Can Blockchain Help Deliver Universal Basic Income?

Can Blockchain Help Deliver Universal Basic Income?

Estimated Reading Time: 8 minutes

• Decentralized Finance (DeFi) Opportunities: Blockchain, through DeFi, offers high, stable yields historically reserved for the wealthy, promising greater financial accessibility and stability for everyday individuals.
• Infrastructure for UBI: Beyond market forces, blockchain provides essential tools for UBI implementation, including robust identity verification and sustainable funding models like “perpetual charity” via DeFi yields.
• Radical Economic System Reshaping: Blockchain’s immutable nature can enable automatically enforced taxation and novel wealth redistribution models (e.g., Harberger taxation), fostering greater economic fairness.
• Inflation-Resistant Currency: The technology holds the potential for creating stablecoins pegged to a “true cost of living” rather than volatile national currencies, ensuring UBI maintains its purchasing power.
• Actionable Engagement: Progress towards a blockchain-powered UBI involves personal education, supporting innovative projects, and advocating for policy exploration and integration of these technologies.

• The Promise of Decentralized Finance for Everyday Savers
• Beyond Market Forces: Blockchain’s Unique Mechanisms for UBI
• Reshaping Economic Systems: Taxation and Inflation Resistance
• Actionable Steps Towards a Blockchain-Powered UBI
• Conclusion
• Frequently Asked Questions

The concept of Universal Basic Income (UBI) – a periodic cash payment unconditionally delivered to all citizens without a means test or work requirement – has gained significant traction as a potential solution to economic inequality, job displacement by automation, and poverty. While traditional economic models grapple with the funding and implementation challenges of UBI, the emergence of blockchain technology and decentralized finance (DeFi) offers intriguing new pathways. Could the immutable, transparent, and innovative structures of the blockchain environment provide the missing pieces for a sustainable UBI?

The Promise of Decentralized Finance for Everyday Savers

At its core, blockchain, through decentralized finance, introduces novel financial instruments that promise high, stable yields. These opportunities, historically reserved for the wealthy and institutional investors, could soon be accessible to everyone. The implications for everyday individuals, particularly regarding wealth accumulation and financial stability, are profound.

The paper “Table of Links Abstract and 1. Introduction Stablecoins and Lending Markets Fixed-Rate Lending Protocols and Derivatives Staking Derivatives Staking Fees as Stable Interest Stabilization Mechanisms Some Caveats Diversification, Interest Rates Swaps, and Tranching Towards Universal Basic Income Closing Remarks Acknowledgements and References 9 Towards Universal Basic Income” by Hakwan Lau and Stephen Tse delves into this potential, stating:

“We started by considering the high stable interests of decentralized finance protocols from the perspective of common household savers. Currently, few of them have access to investment opportunities with such stable high yield. However, the availability of these products will naturally also be accessible by the wealthier, seasoned investors too. Therefore, are they actually going to help the common household savers, or are they just going to make the rich richer still?
There are perhaps reasons to be optimistic (from an egalitarian perspective). The first is that even if these products do allow the wealthier to benefit, the margin of this benefit is unlikely to be as high as that for the common savers. That is because currently the savvy and capital-rich investors already have access to various high return investment options, including high-entry, actively managed hedge funds.
Secondly, with social and keyless wallets [54], one ultimate goal is to allow everyday smartphone users to be able to access decentralized finance applications securely with ease. For many of these new adopters, having access to such high stable return investment options will likely help level the playing field.”

This perspective suggests that even if the affluent also benefit, the relative impact on common individuals, who currently lack access to such investment avenues, could be far greater. The ease of access promised by innovations like social and keyless wallets is crucial for widespread adoption, potentially bridging the financial literacy gap that often excludes segments of the population from high-return investments.

Beyond Market Forces: Blockchain’s Unique Mechanisms for UBI

While the market dynamics of DeFi offer exciting prospects, it’s important to acknowledge that UBI won’t simply materialize from these forces alone. The path to a universal basic income requires deliberate design and implementation. Blockchain, however, provides a powerful toolkit for building the necessary infrastructure.

The paper continues to highlight this nuanced reality:

“However, we must also acknowledge that it is not easy to foresee a future where such high-yield, lowrisk products will become commonplace. The impact of this for traditional financial products will lead to a chain of consequences that would ultimately depend on relatively unpredictable factors, including possible governmental intervention. Accordingly, we cannot expect that the lofty vision of universal basic income will naturally materialize out of market forces. Rather, we should see the availability of these new decentralized finance products as providing opportunities for such an agenda.
For example, there are already projects in the cryptocurrency space which aim at providing universal basic income to those who can prove their identity [55]. Capitalizing on the high yield generated by the Anchor, the Angel protocol [56] also allows charity donations to become virtually perceptual (as supported by the future yields). These may provide the platform for some universal basic income schemes to be implemented.”

This highlights that blockchain’s role is not just about generating yield, but also about enabling innovative frameworks. Projects verifying identity for UBI distribution address a fundamental challenge: ensuring payments reach legitimate recipients without duplication. Furthermore, the concept of “perpetual charity” through protocols like Angel, which leverages DeFi yields to fund ongoing charitable endeavors, offers a glimpse into how sustainable UBI funding mechanisms could be designed, essentially turning a one-time endowment into a recurring revenue stream for beneficiaries.

Reshaping Economic Systems: Taxation and Inflation Resistance

Beyond current applications, the long-term vision for blockchain includes radical market designs and novel approaches to wealth redistribution and taxation. The immutable nature of blockchain transactions introduces an unprecedented level of transparency and enforcement, potentially revolutionizing fiscal policy and addressing one of UBI’s biggest hurdles: sustainable funding.

The authors explain:

“As a longer-term vision, radical markets [57] on blockchain can also help to enforce overall fairness.
Because of the permanent and immutable nature of transaction records in cryptocurrency ecosystems, taxation will eventually become automatically enforced, with evasion becoming extremely difficult. Importantly this can also open up venues for novel and interesting ways of redistributing wealth. For example, under a Harberger taxation scheme [57], the value of a property can be self-assessed, i.e. determined by the owner. The owner may be incentivized to not to overvalue the property, in order to minimize taxation. At the same time, transaction of the ownership can be made mandatory if any buyer offers a price above the self-assessed value. Therefore the owner should also not undervalue the property. With a well-defined true value to the owner, properties can be fluidly and fairly transferred. Economic analyses have shown that this can motivate and orchestrate the entire community into maximizing common good, while maintaining market efficiency. Similar mechanisms can also be implemented to implement highly progressive and quadratic wealth redistribution.
Importantly, even in the shorter-term, there is also an argument to be made that allowing the rich to become richer should not always be a concern, even for equalitarian purposes. An individual’s fixed or basic income may be dwarfed by the wealth of others, if such income is paid in a currency that is subject to inflation. If the rich can offer higher prices for goods, amid competition there may be a concern that one’s income may lose purchasing power. However, this would not be an issue if the basic income is to be paid out in a currency that is truly resistant to inflation. The US dollar is supposedly (loosely) pegged to the prices of goods. However, there has been criticism that the consumer price index (CPI) provided by the government is biased towards goods that do not truly reflect the quality of life of an average individual [58]. Currently, there are projects such as Frax’s stable peg and index which aim to rectify this situation [59, 60, 61], to create a stable currency in decentralized finance pegged not to the inflation-prone US dollar, but to a more meaningful representation of the true cost of living.”

This vision suggests a future where economic fairness is algorithmically enforced, reducing evasion and enabling creative redistribution models like Harberger taxation, which balances individual ownership with communal benefit. Crucially, the discussion shifts to the quality of the UBI itself. An income stream loses its value if paid in an inflationary currency. Blockchain offers the potential for inflation-resistant stablecoins, pegged not to volatile national currencies but to a “true cost of living” index. Such a stable currency would ensure that UBI maintains its purchasing power, providing genuine financial security.

The authors conclude this section with a powerful hypothetical:

“Imagine if a stable yield of as high as over 10% per annum is to be paid out in this inflation-resistant currency. With such a product, to support the universal basic income for a person’s lifetime, one would need a few times the individual’s annual living cost, as a one-time endowment. This is regardless of the future conditions of the economy, or how the wealthy may become richer – if the currency truly reflects the cost of living at the moment, in a stable peg. This could be the basis on which a meaningful universal basic income can be made feasible.”

Actionable Steps Towards a Blockchain-Powered UBI

For individuals and communities interested in exploring this transformative potential, here are three actionable steps:

• Educate Yourself: Delve into the fundamentals of blockchain, decentralized finance, and the various UBI models being discussed globally. Understanding these concepts is the first step towards informed participation.
• Support Innovative Projects: Research and engage with blockchain projects actively working on UBI solutions, identity protocols, or inflation-resistant stablecoins. Contributing, testing, or simply providing feedback can accelerate their development.
• Advocate for Policy Exploration: Encourage policymakers and local governments to investigate how blockchain technology can augment existing social welfare programs or pave the way for new UBI initiatives. The future of UBI may lie in a synergistic approach between traditional governance and decentralized innovation.

Conclusion

Blockchain technology, far from being just a speculative investment, presents a robust framework for rethinking and potentially realizing Universal Basic Income. From enabling high-yield investment opportunities for the common person, to creating mechanisms for transparent taxation and inflation-resistant currencies, its potential is undeniable. While challenges remain, including regulatory clarity and mainstream adoption, the innovative spirit of decentralized finance offers genuine opportunities for a more equitable financial future. The vision of UBI, once a distant dream, appears increasingly feasible through the lens of blockchain innovation.

Frequently Asked Questions

Q1: What is Universal Basic Income (UBI)?

UBI is a government program for a periodic cash payment unconditionally delivered to all citizens without a means test or work requirement. It aims to reduce poverty and income inequality by providing a safety net that guarantees a minimum income level.

Q2: How does blockchain help with UBI implementation?

Blockchain offers transparency, immutability, and efficiency that can significantly aid UBI. It can facilitate secure identity verification to ensure payments reach legitimate recipients without duplication, enable innovative and sustainable funding mechanisms (like “perpetual charity” fueled by DeFi yields), and provide a platform for transparent, automatically enforced taxation and wealth redistribution.

Q3: What are stablecoins, and how do they fit into UBI?

Stablecoins are cryptocurrencies designed to minimize price volatility, typically by being pegged to a stable asset like a fiat currency. For UBI, blockchain could enable stablecoins pegged not to volatile national currencies but to a “true cost of living” index. This innovation would ensure that UBI payments retain their purchasing power over time, providing genuine and consistent financial security to beneficiaries.

Q4: Can blockchain solve UBI funding issues?

Blockchain can significantly contribute to sustainable UBI funding. Its immutable transaction records can enable automatically enforced taxation, making evasion extremely difficult and potentially increasing public revenues. Additionally, decentralized finance (DeFi) protocols can generate high, stable yields which could be leveraged for perpetual funding mechanisms, effectively turning one-time endowments or initial capital into recurring income streams for UBI beneficiaries.

Q5: What are the main challenges for blockchain-powered UBI?

Key challenges include achieving comprehensive regulatory clarity and legal frameworks for decentralized systems, ensuring mainstream adoption and user-friendliness for non-technical individuals, managing the complexity of new economic models like Harberger taxation, and overcoming the technical hurdles of creating truly inflation-resistant stablecoins and robust, privacy-preserving identity verification systems on a global scale.