Crypto Market Cap$2,432,375,191,4376.8%
Proof-of-Stake Marketcap$419,722,923,8819.41%
Global Staked Value$319,013,966,7707.82%
SR20$921.4325.6% MTD
Benchmark Interest Rate9.91%-2.06%
Benchmark Total Staked52.74%-1.31%
Global Stakers3,586,603-1.18%
Crypto GDP$190,143,881,215-68.36%
Proof-of-Stake Flippening PoW28.66%
Crypto Market Cap$2,432,375,191,4376.8%
Proof-of-Stake Marketcap$419,722,923,8819.41%
Global Staked Value$319,013,966,7707.82%
SR20$921.4325.6% MTD
Benchmark Interest Rate9.91%-2.06%
Benchmark Total Staked52.74%-1.31%
Global Stakers3,586,603-1.18%
Crypto GDP$190,143,881,215-68.36%
Proof-of-Stake Flippening PoW28.66%

      Introduction

      If money grew on trees, would everyone want a tree? Probably. What if it was Monopoly money? Probably not. However, if the local bakery, barbershop, or movie theatre started accepting Monopoly money, it would definitely be more enticing. Circles is an application and new money system that offers its own version of Monopoly money. It cannot be exchanged for any fiat currencies like Euros or US Dollars, but it can be transacted with in real life as long as both parties agree to it… similar to fiat money. And thanks to smart contracts and blockchain technology, Circles users receive regular payments of the platform’s cryptocurrency for free, like taking money off of a money tree. This parallel economy and free distribution of Circles cash are supposed to reflect the start of a financial system with a Universal Basic Income (UBI).

      Plenty of reasons exist for why various economies could use a basic income. Perhaps it’d be nice if citizens’ basic needs were covered so they could explore job opportunities that interest them. It could also help the unlucky better manage job loss from technological innovation and outsourcing of labor. Debatable topics like automation/globalization and the effects on jobs, how to combat the growing wealth inequality, and issues surrounding welfare have sparked conversations regarding a Universal Basic Income. UBI has never been tested on a large scale. Maybe it’s unfeasible, maybe having a more confident populace threatens a government’s power, maybe the infrastructure doesn’t exist to administer it meaningfully. If the latter is the main reason, Circles’ attempt at UBI may highlight that blockchain is the correct infrastructure for its implementation.

      Dollar - Universal Basic Income
      Credit: Karolina Grabowska on Pexels

      What is Universal Basic Income (UBI)?

      According to a thorough and politically agnostic UBI research paper from Bridgewater Associates, the research team defined UBI as a cash transfer that is:

      1. Universal: every citizen receives the transfer regardless of employment status or income.
      2. Unconditional: recipients have no restrictions on how they can spend the cash.
      3. Basic: the amount will cover “basic needs” and will constitute a “living wage.”
      4. Long-term: the cash transfers will last for the long term (e.g. entirety of the recipient’s life).

      Universal Basic Income in its simplest form is a social safety net where everyone gets enough money to live. It is not a particularly new idea — as US founding father Thomas Paine proposed a UBI in his pamphlet “Agrarian Justice” in 1797 — but it has seen a rise in popularity in recent years. According to the research paper, UBI has never been implemented. Some Middle Eastern Gulf States make generous payments to their citizens, covering electricity, water, and health care, but are in a unique situation where the country’s resources are responsible for the government’s high wealth per citizen, and hence, are excluded from the analysis. The analysis includes very localized attempts at UBI-type unconditional cash transfers to citizens, though no example meets all the necessary criteria.

      Cash Transfers
      Credit: UBI Research Paper

      Universal Basic Income shockingly doesn’t define party lines in American politics; this fact is proven by historical attempts at putting it into policy. On page 66 in The Journal of Socio-Economics 34 from 2005, Karl Widerquist of Oxford University explains that there were two instances when a form of UBI was almost implemented in the United States, one from Richard Nixon’s (Republican) presidency and the other from Jimmy Carter’s (Democrat). Both took elements of the Negative Income Tax idea as originally proposed by economist Milton Friedman. Neither plan was passed; however, Widerquist described Nixon’s plan as closer to “guaranteed income” than Carter’s.

      Like Nixon and Carter, both liberal and conservative thinkers can support UBI. The conservative case is based on simplifying a bloated welfare system and giving individuals the freedom to spend money in a way that would best benefit their unique situation (unlike food stamps that are restricted to food). Typical liberal arguments focus on the potential reduction in wealth inequality and taking pressure off people losing jobs to automation and globalization. Both sides tend to agree that UBI could encourage risk-taking in the economy.

      Credit: (From left) Nixon portrait by J. Anthony Wills, Carter portrait by Herbert E. Abrams.

      Critics of UBI also fall on both sides of the left-right political spectrum. The liberal criticisms express that an unproven cash transfer scheme like UBI would destroy the proven legacy welfare system that took years to implement. Conservative critics argue that UBI would reduce incentives to work and that money would be spent on vices and not necessities like food and rent. A critique that tends to get bipartisan support is that UBI would be too expensive.

      The research paper highlighted minor differences in the results of the case studies from developed and developing countries. It appeared the criticisms regarding human decision-making were unfounded while other benefits were discovered like female empowerment (mothers now had an income stream) and a decrease in child labor. Analyzing the feasibility of Universal Basic Income in the United States, Bridgewater Associates calculated the costs of the US government providing $12,000 a year to each citizen while possibly funding it by replacing existing programs. It also calculated the costs if UBI were to be reduced by 10 cents per $1 earned, meaning that if someone makes $120,000 they would not receive a basic income, but if they make $60,000 they would receive half (i.e. $6000). The second situation is technically not a pure UBI; however, it maintains the essence of UBI and is much more cost-effective to implement.

      USA - Basic Universal Income
      Credit: UBI Research Paper

      A note on Bridgewater Associates:

      Bridgewater Associates is one of the largest and top-earning hedge funds of all time. It seeks to conduct the most honest and accurate research in order to capitalize on real market conditions. Its analysis of UBI is simply a pure attempt to understand how markets and people react to a basic income; it does this without any political or ideological bias. Although the paper was written over three years ago, the analysis is timeless. If you’d like to get a better understanding of the analysis that the Bridgewater Associates team conducted, you can read the paper from founder Ray Dalio’s LinkedIn.

      The Circles UBI Money System

      Circles is an alternative economic system that acts similar to UBI. It operates on the xDai Ethereum sidechain which is a stable payments EVM (Ethereum Virtual Machine) blockchain designed for fast and inexpensive transactions. Circles is not to be confused with Circle, the blockchain-focused financial services and payments company responsible for USD Coin.

      xDAI as Universal Basic Income?

      Circles is a unique money system whose cryptocurrencies are more fungible (interchangeable) than NFTs (Non-Fungible Tokens) but less fungible than normal cryptocurrencies that can be found on exchanges. Every time a new user joins Circles, the smart contracts create a new personal cryptocurrency for that user, and that same personal currency is then regularly minted and added to the user’s account. This process is supposed to form the basis of Circles’ UBI properties. To transact on Circles, users must trust the personal currencies of others, creating what Circles calls a “social graph.” The Circles team believes that as more people become connected on the social graph, personal currencies will “converge on one single global monetary system.” The whitepaper goes more in-depth on the Circles money system.

      Circles excited a lot of potential users pre-launch. Whereas most blockchain attempts at UBI tended to be hyper-local, Circles created a globally accessible UBI for anyone savvy enough to transact with cryptocurrencies. It garnered so much attention and hype that when it launched, the servers crashed, struggling to handle the large activity. A year later, it is slowly growing as it maintains an active Twitter account that transmits updates and relevant news regarding Circles and its UBI goals to about 10.7K followers. The Circles Coop and Bitpossessed Collective help to maintain the technology and infrastructure. The Coop also supports groups and businesses who want to join the network and use Circles.

      Local Economy

      Circles claims to have gained some traction with a few Berlin-based businesses on its website. It provides a video of interviews with people from the various businesses; however, their language does not indicate that any of them use Circles. The CEO of Toca mentions that he “likes the idea [of Circles] to explore a different direction that lies outside the current economic system.” The CEO of O-Water says that she “would accept Circles as a method of payment.” None of these statements ensure that they accept or use Circles. Furthermore, neither the Toca nor O-Water website accepts Circles as a valid payment method.

      Is Circles UBI actually UBI?

      In short, no. It encompasses pieces of the four qualities that define UBI but falls short.

      Is Circles universal? It is universal in the sense that it doesn’t discriminate based on employment status or income. It is, however, a bit exclusive. You need three people upon signing up to verify you. This is probably a barrier for anyone outside of Berlin. Some new users have undermined the founders’ intentions by posting their verification links to social media, eventually getting verified and gaining access to the platform.

      Unconditional? Yes, in a way. If someone were to receive a basic income from the American government, it would come in the form of US Dollars. There are no restrictions on US Dollars anywhere, they can be used at a restaurant, massage parlor, grocery store, anywhere. There are social and technical restrictions on Circles. Most businesses do not accept Circles and people can choose to not trust your account, limiting your usability to whoever trusts you. Circles doesn’t administer restrictions as a government does with food stamps, but the restrictions are inherent in the design.

      Basic? Not at all. For Circles to be basic, the value of administered Circles would need to equal your living expenses. It would also need to be widely adopted so you could use it to at least pay for your basic needs. Circles doesn’t expect it to be basic income right away, but it hopes that it could turn into that someday.

      Long-term? Yes. More than anything, Circles is long-term. There is no end defined in its code and will continue to pay out to users.

      Circles isn’t a true UBI. It’s a good attempt, but cryptocurrencies with a basic income goal that lack mainstream peer-to-peer and institutional adoption will never become UBI. Its best chance at mainstream adoption and fulfilling its mission would be to partner with local governments and try to implement itself as a UBI solution. If local governments accept the partnership, then they could work together on fixing the issues it currently faces that prevent it from reaching the status of a viable UBI.

      Circles for Universal Basic Income?

      Potential Flaws with Circles

      The safety of Circles, as Circles conceives of safety, is dependent on peer-to-peer trust. The verification process requires users to get verified by other users, preferably by people they know in the physical world. It also prefers users to transact with people they know and trust in the physical world. This is troublesome because Circles relies on its users to be responsible. As displayed by people posting their verification links to social media, users are not as responsible as Circles advises. This could create a safety hazard if people trust the Circles platform. It only collects username and email, which don’t map to a real identity. Using me as an example, anyone can make a Micah username and create a [email protected] email (or any email), get verifications from fellow Twitter like a lot of early users did, and pretend to be me. Users who know me and trust the Circles platform could think the impersonator is me and transact with this potentially malicious user (without contacting me to double-check).

      Because of the trust-safety mechanism, it’s arguably safer to transact with any other normal cryptocurrency. If you have a Bitcoin wallet, you know your wallet doesn’t have a profile attached to it. So when you transact with a friend, you’re getting their public address via text or in-person (QR code). And if you’re smart, you asked them to double-check to make sure they sent you the right one before continuing with the transaction. Regardless, you’re interacting with people and not their alleged profiles when utilizing other protocols. Circles didn’t add anything new to transacting with people online other than making it slightly more difficult and possibly less safe if you trust its platform.

      Cash
      Credit: Jason Leung on Unsplash

      Circles isn’t designed to be scalable despite its goal of creating a “single global monetary system.” In the best-case scenario, if Circles had Bitcoin-like adoption and actually distributed basic income, it would still be relatively useless to people in a lot of circumstances. UBI is supposed to cover basic needs. Rent is a basic need. Not knowing the same people as your landlord, your landlord would probably prohibit you from paying the rent with Circles, even though everyone’s token is supposed to have the same value. This concept of semi-fungibility for an unnecessary security mechanism is relatively weak and only hinders the adoption and use of Circles.

      Circles’ dream is a little too big and it’s the wrong crypto protocol to implement it. It is trying to create a standard currency like the Euro or US Dollar. It wants its tokens to express the value of items the same way that fiat currencies do, unlike Bitcoin that requires both parties to know the fiat exchange rate. It’s a lofty dream, and highly unlikely. Adoption for stablecoins is already proving difficult, although it is progressing. A better chance at making a blockchain UBI would be if a stablecoin decided to regularly airdrop a livable amount of money to on-chain addresses. Ironically, USD Coin provider Circle would probably have the best chance at making a meaningful UBI blockchain solution.

      Introducing Universal Basic Income

      Circles UBI Against Kleros UBI

      Kleros and Democracy Earth created the Universal Basic Income (UBI) token. It operates a bit differently from Circles UBI. Unlike Circles, the UBI token can be bought. It is valued at about $0.21 (at the time of writing) and has had a consistent 24 trading volume of about $320K. Wallets that hold UBI tokens will simply accrue UBI at the rate of 1 UBI per hour, giving users that ability to earn a passive income that is not necessarily basic, but passive nonetheless. Kleros also gives users the option to participate in a liquidity mining program on Uniswap to further the passive income revenue stream from the UBI token. The UBI protocol from Kleros is a more standard blockchain solution than what was made by Circles. 

      Both solutions are not true Universal Basic Income solutions; they are not basic and are somewhat conditional due to needing to get verified, although Kleros’ UBI token has more unconditional qualities thanks to its fungibility and multivariate verification process. Kleros calls its verification procedure Proof of Humanity (POH). POH performs identity verification by combining webs of trust, reverse Turing tests, and dispute resolution to create a Sybil-proof (fake identity-proof) list of humans. Unlike Circles, Kleros created a system that verifies people’s identities outside of the user-base, creating a more robust security mechanism.

      The UBI token is a Decentralized Autonomous Organization (DAO) token that allows users to participate in the governance of the ecosystem. Through governance, people will be able to vote to allocate UBI from the treasury towards grants, strategic partnerships, governance initiatives, additional liquidity mining pools, and other programs. Kleros has implemented a quadratic voting mechanism that gives all votes the same weight regardless of UBI owned. Aside from the quadratic voting, Kleros made a fairly standard DAO token. Circles has a different approach to governance. In fact, it’s not governance in the sense of cryptocurrency that we typically understand. Circles advises that local groups make DAO’s defined as Democratic Autonomous Organizations. These DAOs do not govern Circles at all, rather, they are expected to act more as lobbying organizations that help with adoption. While Kleros offers a more familiar blockchain protocol to attempt a UBI, Circles is a more politically-oriented, cooperative activist group that has a corresponding blockchain technology to promote as a solution.

      Conclusion

      Universal Basic Income is a virtuous idea. Given Circles’ and Kleros’/Democracy Earth’s proposed solutions to UBI, it appears we still do not have a viable solution. The flaws in the Circles protocol teach good lessons and should be iterated upon to improve UBI protocols. Better blockchains have been built since Bitcoin was released, and the best UBI blockchain solution is also yet to come. A UBI stablecoin solution may be the most attractive option. Many stablecoins exist on quick, secure, and efficient blockchains like Solana, Algorand, Stellar, and Tron. If governments or other authoritative institutions consider implementing UBI or a related cash transfer plan, they should explore a blockchain-based solution, preferably through stablecoins.

      About The Author

      Micah Casella

      is a digital asset investor with a background in traditional banking. Working on the inside, he has seen the benefit that a little digital disruption can have on the archaic finance industry. He sees blockchain and digital assets similarly modernizing other industries for the better.

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