Five reasons why Universal Basic Income (UBI) and cryptocurrency are a perfect fit
Universal (or unconditional) Basic Income, or UBI for short, has gained a lot of momentum around the world in recent years. International NGOs have begun experimenting with UBI as a means to better serve vulnerable populations such as refugees and the rural poor, and some governments have pondered the idea of implementing UBI as a way to replace outdated social welfare programs with one that provides greater agency to beneficiaries. COVID-19 has only increased the momentum as governments urgently attempted to put in place adequate supports for those adversely impacted by COVID-19. So, what exactly is UBI?
In a nutshell, UBI is a social welfare system that aims to replace other forms of welfare, such as food stamps, emergency aid, unemployment benefits, certain disability benefits, etc., with a single, basic income payment, that goes to all individuals regardless of their circumstances. By utilizing a consistent, recurring payment, it can help beneficiaries achieve financial stability, as opposed to having to guess what money is going to come when.
This could be applied to a whole country as a means to replace all existing financial welfare programs, or in certain unique contexts, such as refugee camps, or to victims of a natural disaster.
There has been plenty of research done on UBI in recent decades, and a great review of some of this research can be found in this report delivered by Stanford University’s Basic Income Lab. This report reviews 16 studies and concludes that the “findings are generally positive that UBI type programs alleviate poverty and improve health and education outcomes and that the effects on labor market participation are minimal.” The last piece of this statement is important to consider, as one of the core arguments among UBI detractors is that it will disincentivize individuals to seek out employment, which has been found to not be the case.
As UBI and the research behind it evolve, cryptocurrency and blockchain ought to be a part of the conversation. Crypto is a perfect complement for UBI, as it will (and already is) enable for a more efficient, transparent, and decentralized system that provides greater social impact to beneficiaries. That being said, there are five reasons that I believe cryptocurrency will be a prominent part of UBI programs in the future, resulting in more effective and impactful programs.
1. Efficiency
Blockchain can help build a much more efficient and cost-effective UBI program. Whereas traditional, fiat-based UBI programs must rely on intermediaries such as banks or payment processors, blockchain-based UBI programs have no need for these middlemen organizations. This can not only save costs and ensure more funds get in the hands of the beneficiaries, as banks may take a cut of each transaction for their services, but it can also speed up the process. Banks, for example, may not be open on weekends, or may take several days to process transactions, especially if funds are being spent overseas.
2. Automation
One of the greatest innovations in the web3 space in recent years has been the growth of smart contracts. Despite being merely a concept a few years ago, and still being very much in their infancy, we have seen smart contracts grow and be applied in many settings in recent years including decentralized exchanges, DAOs, DeFi protocols, decentralized insurance, and more. Smart contracts allow for the automation of UBI programs, which mean less humans need to be involved in the process, resulting in cost-savings, greater efficiency, and lower risk of human error.
A UBI program could make use of smart contracts to automatically disperse a certain amount of aid each month (or whatever time interval they wish) to each beneficiary, ensuring that each individual gets their allotted amount, while maintaining an immutable paper trail resulting in greater public accountability
3. Inflation Protection
One of the challenges in many of the contexts in which UBI programs operate, especially in developing countries, is the currency risks in these environments. Unfortunately, in developing countries, it is more likely that local currencies will experience large fluctuations in value, including inflation. One of the best examples of this is in Zimbabwe, where in 2008, they experienced an annual rate of inflation of 231,000,000%, leading ultimately to the release of their famous One Hundred Trillion Dollar bank note, and the establishment of the “starving billionaire class”. In 2008, in fact, a loaf of bread cost what 12 brand new cars would have cost a decade earlier, and bank notes became a cheap alternative to toilet paper.
One of the challenges of UBI programs, is that they often pay out in the local currency, as this may be the only currency widely accepted in their context, and the costs of exchanging, lets say, the US dollar or Euro to the local currency can be costly, making it difficult to administer UBI programs in these currencies. This is where cryptocurrency comes in.
A UBI program that delivers payments in the form a USD-pegged stablecoin, for example, could protect beneficiaries from the risk of inflation causing their savings to disappear over night. With this, there would of course need to be an off-ramp to transfer the cryptocurrency to local currency, but there are programs in place that already do this, which can be much more cost effectively and less administratively burdensome than operating in US cash, for example.
4. Transparency
UBI programs are often massive in scale and thus, can be difficult to monitor and audit. This is especially true when operating in cash economies, such as refugee settlements, where it can be difficult to keep track of how much is given to who and when.
The highly transparent nature of blockchain helps resolve this challenge by leaving an immutable, easily auditable record of transactions. All transactions ever made would be stored on the blockchain forever, and are tamper proof, making it easy to monitor exactly how much aid was given to each beneficiary while also reducing any fraud potential.
5. Decentralization
One of the most exciting use cases of blockchain when it comes to UBI is the potential to implement elements of decentralization into the program. This could include the launch of Decentralized Autonomous Organizations (DAOs) that implement UBI programs, or initiatives that encourage beneficiaries to take ownership over UBI programs. We are already seeing the latter with ImpactMarket, a “decentralized poverty alleviation protocol” where beneficiaries become the managers of the UBI, as opposed to a centralized authority overseeing the program. This can help empower local communities who are more in tune with the challenges they face to take ownership over the program as opposed to a centralized authority with little or no connection to the community.
Conclusion
Universal Basic Income is growing in popularity each year as more individuals realize its potential. Given the amazing potential for blockchain and cryptocurrency to improve UBI programs, policymakers and NGOs would miss out on a huge opportunity if they didn’t consider implementing these technologies in their programs. To date, we have already seen some exciting crypto UBI programs emerge such as GoodDollar and ImpactMarket, and NGOs such as Refugee Integration Organization (RIO) make use of cryptocurrency for a UBI program in refugee camps. Hopefully we see more organizations recognize the amazing potential of blockchain and cryptocurrency to create more effective and efficient UBI programs in the not-so-distant future.
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