Encointer Testnet Gesell had suffered from a variety of little issues that were caused by an outdated dependency on substrate. Yesterday, Gesell has been restarted with its code based on substrate 2.0.0.
Our new release 0.3.6 has been successfully tested with a community of 12’000 bot participants claiming an UBI and performing ceremony meetups at 1’000 locations. We do aim higher, of course, but this benchmark reassures us that the blockchain tech is ready for pilots. It also confirms our choice for the substrate framework.
Moreover, our mobile app has seen some updates and is now available on:
Our privacy and scalability tech SubstraTEE has also been funded by the Polkadot treasury to work towards massive scalability through TEE-validated sharded sidechains. Thanks to this project, Encointer communities will be able to do thousands of payments per second per community with cash-like privacy.
In this post I’d like to explain how local cryptocurrencies can make a global unconditional basic income happen and how Encointer solves the technical and economical challenges involved. Finally, I’ll give you a brief overview on what you can already do with our recently launched testnet Gesell today.
A few years ago I was traveling in Western Africa. Strolling around in Ouagadougou I found a woman selling papaya in the street. I wanted to buy one and gave her the smallest bill I had which was maybe three times the price of the papaya. She didn’t have change, so she had to walk off to several neighbors until she returned with the change. This story wouldn’t be noteworthy if it happened once. But it appears to be very common where people live hand-to-mouth. This woman likely belongs to the 1.7bn unbanked adults in the world but likely owns a mobile phone. Even if her business would grow, she would have to keep her savings in cash. Wouldn’t a cryptocurrency be much more convenient in this case?
Moreover, I’m confident that a universal basic income could systematically improve the situation of the poor in this world by breaking vicious cycles: With the security of having existential needs covered, people can make better strategic decisions, can spend time on education or free themselves from abusive relationships. I’m spending my time on developing Encointer because I can see a way how this could possibly become reality.
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 still staggering inequality globally). They therefore argue for a global UBI, as do WBI or GBI.
The debate around how high a UBI should be and who is going to pay for it is what hampers its adoption today, as demonstrated by the Swiss popular initiative of 2016. Encointer offers an answer to both questions.
Encointer UBI is fresh money issued on individual accounts denominated in local cryptocurrencies. The basic income is issued “out of nothing” (Like national currencies are, but here we have a bottom-up approach instead of a top-down one, inverting the Cantillon effect). However, we need some means to bound monetary supply or these local currencies will constantly inflate and the UBI loses real value every month. So, yes, the Encointer economy still needs someone to pay for the UBI.
Why Local Money Should be Perishable
Encointer currencies feature nominal demurrage: All balances get devalued over time. The funds you’re holding lose 7% of their nominal value every month. Think of this devaluation like a payment to a solidarity fund that pays for the UBI. This way, Encointer can issue monthly UBI and still maintain stable money supply as shown by the simulation in the figure below. Another advantage of demurrage has been described by Silvio Gesell when he proposed Freigeld in 1916: Demurrage increases money velocity, which in turn fuels the local economy. Money supply for a stationary economy with a demurrage fee of 7% per month and a population of 10’000 participants. After an initial phase, the UBI of 1 token per ceremony maintains a constant ratio to the total money supply and therefore maintains a constant real value.
But why would a newly-issued cryptocurrency gain real value at all? This question can only be answered by inspecting the needs of the local communities and their willingness to broadly accept Encointer as a means of payment. Consider the papaya-seller mentioned earlier. Accepting a digital currency would be much more convenient for her. Knowing that this currency has solidarity built-in might convince many to use it and it could become a moral imperative to do so. See the miracle of Wörgl for an example where a local currency gained real value and improved lives. Until it was prohibited by the state — out of fear to lose control.
Proof of Personhood
Encointer provides a UBI without relying on state-issued ID documents, which 1.1bn world citizens don’t have. How can we be sure that only humans get the UBI and that they only get it once?
In the Encointer whitepaper, we propose a novel proof-of-personhood protocol, leveraging the fact that every person can only be in one place at one time: Every 41 days, participants are requested to attend physical key-signing meetups with small groups of random people. Because all meetups happen as one global ceremony all on the same day at the same local time, no one can attend two meetups.
The meetup locations are randomly sampled from a set that every community can define for themselves Publicly accessible meetup locations are selected upon bootstrapping a new local currency
During the ceremony meetups, all participants attest each other’s person-hood with their reputation and are rewarded with a UBI in return. As long as the majority of participants is honest, this protocol ensures that every person can get exactly one UBI per ceremony.
Our papaya seller could launch an Encointer currency for the city of Ouagadougou starting with a handful of her friends. They might call their currency “OGU”. They would install the Encointer app on their phone and register for the next Encointer ceremony. After a successful bootstrapping meetup they receive their first UBI in OGU to their mobile phone wallet. Now they should use the 41 days until the following ceremony to spread the word and convince another handful of people to register. Within a few months, a new micro-economy can emerge. The papaya seller might start accepting OGU for her goods because she knows that she can spend it on rice in her neighbour’s shop. The rice seller will accept OGU because the bar on the corner accepts it. The bartender will accept it because he can buy papaya for OGU.
Because the money supply is deterministically bound to the size of the population using it, the value of one coin is expected to converge to the amount of goods people buy with OGU during 41 days. Demurrage is our friend here because it makes you want to spend your UBI rather sooner than later. And you’d rather invest that hoard.
In order to test the protocol, we run ceremonies in fast forward mode with one ceremony every 30 min. New local currencies can be bootstrapped, bot populations can be scripted and various attacks can be attempted. Please read our tutorial and start your own currency within one hour and learn how Encointer works.
Testing, testing, testing! A second testnet called “Cantillon” will add privacy enhancements by using SubstraTEE. This will improve both anonymity and scalability. Anonymity is crucial for Encointer because people should not know whom they will be meeting at the next ceremony ahead of time because that would open a social engineering attack vector. And apart from that I reckon you don’t want your neighbors to know exactly what you spend your money on and when.
Cantillon will be targeted at ceremonies with real people happening every three days.
We will enhance our mobile app to be used for ceremonies as well as for everyday payments.
Decentralized identity is another feature of our technology. The Encointer proof-of-personhood protocol can be leveraged to mitigate sybil attacks in many online use cases. Imagine social networks where you know that every human can only maintain one profile. Ratings of products and services would become much more credible and identity theft would become more difficult to do.
Encointer aims at improving global equality of opportunity, a goal that should appeal to liberal minds from left to right convictions. In the end, that’s what freedom is about. The time for a global universal basic income has come and the Encointer Association is developing the technology to enable it everywhere for everyone. Join our endeavor by spreading the word and by supporting us financially or with your time as a developer, reviewer, scholar or with your network as an ambassador and influencer!
We are excited to announce the upcoming first Encointer testnet called “Cantillon”. It is named after Richard Cantillon, the economist who first described the effect of monetary expansion on inequality around the year 1730.
For the development of this first testnet, Encointer got a grant from the web3 foundation. By mid-2020 this testnet shall go live and allow to bootstrap new local currencies with daily ceremonies. For technical details, please see the testnet specification.
There is a lot of work to be done. Encointer employs the Decentralized Systems team at Supercomputing Systems AG that also develops SubstraTEE, the privacy enhancing tech that Encointer will build upon.
A few conceptual details have been reworked since this podcast has been recorded (see the newest version of the whitepaper)
Meetup locations are predetermined for each local currency by the initiators of the currency. This way each community can choose the territory of their currency.
The monetary policy has been adjusted to include demurrage (nominal devaluation over time). This way the money supply is stable for stable populations and the value of the basic income will be stable with regard to total money supply.
We are proud to present the first proof of concept for encointer ceremonies. The following video guides you through the steps of registering for a ceremony with a mobile phone app through to participating at a meetup where only humans are able to provide each other with a proof of personhood by signing their id, thereby confirming that they are physically present. And finally, you will see how the blockchain issues fresh money on behalf of honest participants as a basic income in NCTR tokens. PoC1 demo
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 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:
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.
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.
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.
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.