Encointer About to Launch on Kusama and Bootstrap First Community

If you have been following the Encointer Project, you may have noticed that communications fell silent for a while. Unfortunately, as Encointer requires physical meetups with random people, the COVID-19 pandemic caused delays. However, we kept making progress nevertheless and now that restrictions have eased somewhat, we would like to share some big news with you about the project. 

Encointer has been provisionally accepted to form a common good parachain on Kusama and are now inviting people to form the first Encointer community currency in Zurich. In this post we will discuss the benefits of Kusama for Encointer, how the project will enrich the Kusama ecosystem, and how Zurich residents can get involved in the world’s first Encointer community currency. 

Recap: The Goal of Encointer 

Firstly, let’s begin with a very brief recap of Encointer’s objectives. Encointer’s aim is to create a system of community currencies that can spur local economic activity. The project is particularly focused on less developed economic regions where fiat money tends to be scarce, large proportions of the local population are unbanked, and exchange rates are volatile. In such circumstances, local economic activity is suppressed by a lack of fiat money and monetary infrastructure. Citizens may have marketable skills, products, crops and crafts, but they are largely unable to exchange them because there is very little money circulating in the local economy.

Encointer is a framework for decentralized currencies designed to overcome this problem. Individuals in a given region can voluntarily come together to form a community currency. In order to ensure sufficient money supply, this currency would be issued as a universal basic income to all participants. Such currencies could spur local economic activity by providing a more convenient alternative to barter, without needing to rely on banks, governments, or charitable donations. 

A Major Milestone: Kusama Parachain  

Encointer recently achieved a major milestone: it has been tentatively accepted to become a common good parachain on the Kusama network. For Encointer, a big advantage of using a Kusama parachain is its pooled security.

Blockchain security is based on game theory: the more you have to lose, the greater your interest to keep the blockchain secure. This also means: the more capital a blockchain binds, the more secure it becomes. If Encointer were to launch its own blockchain, it could not bind significant capital because it doesn’t promise any returns. Thus, it would be easy to manipulate or sabotage. Kusama offers Encointer a solution to this problem. As the sister network of Polkadot, it already binds over $2bn, making it resilient to attacks. In addition, Kusama is a so-called relay chain, which means that it supports many highly customizable parachains which all benefit from the pooled security of the network. 

But parachains are a scarce resource. Usually, a project would need to bond in the region of $100m to secure a slot. However, Kusama’s on-chain governance council recently signaled its support for Encointer to be granted a common good parachain slot without the need to bond capital.  

While this is a hugely encouraging development, the decision is not yet final. Although the council believes that Encointer adds value to the Kusama and Polkadot ecosystems, the entire community of KSM holders will ultimately need to ratify that decision in a referendum (through a process called conviction-voting).

How Will Encointer Benefit the Kusama Ecosystem?

Now that we understand the benefits of Kusama for Encointer, let’s think about what Encointer offers the Kusama ecosystem.

A Secure, Private, Unique Identity System

Encointer solves one of Vitalik Buterin’s hard problems in cryptocurrency — how to create a “unique identity system” that can prevent Sybil attacks.

The protocol (whitepaper) requires every participant to be willing to prove their unique identity at physical key-signing events. Such events are held at regular intervals and involve randomized participants at randomized locations within a limited geographic region. This adds a strong layer of security to Encointer, ensuring that when the majority of a community is honest, a Sybil attack is impossible.

Whereas the social graph or randomized bilateral video approaches employed by alternative projects like Idena, BridghtId, Trustlines, CirlesUBI, and ProofOfHumanity may be less involved and more inclusive, they are also less secure than Encointer. Other projects that use biometric indicators to prove uniqueness (WorldCoin) are problematic for numerous reasons, as evidenced by Aadhaar in India.

In addition to its security, Encointer goes to great lengths to protect your privacy — which is even more important if you can only maintain a single unique identity.

One Person, One Vote

Kusama is governed by its token holder community.  While Kusama’s governance system includes features to make sure those with less stake in the network still have a voice, in general, decisions are weighted by stake and the majority of stake can always control the network. That is, those who have more capital to bind for longer periods have more power. For many financial applications, this might be a good approach. But some applications require a more democratic form of governance, where every human has an equal say. Such applications include:

  • Self-sovereign identity
  • Reputation systems
  • Decision-making on off-chain matters

Encointer enables a form of online democracy — on a local to global scale — that could complement Kusama’s existing governance system if the community chose to adopt it.

Inclusive Onboarding and Transaction Fees

Public blockchains usually charge fees, which prevent spamming, prioritize transactions in the case of congestion, and incentivize validators. But current blockchain fee models come with significant drawbacks:

  • Onboarding new users is either centralized (faucet) or inconvenient (buying tokens on exchanges).
  • Fees are likely to be unaffordable for many people due to inequality of purchasing power.

Encointer offers local currencies for local needs — as the currencies are distributed in a specific region as a basic income, fees denominated in these currencies will be automatically proportionate to purchasing power. Other parachains can offer decentralized faucets for their native tokens based on Encointer’s sybil-defense mechanism.

First Encointer Community to launch in Zurich

Kusama governance signaled its support for granting Encointer a common good slot on Kusama before Slot 20. Thus, we expect to launch our parachain within the next few weeks. Soon after launch, the first community will be bootstrapped in Zurich. 

Ultimately, Encointer’s focus will be on communities in less developed regions of the world. But to get started, we decided to launch the first community in Zurich. We selected Zurich because there is a vibrant blockchain community in the city, and the Encointer Association is based there, so it serves as a good early test bed for the concept. In addition, COVID restrictions have eased to the point where people can meet outside. 

Launching an Encointer community will be a slow process. The security of the protocol is based on a web of trust which can only grow organically. People have to meet physically every 41 days and the first event will involve only 12 people, the “bootstrappers”. At each subsequent event, newcomers must be a minority, so we expect it to take several months to reach hundreds of members, two years to reach thousands, and more than three years to — theoretically — include the entire population of Zurich.

The good news is that you can still participate before attending your first key-signing event. Simply get local currency from a friend or accept payment for products or services in that currency. By accepting the new currency, you are actively backing its value. The Encointer mobile app even allows you to promote your business on its marketplace, the “bazaar”.

The Zurich community will be closely monitored by the Encointer Association. Once the platform is running stably, we will rapidly onboard new communities around the world. 

Calling All Zurich Residents — Join the Encointer Community

Do you live in or near Zurich and want to be a part of the Encointer community? Please subscribe here: https://encointer.org/contact/

Do you live elsewhere and would you like to initiate a local community currency? Please subscribe here: https://encointer.org/contact/

Development Update

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:

Get it on F-Droid

Get it on Google Play

..and will soon be available for iOS too. Make sure you read our instructions on how to use the app. Not entirely self-explaining yet.

We’re also very pleased that the Polkadot treasury has funded our development work for implementing an Encointer parachain that will enable the use of encointer’s self-soverign identity on other parachains on Polkadot and Kusama.

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.

We’re looking forward to the road ahead.

Towards a Decentralized Global Universal Basic Income

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.

Testnet Gesell

Supported with a grant from Web3 foundation we have developed our idea into a working prototype blockchain based on Substrate. Encointer is open source and Gesell is live since April 9th 2020.

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.

What’s next?

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.

Your turn!

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!

this post was also published on medium

Testnet Cantillon gets supported by web3 foundation

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.

talking about encointer at relaychain.fm podcast

Listen to Alain and Joe discussing the key concepts of encointer and its privacy solution SubstraTEE


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.

Development Update #1

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

Behind the scenes, PoC1 consists of:

There is yet a lot of work to do. If you’re a developer and you’d like to contribute, please come forward.

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.