By Nir Yaacobi, Economic Lead, GoodDollar
A dozen years after the last major financial crisis, experts are predicting a global economic downturn will happen, sooner rather than later.
Some commentators have voiced concerns that the lack of tools in central banks’ arsenals – interest rates are already very low in many countries – could mean that the trough lasts longer than past crises. Should this play out, it would impact most severely on those without access to a secure local or regional currency.
It’s hard to predict the future, but it might be that financial institutions and governments have to change their business models completely. As such, it is not a great leap to reason that within the next five years we might see more countries embracing blockchain-powered projects and cryptoassets as an alternative economic system.
To sceptics, this may seem too far fetched to countenance. However, the rapid progress of the blockchain technologies and cryptoassets means that someday there will be a feasible alternative to fiat currencies in a country near you – and one that is properly secured and scalable.
What, then, will happen after the next financial crisis, and how can cryptoassets – and blockchain advancements in particular – improve the situation for everyone?
To achieve robust solutions at scale and speed, those in power should embrace blockchain solutions and those in the tech community ought to collaborate with financial authorities.
Furthermore, the next economic crash is likely to strengthen the case for a global-scale universal basic income (UBI) – the idea of providing regular, unconditional cash payments to citizens to enable a baseline standard of living.
As Thomas Piketty demonstrated in Capital in the Twenty-First Century, published in 2013, as long as the rate of return on capital is greater than the growth rate of the economy, which is the case for most economies most of the time, the rich get richer. That triggers growing inequality in society, and eventually leads to poverty, crime, political instability, reduction of output and more crises. In essence, the way the system works leads to inequality. And when the next financial crisis hits, it is those without a secure local economy that are likely to suffer the most, and for the longest amount of time.
as long as the rate of return on capital is greater than the growth rate of the economy, which is the case for most economies most of the time, the rich get richer.
Now, we have the technology at our fingertips to help. Some, like us at the GoodDollar project, believe that a UBI solution may be found without the backing of centralised systems, while others are taking a classic UBI approach engaging with authorities in charge of the redistribution of funds.
Blockchain solutions could transform the global economy
By building solutions that create better wealth distribution then, potentially, inequality across the globe can be improved. By making the world more equal then more people can participate in the economy.
The issue of wealth inequality has been at the forefront of the mind of Yoni Assia, the Co-Founder and Chief Executive of the global multi-asset investment platform eToro, for most of his adult life. “It is a critical economic challenge of our time,” he wrote in November when announcing the GoodDollar experiment at Web Summit 2018. “I’ve long felt a solution is conceivable when all the elements are aligned. I first wrote about this idea in 2008, in an article entitled The Visible Hand. The original concept has significantly evolved since then.”
With the convergence of tech trends, a blockchain-backed project that adopts UBI principles – and collaborates and works alongside governments, crucially – could be achievable before long. That is why Yoni helped to launch GoodDollar, a project to which eToro initially committed $1 million.
GoodDollar is a not-for-profit project that intends to launch a payment network, and explores how decentralised cryptocurrencies and blockchain technology may enable models based on UBI. Our central aim is to reduce global wealth inequality.
We are looking to launch a peer-to-peer money transfer network and a digital wallet to access it. The goal is this: once GoodDollar is fully functioning, every day, any person – wherever they live in the world – will be handed an equal portion of the redistributed funds from the GoodDollar network.
My GoodDollar colleagues and I believe this represents a more just economic model, and would encourage everyone in the world to make payment transactions on the GoodDollar network, instead of their local one – especially if they believe financial inequality should be fixed for good.
The goal is this: once GoodDollar is fully functioning, every day, any person – wherever they live in the world – will be handed an equal portion of the redistributed funds from the GoodDollar network.
We are well aware that delivering decentralised UBI on a large scale requires much input from the whole ecosystem, and beyond – we cannot do this alone. We welcome partnership and collaboration and are keen to learn from other blockchain-backed projects in this exciting space.
Many progressive minds are adding their voices to the cause
Sam Altman, the President of the start-up accelerator Y Combinator, has been interested in UBI for a long time, and in late February he announced that he is to pursue a large pilot study. On Conversations with Tyler – a podcast hosted by economist Tyler Cowen – Sam discussed the importance of “providing fair financial infrastructure for poor people”.
Additionally, he suggested that cryptoassets, in some form, could provide the foundation for a global UBI. “I can imagine a crypto system where you see something that is more powerful than any government on Earth, where you actually figure out a way to give every person on Earth a coin, and then you make this gigantic network that everyone believes in, and you can do redistribution outside the control of any government,” he said.
With the convergence of tech trends, a blockchain-backed project that adopts UBI principles – and collaborates and works alongside governments, crucially – could be achievable before long.
Sam was talking about something I have believed for a good while: a new economic order is inevitable. In 2019, owing to network limitations and security challenges, a decentralised digital currency cannot yet scale the globe.
While crypto-based UBI might seem implausible just now, I echo Sam’s belief that it will eventually happen. “That would be the most powerful network effect the world has ever seen economically, and I think that would be cool,” he said on the podcast. I think that it would be cool, too, and that’s why the exploratory work GoodDollar – and other blockchain-based UBI projects we want to collaborate with – is doing is so critical.
Nir Yaacobi, PhD, is the economic lead for GoodDollar, a not-for-profit payment network that explores how decentralised cryptocurrencies and blockchain technology may enable models based on universal basic income (UBI) with the central aim of reducing global wealth inequality