There is a single source of truth, and it is academics. Lots are talking about universal basic income. It was very popular a few years ago.

The truth is that academic research has not provided a clear evidence whether it exists or not. What we have is Universal Basic Debt until the profs figure out something better.

digitalcurrency

Copyright© Miklos Szegedi, 2023.

The way it works is that national central banks like the Federal Reserve have accounts for major financial institutions. They can borrow money as a last reserve from the Feds at a rate called the Federal Funds Rate. They can also trade with other debt assets. They lend this money to companies and individuals. This is what we have, the Universal Basic Debt.

It replaced a system, where the dollar was tied to the gold. You could even exchange your paper dollars to gold bars long ago. Cryptocurrencies tried to copy this system allowing only a limited amount of these assets. However, we should not forget that these cryptocurrencies only promise a potential of liquidity, selling them for dollars or gold later.

Let me admit, I never owned, acquired or bought any cryptocurrencies. It is not because I do not trust them, but I did not need the services or products that can be bought with them.

My main concern is that the technology of blockchains or Merkle chains where made by scientists. The main purpose of cash is that it is easy to identify. Having a handful of experts understanding the tech limits the use case. It is designed for central banks and financial institutions of the scale that can employ these people. They also do not need more talent. It is a concentrated market.

Central banks on the other hand were skeptics. They promoted stable coins that are tied to their own products, the dollar, the euro, etc.

My better definition is digital currency. A digital currency can be a cryptographic asset, or just simply an entry in a secure database. It does not really matter. The important thing is that it can safely be resold later.

My opinion is that digital currencies will eventually have a form of urls and strong undisclosed random numbers stored in databases. The value of such assets can be assessed by any future payments. Any assets with a definite payment term set will have better value and lower risk compared to ones that are mere “branded” coins. A digital currency that pays a hundred dollars in two years has a value of hundred dollars minus a compensation for the risk-free rate. It must pay a discount for the risk of the technology and the risk of the payer institution.

Validation of such digital assets is way more simple. It is just checking a chunk of the random number, when it is simply copied to a payee. The term reduces the risk of cyberattacks by making the random number useless after use. Paying is simply a copy of the random number or part of it. Copying a part helps to revalidate the payer in case of a dispute.

A database is the proof of liquidity in such a case. It must be secure. This helps decentralized institutions as well. Parts of random numbers, or hashes of contracts can be stored by many, who are paid when such values are requested to be verified. If there is no verification, the investment to store the random is lost. This allows to pay a reasonable fee by the holder of such a digital currency.

The system is also clear and understandable. It is also very distributed compared to current cryptocurrencies. Anybody can store a hash and verify. They do not even need complicated technology.

The security of the system can also be ensured by distributed random numbers. Participants can generate random numbers for a fee. Such random numbers are the commodities, the golden nuggets of the digital age. The combination of such independent random numbers is an even stronger cryptographic random number.

Digital currencies with terms and dividend payments will be like annuities or bonds having a good value. Digital currencies with mere brands and a vague promise to be exchanged for a service on a random website later are perpetuities, with a potential value of zero. Good branding and marketing spending can set the asset price of such digital currencies. The most notable experience is Bitcoin. The more press it gets, likely the more valuable it is.

Emerging digital currencies with a growing number of potential buyers of the same group may not be legal like Ponzi schemes. Digital currencies with unknown buyers may need to be licensed as gambling.

Tesla allowed using Bitcoin to buy cars few years ago, but this promise was a random decision with a significant spike in Bitcoin pricing at that time. Digital currencies with term liquidity promises can have a strong valuation compared to the others. Digital currencies used as tokens like vending machines for cloud services, game assets, theme parks may be good private payment solutions. Digital currencies used locally can be used as coupons, travel vouchers, traveler’s checks increasing security. Towns targeted by many tourists may issue such assets in exchange for a nightly tax to drive spending. Professional lawyers can verify.

Still, there is nothing simpler than cash. Why? The clear answer goes back to the question of interest rates.

Problem There is just one currency needed per sovereign jurisdiction.

Solution Currencies track the value of assets across generations. The main purpose of the financial system to provide a currency that can be used later in exchange for current work. Young people and retired people have liabilities, while the working age population saves more assets than what they use. Currencies with diverging rates would split society with winners and losers creating emigration or an apartheid system. A country allowing more currencies would end up with two jurisdictions, one risky, and one less risky.

Problem So how do digital currencies add value then?

Solution Any digital currency will follow the value of the dominant reserve money, and their value is realized in quicker exchanges and verification compared to cash. The Reserve Bank works on maintaining the buying power of that money. Digital currencies can only be as risky or less, if they have any additional liquidity or default risks. Anything else is mere speculation.

Problem Is there Universal Basic Income with digital currencies then?

Solution No, there is a Universal Basic Debt. People can buy a large investment like a house using savings of their work in ten years for example. Most people on the other hand have something called a Universal Basic Debt. They cannot open an account at the Federal Reserve, but their profession may allow them to get a thirty-year mortgage from a bank that does have such an account. The reason is that the asset bought can be resold to future generations. It has a term, and the asset, the debt collateral is liquid.

Problem Most people have housing as a result in exchange for higher housing prices and an easier way to acquire money as a mortgage.

Solution There are less homeless with mortgages, but housing is more expensive with greater demand. The process triggers more work hours invested, and more housing and value built. There are not many of such assets. Cars used for commute, machinery amortize with a smaller salvage value. The interest rate of loans for such assets are higher than mortgages as a result.

It is interesting on the other hand that lasting brick buildings compete with new housing development financed by mortgages. The demand for new housing and mortgages may be smaller in such countries as a result of competition. Lenders may ask for higher rates for such mortgages since buyers can swap to low-cost old apartments anytime. The new house cannot be resold easily. It is less liquid.

Countries with many historic buildings may have higher risks, interest rates, and inflation. This is especially true, if they share the currency with countries having less historic dwellings. This is what you see in the Euro zone or in post Soviet countries.

There will be as many tied or strongly correlated currencies as many independent countries have central banks issuing floating money as a result.