Cryptocurrency & Universal Basic Income: Towards a Social Credit Cryptocurrency

So, I was thinking about the possibility of combining a cryptocurrency system with a universal basic income. I had thought about this before, but I don't think I ever bothered to write anything about it. Well, I decided to do a Google search today and it turns out that I am not the only person who has thought about this. I found an article by Martin Köppelmann on this very same idea. In Fair Money for All: Basic Income on the Blockchain, Köppelmann points out that an ordinary cryptocurrency system like Bitcoin is unlikely to be widely adopted and become universally accepted because of the fact that "early comers" are favored over "late comers". A person who initially invested a few hundred dollars in Bitcoin at startup would become among the wealthiest individuals in the world if Bitcoin became the world currency.

"If a decent part of the world’s economy would start using Bitcoin as a currency, this would mean an incredible shift of wealth towards the early adopters. This is highly unlikely because it requires adoption of those who are not favored in any way by this wealth shift."―Martin Köppelmann (Fair Money for All: Basic Income on the Blockchain)

The "early comers" joined because Bitcoin was a speculative investment that they believed might make them some money. "Late comers" to the game don't really stand to make anything off of their investment, so there isn't really much of an incentive for them to join the system. The adoption of the system by the would-be "late comers" would increase inequality. I can't help but recall the epic opening passages of John Maynard Keynes' Tract on Monetary Reform:

“Money is only important for what it will procure. Thus a change in the monetary unit, which is uniform in its operation and affects all transactions equally, has no consequences. If, by a change in the established standard of value, a man received and owned twice as much money as he did before in payment for all rights and for all efforts, and if he also paid out twice as much money for all acquisitions and for all satisfactions, he would be wholly unaffected.
“It follows, therefore, that a change in the value of money, that is to say in the level of prices, is important to Society only in so far as its incidence is unequal. Such changes have produced in the past, and are producing now, the vastest social consequences, because, it does not change equally for all persons or for all purposes. A man’s receipts and his outgoings are not all modified in one uniform proportion. Thus a change in prices and rewards, as measured in money, generally affects different classes unequally, transfers wealth from one to another, bestows affluence here and embarrassment there, and redistributes Fortune’s favours so as to frustrate design and disappoint expectation.”—John Maynard Keynes (A Tract on Monetary Reform, Chapter 1)

Economists like F. A. Hayek and Hernando de Soto Polar have argued that rules and social order are the foundation for free markets. Free markets work within the framework of set rules that are established and recognized. Hernando de Soto gives the example of using property as collateral. He argues that market economies had succeeded in the West primarily because there were generally established property rules that linked land and houses to legal titles and allowed for the transfer of property via title. Under these specific conditions, a house can be used as collateral for a loan to start a small business. In third world countries, on the other hand, the land and houses of the poor are only held under loose usufruct. There is no artificial property system whereby actual tangible possessions become linked to legal fictions like titles, which means that the poor people in those countries can't use their land or homes as collateral for receiving a loan. To rise up out of poverty, the poor man needs money with which he can take some risks. Using the loan, he may become an entrepreneur and get ahead, raising himself out of poverty. This is why Pierre-Joseph Proudhon and the mutualists advocated "mutual banking" as a way of ensuring that poor people could receive loans. The core idea of the mutual banking system was to make credit available to the poor without high interest rates that might lead to debt slavery, thereby enabling the poor to climb out of poverty through their own effort. Most of all, though, what makes markets "work" is the existence of standard rules that can be known and the enforcement of such rules. The enforcement can be through private police forces, government police forces, communal arrangements, or whatever, but there has to be enforcement of rules for markets to function. Markets require law and order! Free markets are all about free contracts, and contracts have to be enforceable in order for markets to work. And this brings us back to Keynes' assessment. Contracts often set hard monetary payment amounts over extended periods of time, and fluctuations in the value of currency is sort of like an external manipulation of the contract from the currency side. If I agree to pay a security guard 500 dollars a week for guarding my house from vandals, and the money becomes devalued by 50%, then the security guard is getting ripped off. If there is deflation, and the value of the dollar increases by 100%, then the contract has been subtly modified from the currency side in the opposite direction: now I am required to pay the security guard twice as much real value as we had initially agreed upon. The free contracts are no longer truly voluntary contracts, but a sort of fraud that can be manipulated from without. The same thing would happen with a mortgage. The real value of the mortgage would be in constant flux, making economic calculation impossible. So, Keynes suggests that the primary goal of monetary policy ought to be the stabilization of the price level (e.g. ensuring that the value of money does not fluctuate too drastically).

I would advocate a redistributive cryptocurrency, which is quite different from the specific model proposed by Köppelmann. Köppelmann's own model seems much more Hayekian, where each individual issues their own cryptocurrency "coins" and these private currencies are both competitive and complementary within the framework of a unified cryptocurrency system. My model is more distributist or egalitarian. The problem is that the stabilization of price levels and the allowance of substantial inequality are mutually exclusive. If you allow for substantial inequality, then speculative investment is always a possibility. If hoarding of money beyond a certain point is prohibited, then speculative investment is actually restricted. If I am only able to hold so much of the currency at a time, I can't buy a bunch of units of this currency in the hopes that its value will increase. Well, the very fact that the currency cannot be hoarded will ensure that the currency will not be too volatile. The value of Bitcoin can rise or fall quite rapidly as the result of speculative investment. If a few powerful people suddenly buy tons and tons of Bitcoin, the price goes up. If a few powerful players decide that they want out of the Bitcoin game, the value drops precipitously. By making a digital currency that does not allow any one individual to hoard very much, we create a system that prevents the emergence of oligarchs within the system. There is no way that any one individual or group of a few individuals can gain that much power over the currency system as a whole. A truly sound cryptocurrency, in my estimation, would have to prohibit hoarding and make inequality impossible within the currency system.

I have often wondered about the possibility of designing a currency system that had an automatic redistribution mechanism. I vaguely remember David Graeber mentioning, in Debt: The First 5,000 Years, that one ancient currency system actually consisted of notes that expired after a certain amount of time. You couldn't just hoard the notes because they would eventually become worthless. This would incentivize people to spend their money, thereby preventing people from hoarding money for purposes of speculative investment, which in turn would keep the value of the money from fluctuating with the tides of the animal spirits (i.e. the "bull" and the "bear" tendencies among investors). This brings to mind the idea of replacing money with a system of credits. EarthVote advocates a system of credits or "Reward currency" in which the credits are not transferred from one account to another but only deducted from an account after use. Producers would receive "Reward" credits from the community for doing an activity that the community deemed productive. Graeber also notes how imperialist governments used to issue money and give it away in lands that they were colonizing whilst simultaneously demanding a portion of the money back in payment of taxes. This would artificially create a market economy in the colony if markets had not previously existed there.

So, here's a rough sketch of the sort of digital currency system that I envision. Each individual would be limited to owning one account. To prevent people from creating multiple accounts, the account would have to be linked to the persons' fingerprint. The fingerprint would not be sufficient to unlock their account and spend money, but it would be necessary in order to establish an account, just as a way to prevent people from creating multiple accounts. When new "coins" are issued in the digital currency, they would be divided up evenly and distributed out to the accounts of all members in equal shares or dividends. The digital currency system would be a sort of egalitarian cooperative in which all account holders are shareholders with equal shares. The digital currency would expire after a certain number of years unless it changed hands. I would propose maybe 100 years as a decent span. Accounts would automatically spend the oldest money in the account first, and the old money would expire after remaining in the account for 100 years without being used. When money expires, the system will automatically issue new units of currency in its place and distribute out the new money to all account as an equal dividend. The accounts would also be established with a maximum limit. The limit might be, for instance, the equivalent of 500,000 dollars or the price of a really nice home. Any money deposited into the account above that amount would automatically expire and an equivalent amount would be reissued by the system and distributed out in equal shares to the accounts of all users.

This idea of linking a universal basic income to cryptocurrency may more properly be regarded as a new rendition of social credit. In and of itself, this sort of cryptocurrency social credit system wouldn't necessarily be sufficient to give everyone a universal basic income. I think that the funding of a complete basic income would probably require funding through a land value tax, following the models of Henry George and Thomas Paine. If we had a government or a democratic confederation that adopted such a currency, and exclusively accepted this cryptocurrency as payment from its citizens, then this would be the perfect system through which to issue a universal basic income funded by a Georgist land value tax. I don't really think that the mutual banking ideas of Pierre-Joseph Proudhon et al. are that great. What we really need is a cryptocurrency system that operates along the lines of C. H. Douglas' social credit theory. But, most of all, I think we need a universal basic income provided with revenue generated by a land value tax. The establishment of a social credit based cryptocurrency would be a decent way to lay the foundation for geo-mutualist social democracy with a universal basic income.

All of this is more of a suggestion than a recommendation. I'm not sure whether my socialistic social credit cryptocurrency model would be better than Köppelmann's Hayekian version or not. I'm mostly just putting these ideas out there.