Global Universal Basic Income: a Role for Blockchain Technology?
With accelerating technological advances including the rise of automation and Artificial Intelligence set to usher in mass job displacement and further exacerbating income inequality, the need to design a global UBI system has become more pressing than ever.
In this blog our Management Board member Emma Gilbert asks:
Can Blockchain Technology meet the challenges of making global UBI a reality?
What is Blockchain Technology?
Blockchain technology is perhaps best known for its role as the underlying technology for cryptocurrencies like Bitcoin but this was merely its genesis chapter and does not begin to scratch the surface of what it facilitates today.
Blockchain’s defining feature is as a type of ‘Distributed Ledger Technology’ (DLT). Think of the blockchain as a digital record (i.e. a ‘ledger’). In the context of cryptocurrencies, that record is of all the financial transactions made in that cryptocurrency.
Traditionally, financial ledgers at private or state banks are managed in a central place. What makes the blockchain different is that the transactions are recorded across independent computers worldwide (i.e. in a ‘distributed’ or ‘decentralised’ way).
Importantly, the transactions are recorded through what is called a consent mechanism (for example ‘Proof of Work’ or ‘Proof of Stake’). Once a transaction is recorded on the blockchain through this mechanism, the record becomes immutable - this means that it is impossible to corrupt any one of those transactions without falsifying all of the data that comes after it. This is what makes the technology reliable. Every transaction that is made on the blockchain is open for everyone to see - this makes the technology transparent.
Challenges facing a Global UBI
Before we dive into how blockchain can facilitate a global UBI, it is important to understand some of the key challenges in implementing UBI worldwide. These include:
Reliable Distribution: ensuring that UBI payments reach each and every individual, regardless of their location, banking infrastructure, or social vulnerabilities.
Transparency and Security: that the funds allocated for UBI are distributed fairly and securely to avoid corruption, fraud, and misuse by stakeholders at a local, regional, national or supranational level.
Scalability: it has the capacity (and flexibility) to facilitate payments to billions of people across a myriad of backgrounds.
Sustainability: that it is fashioned in a manner that is both economically, environmentally, and ethically sustainable.
Opportunities in Blockchain: a Backbone for UBI
Reliable Distribution: Decentralized Financial Infrastructure
Blockchain technology allows for peer-to-peer transactions without the need for an intermediary, such as a bank or a government body, to process or verify payments. With a blockchain-based UBI system, individuals could receive payments directly into their digital wallets or otherwise confirm an entitlement which can be collected at in person intermediary services. This opens up UBI to those who are traditionally excluded from formal and cumbersome financial systems.
2. Transparency and Trust: Consent Mechanism
As we mention above, a fundamental feature of blockchain is its immutability. Owing to the technology’s consent mechanism, once a transaction is recorded, it cannot be changed or tampered with. This offers a level of trust and transparency that many traditional government or financial systems famously struggle to maintain. By using a public blockchain, civil society can verify that UBI funds are being distributed fairly and in full. Everyone can trace where the funds are coming from, how they are distributed, and whether there are any discrepancies.
In essence, blockchain offers an auditable system where independent entities can verify every transaction. This reduces the risk of misappropriation or misallocation of funds, ensuring that resources are going exactly where they need to, without undue political or bureaucratic interference.
3. Scalability: Automation through Smart Contracts
The decentralised nature of blockchain as a vehicle for scalable and low cost cross-border transactions is often at the forefront of public discourse about the technology. More recently however, blockchain technology has developed the capacity to host and execute smart contracts: self-executing contracts programmed onto the blockchain to automatically trigger an event (for example payments) when certain contractual conditions are met. For example, each individual’s digital wallet could be linked to a blockchain-based smart contract, which would disburse a fixed amount of funds every month without the need for manual processing or intervention.
Areas for Development: Sustainability
As with any emerging technology, blockchain has faced its share of criticism. A prominent concern about blockchain’s sustainability has been the high levels of energy consumption required for its original Proof of Work consent mechanism. These concerns are not insignificant. To put this into perspective: in May 2022 Columbia Climate School wrote that the annual energy consumption required to power the Bitcoin blockchain alone was equivalent to the annual energy consumption of Argentina.
It’s no surprise that specialists are working on developing alternative consent mechanisms (such as Proof of Stake, Proof of Authority, Delegated Proof of Stake, Proof of Space and Time) to work toward a more sustainable version of the technology. For example, Ethereum has touted that a transition to a Proof of Stake would result in a 99.95% reduction in its energy usage.
The risk of modifying the Proof of Work consent mechanism is the impact on the technology’s decentralisation and immutability. As alternative consent mechanisms are developed and introduced into the market, a close eye will need to be kept on whether the technology continues to offer a reliable and decentralised option for a global UBI solution.
Conclusion
Overall, blockchain offers a promising foundation for building a global, scalable, and secure UBI system. By enabling direct, transparent, and automated payments, blockchain could ensure that UBI reaches everyone, everywhere.
