Cryptocurrencies have various mechanisms for injecting currency into circulation. Some are necessary to cover actual costs and to keep the network alive (e.g. mining rewards in PoW currencies), some are highly beneficial even if not strictly necessary (e.g. R&D costs and other development grants), but some only exist as artificial constructs for pushing more currency into circulation. For example Algorand’s Participation Rewards seem to fall cleanly into this last category. Many other types of rewards may fall partially into this category as well, if the rewards far exceed the value that is received in return.
In this post I’m mostly concerned of this last category of unearned (or excessive) rewards that are not necessary for the network to function, and are not compensation for any actual costs or innovation, and will argue that such rewards should not be given mainly to those who already have most of the algo, but be distributed much more widely to avoid the extreme wealth concentration that many proof-of-stake cryptocurrencies suffer from, Algorand included.
I believe this is especially problematic (i.e. leading to even higher concentration) for cryptocurrencies that have a fixed maximum supplies and relatively fast distribution schedules, such as Algorand’s maximum supply of 10B algos that is all be distributed within just 10 years.
The many problems that can arise from extreme crypto-concentration range from price instability and lack of economic activity to increased inequality of opportunity and governance by the rich. And as a worst case scenario, if the few at the top can hoard large amounts of (deflationary) currency through the unearned/excessive rewards while encouraging others to “invest” in the currency by purchasing it from the open markets, it may even resemble a pyramid scheme. (I’m not saying that Algorand is anything like a pyramid of course, but there certainly has been examples of other pyramid-currencies in the past 10 years or so, and just being technologically superior to other cryptocurrencies doesn’t mean it cannot happen if the wealth-concentration is high enough.)
To avoid the problems caused by extreme concentration of the cryptocurrency, and to push for a much wider adoption and increased economic activity (which is the ultimate measure of the usefulness and success of the currency), I propose distributing some of the remaining algos as a worldwide Universal Basic Income, or UBI.
UBI in this case would be an identical sum paid to all individuals regardless of their existing algo balance. (The key difference to current forms of distribution being that UBI is not relative to your current balance, but the same absolute amount that is paid to everyone.)
The exact UBI amount is of course, as always, open for debate. It could be 1 algo per day or something completely different, depending on the amount of algos reserved for the program and the number of individuals participating in it (which I assume would start low and eventually grow very large).
It is true that this would require KYC in some form of verified digital identity (Estonian e-residency being one possibility, given that it is already available to most of the people around the world). It is also true that some current algorand users would not want to have anything to do with KYC and would see it as unfair to be missing out on UBI rewards, but at the same time a lot of new people who don’t see it as an issue would happily participate, leading to a lot wider distribution and adoption of algorand, especially in countries where the cost of living is low. (Don’t forget that international poverty line in the low-income countries is only $1.90 per day, making even small UBI amounts very appealing.) This could potentially jump start a whole new Algorand economy, where algos will be used for actual purchases of products and services, instead of being used mainly for hoarding and speculation as it is today.
For those not familiar with UBI, or not convinced of it’s many benefits to the society, Wikipedia is once again a great place to start learning more: Universal basic income - Wikipedia
Finally, I admit that I don’t actually see any of this happening, but it is a dream worth dreaming.
If succeeded there will be a lot of papers about it… Also the KYC will allow the governments to believe algo and even governments will benefit from higher usage of government IDs, so it is win win for algo as well as government. Win win for early backers as well as new users…