Could a Minimum Income Cryptocurrency Nuke Bitcoin?
Achieving Minimum Guaranteed Income with a CryptocurrencySuppose we were to create a new cryptocurrency in which EVERYONE who participates, gets free coins on a regular basis. 1 a day to start, eventually perhaps 10 a day.
Call it NewCoin(TM) - "Newk" for short.
(FreeCoin is sort of taken, or it could have been "Freeks")
Declare a starting value of $1 for simplicity. Or 1 euro. It will float with market forces, but should not change as rapidly or as much as Bitcoin(TM) has. It isn't intended to be a speculative instrument, nor a long term store of value.
With NewCoin, there's no need for government involvement to establish a guaranteed minimum income. The prospect of regular free money for anyone signing up should make this currency very popular, taking off with consumers FAR faster than Bitcoin has.
[Yes, I know, somehow we'd need to make sure no one is able to sign up multiple times. I'll discuss enforcement later.]
To avoid triggering an inflationary spiral due to accumulating Newks, every sum of Newks sitting in someone's wallet would automatically decay by a factor of ~0.99x (1%) each week. As a result, there would never be more than about 2 years worth of 'freshly generated' Newk equivalent value value in existence, per person. At 10 Newk a day, that'd be about 7300 Newk per person circulating.
Anyone who signs up to create free Newks would also have to agree to accept payments in Newks - but no one would be required to accept more Newks in a 2 year period than they have spent in the same period. That is to say, NewCoin is soft-backed by the individual debts created by spending Newks, rather than by government debt.
[Yes yes, payment acceptance also has to be tracked and enforced for people to find it credible. Details later!]
You could eliminate that debt by abstaining from spending Newks for 2 years - at the cost of giving up most of the value of the free Newks you generated. But why would you want to? As soon as you spend the remainder of the Newks you've accumulated in that time, you'd once more be required to accept payments in Newks. It just doesn't seem worth the effort.
Why Will Anyone Accept NewCoin for Goods and Services?While consumers might be eager to sign up to get free Newks, there's still a chicken-egg problem for vendors. They will be reluctant to accept Newks if they don't believe the vendors they buy from will accept Newks. Who wants to sit on cash that's going to slowly evaporate? In fact, vendors have been slow to accept Bitcoin, despite the huge incentive of rapid deflation. How would we break the fowl cycle for NewCoin?
First, a vendor can get free Newks, same as anyone else - a minor factor, but real. The obligation that brings is minor compared to the amount of business they likely do in a day, so they might as well. That gets the nose of the camel into the tent!
The fast growth of Newks will impress some vendors that they need to 'get on board', as everyone seems to be accepting NewCoin. They'd hear that the more people who sign up and spend Newks, the more who are obligated to accept Newks in payment. They will very likely have employees who have signed up, who could be partly paid in Newks.
Exchanges to convert to other currencies, which took a while to develop for Bitcoin, may very quickly support NewCoin, making it easier to convert Newks to other currencies. They would charge a fee to change Newks to dollars, and give a smaller discount to anyone buying Newks with dollars. Rates would float with the market. Vendors could simply mark up prices in Newks by the amount they'll need to pay to exchange them for dollars. Since consumers will have free Newks to spend, they won't mind much.
Vendors who know how long they hold Newks before they can spend them, could boost their prices 1% per week to make up for the amount they know their Newks will devalue over that period. So the decay factor is not an insurmountable barrier to acceptance.
To ease the transition, the size of the daily payment might be made small at first - say 1 Newk a day. So most people aren't going to be demanding that a vendor accept large payments, even if he were the first and only vendor to accept Newks. For such small amounts, a vendor might be able treat it as a promotional expense - hoping to sell other goods for dollars once the consumer is in the shop. The payment could increase every year, until every person is getting ~10N a day.
Longer Term EffectsThe working poor are more likely to work for vendors who want to pay in NewCoin, and they will want to spend Newk faster than any dollars they receive. Combining that with the requirement that they willingly accept payment up to the amount they've spent in the past 2 years, it's likely that they will very quickly be paid solely in Newk, and pay for everything in Newk. Given the likely mark-ups on Newk (see above), the few Newk they get for free probably won't help them as much as might at first appear to be the case. But those mark-ups should decline as vendors and exchanges see that there are plenty of opportunities to 'move' Newk before it decays very much.
Meanwhile, Gresham's Law, NewCoin will probably drive a lot of government backed currencies out of circulation, since they mostly inflate far slower than NewCoin. With circulation falling, those currencies will have less impact on the economy. They'll be seen as long term stores of value, as well as the medium of exchange for investment.
A Few Technical DetailsAny time a Newk gets spent as part of a transaction, the old time-decayed coins would be destroyed and one freshly minted wallet entry of Newks and some fraction of Newks would be generated with a single new date, so there's no need to keep tracking date entries for coins that have been decaying for decades.
Every time someone generates or spends a Newk, they'd contribute one computation toward generating a secure transaction trail. (Inverting the way Bitcoin mining works.)
So where, ultimately, does the value of free NewCoin come from? Since it will circulate very rapidly, and among consumers rather than investments, some value will come from increased economic activity, and getting more people employed. Perhaps the guaranteed minimum income would help ease recessions, reducing the impact to the economy when people lose their jobs. But mainly the value comes from the debt acquired in spending free Newks, which generates the obligation to accept Newks in payment.
OK - Enforcement - How to do it?This needs more work - but I think it would involve people only being allowed to sign up if they get other people already in the network to vouch for their trustworthiness. The trust will be important, because vouching for someone else will mean that you become responsible if they betray that trust.
So if someone refuses to accept Newks in payment, e.g. demanding dollars, then payer who had to pay in dollars could demand that the vouching person(s) accept a payment in Newks that should have been accepted, in return for the amount of dollars that were accepted. Those vouching might have to register with an exchange, which would do the Newks for dollars exchange and bill the vouching person in dollars plus an agreed upon transaction fee.
And if someone is caught double-dipping - signing up for free coins under 2 or more identities with different people vouching for them, then those who vouched for the fraud would be responsible for paying back the excess over the amount the person should have generated. I expect those people would quickly cancel their vouching, leaving the fraud unable to generate free Newks. Of course they could try to sue the double-dipper.