delivers ever shoddier goods at ever higher prices. Think about what that means in terms of money and you may get the picture.

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