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
