encointer as a development aid multiplier

Today, development aid gets diluted by administration, advertisement and corruption before it reaches its target, the individuals. Encointer provides a direct and egalitarian distribution channel from donors to individuals. Moreover, it potentially multiplies the economic impact of donations for the same reasons why fractional reserve banking works.

Encointer aims to provide every human with a digital proof of personhood and a basic income in a local cryptocurrency. This means that every participant can maintain exactly one digital identity and that every participant gets a fixed amount of cryptocurrency per month. In contrast to other known cryptocurrencies, encointer issues local currencies, meaning that their issuance is locally bounded. The currency of Benin can have a different exchange rate than that of Norway.

Let’s imagine a rural village somewhere in a developing country where 100 inhabitants own a smartphone and regularly participate in encointer ceremonies. Only few of them have a bank account and a state-issued ID. Encointer provides this village with its own cryptocurrency which sees an inflation of ~100 units per month. Let’s simply call this new currency NCTR. After ten years of constant participation, this would result in an annual nominal inflation rate of 10%. The transparent scarcity of this currency alone could give it value because it might be a more convenient medium of exchange than cash (i.e. if no one has a lot of cash, it gets difficult to get change for your purchase).

Let’s further assume an NGO that commits to spending 100$ as development aid for that village every month. With encointer, this NGO could set up an online exchange for that villages cryptocurrency at a fixed rate of 1$ per NCTR, turning NCTR into a stablecoin. The villagers could now sell their newly issued NCTR to the NGO in return for 1$ per NCTR. In the first month, almost all villagers might immediately exchange their NCTR for $’s. The few people owning a bank account could receive the $’s on their account and do the brokerage. The NGO would transparently burn all NCTR it bought to make sure these coins never hit the market again. After a few months, people grow more confident that their NCTR is indeed worth 1$ and they may choose to use their NCTR as a medium of exchange and unit of account instead. Other villagers will be attracted to encointer. If we’d have 200 participants after a year, 200 NCTR will be issued per month while the NGO may still spend ~100$ per month. If only half of the participants chose to sell their NCTR to the NGO and the other half trusts it’s stable value, the 100$ from the NGO have magically turned into 200$ in market capitalization for the NCTR currency. That is in fact similar to how fractional reserve banking in developed nations works: For every 100$ a bank issues in credits, it only has ~10$ in deposits. That works fine under the assumption that not everyone withdraws their deposits at the same time. Because of this assumption there is a risk. Developing nations might not reach a stable multiplier of ten, but imagine what even a doubling of the world’s development aid could do. Distributed directly to individuals as a basic income.

A Global Universal Basic Income

A universal basic income (UBI) is a modest amount of money paid unconditionally to individuals on a regular basis (Standing). Most advocates of UBI aim at introducing it at a national level, as a monthly income to all legal (fiscal) residents and paid out in cash (denominated in national currency). Usually, a UBI is suggested to be financed by some form of taxation. As Van Parijs & Vanderborght explain, a national UBI may lead to justice among thieves (achieving more equality within a wealthy nation while there’s staggering inequality globally). They therefore argue for a global UBI, as do WBI or GBI.

Encointer aims at providing a global UBI in terms of units of cryptocurrency created on a regular basis and distributed to individuals (almost) unconditionally. Let’s examine the characteristics of such an encointer-UBI:

universal

Encointer is paid out to every human being able and willing to attend encointer meetus every 41 days and in posession of a smartphone. This unfortunately excludes persons with certain disabilities as well as those without a smartphone. Also, the need to travel to meetups comes at varying cost, depending on local population densities – a disadvantage to people living in remote areas. While this is not exactly unconditional, we think it is less exclusive on a global scale than introducing national UBI schemes in few wealthy nations. Moreover, encointer might promote the concept of UBI and pave the way for institutionalized national or global UBI.

basic

Nothing in the definition of UBI defines a specific amount. However, it is often understood to be sufficient to cover basic needs and therefore provide economic security to its beneficiaries. In order to do so, it should also be stable. Encointer is a new cryptocurrency with algorithmically defined monetary supply. Only the (global) market can define its purchasing power.

global vs local currency

Cryptocurrencies based on public unpermissioned blockchains are global by nature. Encointer is such a cryptocurrency – with the important added feature of allowing local currencies to be issued, as will be discussed below. Encointer is paid out in equal nominal amounts to every individual. Technically, there is no decentralized way of doing otherwise as the P2P network has no awareness of national borders or the cost of living. As a means for UBI this is a mixed blessing. If UBI is expected to be suffient to cover basic needs there is no way to achieve this goal with a global currency. Purchasing power of one unit of global currency would vary hugely among different regions. The upside being that the UBI’s purchasing power is in that case expected to be higher in weaker economies, therefore reducing global inequality.

Because Encointer issuance involves meetups with known geolocation, it is technically feasible to issue local currencies which are algorithmically bound to high-interaction communities (though ignorant of national borders). This would allow the UBI to be denominated in a currency which is meant to be used within local ecosystems yet freely tradable globally.

real value

The purchasing power of a unit of local encointer currency is market-based. It isn’t backed by gold or trust in some nations central bank. It’s value is determined by its usefulness as a store of value, medium of transfer or unit of account. Depending on national circumstances, the usefulness of encointer can vary. Where large parts of the populations are unbanked, encointer could complement national currency because it is accessible to everyone and more convenient to use and store than cash.

Another angle from which to define value could be international development aid. Encointer would allow to distribute aid to individuals living in a specified area directly by buying their local currency. It would even be possible to buy such local currency at fixed rates, thereby ensuring a stable value of that local currency. Administrative cost and misappropriation of development aid could be reduced significantly.

income

Encointer delivers an income in a fixed nominal amount of digital currency, paid (or issued) in regular intervals (for every ceremony meetup attended, happening in fixed intervals of 41 days) to all participating individuals. This income is obligation free and is given to the rich and the poor alike.

This income is paid for by issuing money and therefore by nominal inflation of encointer currency. No taxation is involved but one should be aware that nominal inflation is an indirect form of capital taxation on holders of encointer currency. As the absolute nominal inflation rate depends on the number of ceremony meetup participants, its relative nominal inflation decreases over time for a stable amount of participants. Such a design may have a high real inflation in the short term (higher than economic growth) and a low inflation longterm (below economic growth- leading to deflationary real value). It is technically feasible to apply a governance scheme to adjust nominal inflation in order to reach stable value of currency, but it will be challenging to find decentalized consensus among different stakeholders on what such inflation rate should be.

Literature:

why yet another cryptocurrency?

Bitcoin has failed as a decentralized cryptocurrency. Mining is dominated by a single company, Bitmain. All the excessive energy for mining is wasted in vain as decentralization is the sole purpose of PoW. Other cryptocurrencies using PoW are doomed to meet the same fate.

xPoS still struggles to be accepted as a sound consensus mechanism. Big xPoS currencies like cardano are still centralized.

Bitcoin also has become a target of heavy speculation and early adopters got rich. Its deflationary nature benefits the wealthy. No cryptocurrency so far has successfully implemented a monetary policy that adapts to adoption. Instead of rewarding early investors, encointer can become a universal basic income.

Private transactions are still an expert feature and there is still no GDPR-compliant smart contract solution out there.

So here we are, proposing a novel approach to reach an ecological, egalitarian and private cryptocurrency and self-sovereign identity system