eToro launches cryptocurrency Universal Basic Income pilot
When a rising tide lifts all boats, it's worth making waves.
- eToro is launching a cryptocurrency universal basic income test.
- Economic and political realities make it extremely difficult to adequately effectively test universal basic income programs.
- Cryptocurrency, blockchain and firms like eToro might be well suited to these kinds of tests.
A universal basic income (UBI) is the practice of giving everyone in a certain region, country, situation or planet an ongoing income for free, no strings attached.
The main problems might be that the money has to come from somewhere, that it's extremely difficult to test on a large scale and long time frame to really understand it, and the possibility that once people don't actually need to work to survive there won't be anyone willing to do the world's most important jobs; producing and preparing food, collecting garbage, caring for the sick and infirm and all the other things that keep society from spiralling into chaos.
But UBI can theoretically also solve a lot of problems.
Problems and solutions
The most immediately pressing concern might be that in many cases there are more people than there are jobs, largely as a result of increasingly advanced manufacturing technology and rising automation. It's estimated that about 50% of current work activities could be automated with existing technologies, while 6 in 10 current occupations consist of more than 30% activities that are technically automatable.
This might be the the main impact of automation. It's not about flipping a switch that immediately replaces people with robots, so much as it's about using technology to improve productivity, which leaves a company with unnecessary workers.
For example, in the case of the United States it's often posited that unemployment is the result of a dying manufacturing sector. But by the numbers, manufacturing is quite alive and well in the USA.
In fact, as of 2015 the United States accounted for 18% of global manufacturing output by value, second only to China at 20%. This competitiveness is not despite, but because of, the efficiency and cost benefits of growing automation.
Notably, one of the points of a UBI is that it gives people money to spend, which in turn feeds back into profitability. As you can see on the chart above, both employment and production in the USA took a massive hit during the global financial crisis. As people were losing jobs they couldn't afford to spend money on new things, which in turn hit manufacturing profitability, which caused even more unemployment, which hurt profitability even more... and so on.
One theory holds that with a UBI, industries and the wider economy can be better cushioned from these kinds of blows. Basically, by giving people money to spend they can keep doing their part to support their economy. To use a different analogy, jobs are a widely variable and tough-to-control potential point of failure in the economic structure. By replacing it with the predictability and consistency of a universal basic income one might create a much more robust economy.
It's also worth noting that high unemployment rates are crazy expensive. When this variable starts shifting you get a cascading set of follow-on effects, such as high crime rates, long term health impacts, workforce skill erosion and savings depletion, and higher government expenditure across the board both immediately and further down the line, all while governments collect less in taxes.
On paper a lot of people think universal basic income models look very promising and there have been dozens of UBI trials to date. But its precise long term real world effects have yet to be measured, especially in the long run and on a large scale.
It doesn't help that the concept has become a bit politicised, which has seen some ongoing trials yanked before completion, and planned trials distorted. One line of thinking is that it's almost impossible to effectively test UBI pilots to the extent needed, because political processes and cost limitations will ruin the data.
That's also why companies conducting their own UBI trials is so potentially worthwhile. These kinds of tests can operate outside the political limitations of most pilot programs. And in the case of eToro's Good Dollar there are some additional potential benefits to be uncovered through its use of cryptocurrency and blockchain technology.
What's so good about the Good Dollar?
eToro's UBI cryptocurrency, the Good Dollar, will be freely distributed to any person based on their blockchain identity verification, and it's approaching the subject from the direction of income inequality.
Essentially, the idea is that wealth propagates more wealth through investment returns and interest, which naturally creates a trickle-up effect of wealth consolidation. The eToro UBI study is reversing that effect by sending a portion of its revenue – in the form of Good Dollars – directly to people with no strings attached. The poorer one is, the more their relative income.
"Specifically Good Dollar is a project to solve for income inequality by leveraging blockchain," explains eToro US managing director Guy Hirsch. "The basic premise is that income inequality is driven by most of the access being owned by a small percentage of individuals…. who are in return making a lot of money through the vehicle called interest. So the richer you are the more passive income you have. Good Dollar is trying to flip that around and flow the income distribution from interest to the poorest people on the network."
"That theoretically - this is just an experiment right now - should solve the problem of income inequality in a way that's scalable and allows market participants to benefit from it."
Good Dollar is a cryptocurrency, and it may be inherently difficult to completely disconnect from eToro marketing, customer acquisition or charity efforts, but first and foremost it might be thought of as a much-needed experiment in the field of UBI.
And as a cryptocurrency, it's perfectly suited to the job. eToro's Good Dollar experiment is global, but it might lean towards lower income regions which can be more prone to the kinds of problems that cryptocurrency can bypass.
As the Good Dollar position paper explains, blockchain and cryptocurrency technology can:
- Bring transparency, traceability and accountability. It allows the precise following of money across pseudonymous accounts in a way that economic researchers could previously only dream of.
- Be programmable. Good Dollar can automate many problematic bureaucratic kinks out of the UBI test, and generally be very efficient to distribute and use.
- Bypass bureaucracies and corruption. Sometimes when aid and support payments have to pass through the hands of authorities before reaching the people they're meant to reach, there's no guarantee they'll arrive intact or even at all. By contrast Good Dollar can be delivered directly to individuals.
Altruism and pragmatism
"I think everyone wants to make sure that everyone wins from crypto and blockchain as a whole," Hirsch said. "We don't want to create a new world economy, again, leaving people behind."
While UBI is sometimes derided being impractically altruistic, or seen as a form of welfare that's driven purely by altruistic considerations, you can't escape the fact that a rising tide lifts all boats, and that if more people have money, more people are spending money.
It works the same with digital money. A lot of people might be able to benefit from Good Dollar in a lot of ways, and in some cases it might literally be saving lives, but at the same time it's also growing the global cryptocurrency pie which is inescapably beneficial to companies in the space.
Persistent wealth inequality isn't just an ethical problem. It's also a business problem that's limiting how many customers businesses can reach. And with the world on the cusp of pivoting more holistically towards blockchain financial services it's a great time to start getting as many people as possible into this wealth migration, especially those who have been geographically discriminated against by traditional finance.
For the businesses in the right place at the right time, a fairer and more egalitarian world is good news all around.
"Our point of view is that every aspect of the financial services industry will be represented on the blockchain or disrupted on the blockchain," Hirsch says. "But it’s such a vast universal offering that I doubt any company will be able to offer them all. Debt, mortgages, interest, advice - so many things that the traditional financial services industry is offering to consumers... I think it will be hard for one company to cover all of them."
"The thread that connects everything [at eToro] is the fact that we essentially want to lead the pack with regards to what blockchain can offer our users. You'll see us do more and more of it."
"I think everyone wants to make sure that everyone wins from crypto and blockchain as a whole. We don't want to create a new world economy, again, leaving people behind... so here's a theoretical and hopefully soon to be live experiment."
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA
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