Implementing a Basic Income via a Digital Currency

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…)

18 thoughts on “Implementing a Basic Income via a Digital Currency

  1. I have developed such a system in France, called “Monnaie M” (+380 members). There is another initiative called Open UDC that does the same thing.
    Everybody can build its own, it’s quite simple for a web developper.

  2. I don’t see any greater loss of anonymity or decentralization of authority than in our current situation. In fact, not having means testing ought to result in less concerns about privacy.

    • Certainly regarding anonymity, if the central authority providing the currency keeps everyone’s data secure and private (perhaps a big if) then anonymity could be preserved. However, there’s no way around the fact though that this system would be relatively less decentralized then something like Bitcoin. I don’t think that’s a deal breaker. But it’s a reality to contend with.

      • Not if your plan is to decentralize the centralized system. Like having three ledgers in three or more locations. One could make each location operated with separate keys. In order to make change or view an account one would need to be physically at each location. Someone wishing to attack a wallet and adjust a ledger balance would need access to each of these locations.
        ( over simplistic ) Something like that.

  3. “Such a system might also need sinks to protect against inflation.”
    May be not.
    If the basic income is calculated as a constant percentage of the monetary mass, everyone’s monetary income is indexed to the total amount of money in circulation at any one point in time. The relative individual share never changes.
    That’s precisely “No inflation at all”.

      • Interesting indeed…
        Something I’ve been contemplating on, when most talk about when it comes to a basic income system. Honestly think, most people imagine their “world of working” in some static state. Attempting to figure a basic income into its picture with the pulse of all the same bubbled mechanics. Basic Income would change the whole paradigm redefining the current mechanics. The current negative arguments of inflation I’m not so sure would apply and especially in a post-scarcity autonomous world.

        • Yes it is unpredictable how things would react in this new paradigm. Which is one argument for building in sinks, actually. Since you may need the ability to adjust the money supply on the fly to account for unforeseen fluctuations. Hard to say.

    • Because I don’t know of a decentralized way to create a limit of one account per actual human. I’m pretty sure that’s an unsolved problem.

      • Math my friend… math will solve. 😉

        Just like banks use algorithms to determine behavior, so to, I believe one could find multiple account holders. ( over simplistic )

        In the mean time I’ll leave it for others to solve and stick to a more centralized system with good checks and balances.

        • I hope so! I certainly don’t think it’s necessarily categorically unsolvable. Though what you’re talking about would require what you could call “spying” on the user’s behavior. So you end up with privacy concerns. But then again, those are probably just unavoidable in any future system. Even Bitcoin leaks information via the pattern of transactions in the blockchain.

  4. If a society is structured in such a way that all money flows to the powerful rich people , would a basic income would ever be able to release the bottom of society of poverty ? In my opinion it is necessary to alter the structure off society .

  5. I am building this concept here in the US , the Basic Income Project. Currently Beta testing an iPhone app. Looking to implement what I think should be a balance in centralized and decentralized “a peoples resource”
    Most of your thoughts seem very close to what I’ve been working on. I would add that the motive of a digital currency which receives a basic income as a social economical tool must instill honesty(trust) in its system structure.

    • Exciting to hear you’re working on something like this! And yes, trust in the system is paramount. You not only need great functional security, you also need good public relations that create psychological confidence on the consumer side.