Price stability and basic income are two ideas that have been incredibly challenging to realize. Today I would like to present a hypothetical cryptocurrency that could have the potential of realizing both of these ideals. A successful cryptocurrency depends upon voluntary free-market acceptance which means that individuals will be motivated to participate on the basis of selfish self-interest rather than altruistic idealism.
Introducing the BIC token (Basic Income Currency)
To facilitate discussion I will introduce a hypothetical cryptocurrency token called BIC. This token would trade on a public ledger and be governed under a variation of DPOS similar to Steem and BitShares.
Defining Price Stability
All prices are exchange rates among goods and services. For the purpose of this hypothetical currency, we will assume the elected witnesses publish price feeds that document the average exchange rate between BIC and a basket of commodities consumed by an average household.
This initial value of a BIC will target one 2016 USD and will be adjusted automatically to track the basket of commodities. As the dollar devalues, the value of 1 BIC should increase. In other words, the expected dollar rate of return for holding 1 BIC should equal the inflation rate of the USD.
It should be obvious to any economist that no one can guarantee purchasing power of any token and that ultimately the purchasing power of 1 BIC will depend upon the price assigned by the free market.
By carefully controlling the issuance of BICs the network should be able to bootstrap a stable value over time.
Allocation of BICs
Like Steem, there will be a second unit of account known as a BIT (basic income token). Each unique individual will be granted exactly 1 BIT when they sign up and it will be revoked when they die (or become inactive). Any time the value of 1 BIC rises above its target new BICs are issued and distributed evenly among the holders of BIT. In other words, as the cryptocurrency grows in value holders of BIT earn a dividend.
In the event the value of 1 BIC falls below the target value, the dividend rate will fall toward 0. Once the dividend rate hits 0, the network will start offering interest to anyone willing to commit their BICs to a 1 year bond. This interest rate on the 1 year bond will rise until it hits a maximum value allowed by the protocol. The maximum rate should be around 30% APR.
Once the interest rate hits its maximum allowed rate, the size of the basket the BIC is pegged to will adjust downward until a peg is achieved. The downward adjustment in the BIC would remain as the new baseline. This is a one-way downward latch.
In the event the BIC rises in value (above the baseline), the interest rate on new 1 year bonds would fall toward 0. Once the interest rate on bonds hits 0 the BIT holders will once again start receiving a dividend until the value of 1 BIC reaches the baseline.
Funding Growth
This protocol aims to bootstrap an cryptocurrency economy by carefully controlling the issuance of its token and making sure that everyone in the world has an equal opportunity to own a share (BIT) in the economy. Careful issuance and limited supply is key to maintaining approximate purchasing power parity of 1 BIC with a basket of goods.
That said, the protocol requires a certain amount of tokens to be issued to compensate those who run servers, market, and otherwise advance the the cause of the currency. The network must produce enough value to cover its cost of operation before anyone can earn a dividend. Due to the desire to peg 1 BIC to a basket of commodities, the rate of pay earned by network operators will necessarily have to be below the rate that speculators buy into BIC.
Block producers will be paid in BICs and an on-chain decentralized governance system similar in nature to STEEMs content rewards would have control over the allocation and issuance of a small number of BICs. Assume a total operations budget of $100,000 worth of BIC per year or some small percentage of the BIC float, whichever is more. The budget percentage should shrink as the network grows.
Hypothesis
A carefully issued token that is fairly allocated to all of humanity through a decentralized identity uniqueness verification system may be able to bootstrap a currency that remains relatively price-stable while distributing the profits of its growth fairly among all of humanity.
If the currency becomes the reserve currency of the world, then everyone involved will profit. Those who get involved earlier will receive more BIC dividends and profit more from the growth than those who join later, but everyone will always enjoy an equal share of the dividends from economic growth of the platform. If the platform grows to be the currency of an economy similar to a small country, then it would support a basic income proportional to the economic growth of a small country divided by the number of citizens.
Those who lend the platform money during periods of economic slowdown (buying bonds) will also be rewarded with high interest rates on a relatively stable unit of account (BIC). These individuals are funding the growth of the economy by deferring consumption today (spending of BICs) in exchange for increased consumption tomorrow.
Future Work
For such a system to be viable a decentralized system of governance and uniqueness validation will be required. The exact algorithms for adjusting interest rates (and limits) as well as the basket of commodities would need to be defined. Care would have to be taken to ensure the monetary policy is not whip-lashed by short-term market volatility.