Podcast

Free Money - How a Basic Income in Crypto can Boost the Local Economy with Alain Brenzikofer

Jonas

Jonas

— 4 min read
Free Money - How a Basic Income in Crypto can Boost the Local Economy with Alain Brenzikofer

Alain Brenzikofer (@brenzi5) and his Encointer association have launched a new digital currency in Zürich, Switzerland. The digital currency, Leu (meaning Lion in Swiss German), wants to become an equal-opportunity money system that supports the local economy and fights inequality worldwide. The trick is that you can only use it locally. Oh, and did I mention that you can get it for free?

A local currency to serve the local economy

But why should local currencies be any better than global currencies? The thinking goes as follows: Money that can only be used locally will benefit local businesses that source most of their value chain locally. For instance, a coffee shop mainly selling local goods could use the earnings in Leu to buy goods from a local supplier. This supplier then, in turn, will use their Leu again to buy their goods and services locally. Each reuse strengthens the local system, enhances regional productivity and promotes self-sufficiency while building resilience from global financial systems.

As Brenzikofer says, he came up with the idea of founding the Encointer association in 2018. "I realized that Bitcoin and most other cryptocurrencies are designed to be highly anti-social." In contrast, Encointer aims to reduce global and local inequality and promote equal opportunities - regardless of age, gender, kinship or nationality.

Free money - A community-issued basic income

The trick with Leu is that you can get it for free. It is the first community-issued basic income (that I know of). You don't need to register, and you don't even need an ID or passport. Anyone who wants to receive Leu only has to attend a meeting every ten days. At the so-called ceremony, people meet simultaneously in groups of about ten at different locations in the city. At the ceremony participant attest that all the other participants are real persons. Encointer coined this concept Proof of Personhood. In return, they receive 22 leu, which is currently equivalent to 22 Swiss francs.

We use the fact that one person can only be in one place at once. That is why we need physical gatherings of people who mutually attest to each other that they were there.
Image: 林嘉雯 / Facebook - Man in South Corea playing Pokemon Go with 64 smartphones at once. Encointer's Proof of Personhood system can't be gamed like this.

And where does all this money come from? The idea of the Leu is that the community income does not have to be financed by anyone. Leu is created out of nothing - similar to what commercial banks do. But Leu can only have value if various businesses accept it as a means of payment and can be reused.

At the moment, only two businesses in Zürich accept the new means of payment. Therefore, they also set the value of the currency. One is Sphères, a bar / café, and the other is a grocery store called Berg und Tal that offers expensive local products. (See what I bought there with my first basic income in Leu)

High velocity of money but no Lambo

Fast money but different. If you are looking for an investment opportunity, Leu is guaranteed not to make you rich. The tokenomics of Leu prohibit that it could ever be a store of value or sound investment. This is because the Encointer team has deliberately incorporated a concept known as Demurrage. Unlike inflation, Demurrage gradually reduces only the value of currency held: it functions as a negative interest.

The idea is to keep the money flowing. So if everything we are used to in our world is perishable, money isn't. Why is that?

When you open your Encointer wallet, you will notice that the amount of Leu is slipping through your fingers. For example, if you had 5 Leu yesterday, the next day you open your wallet, you might only have 4.98 Leu left. The idea is you should not save Leu but spend it quickly.

Alain and the Encointer team have decided to apply very aggressive demurrage to Leu. If you hold Leu for one year, you will lose half of your money.

By introducing Demurrage, we say that money is perishable, like everything else, and that actually incentivizes people to spend the money rather than to save. And if you want to promote the local economy, that's exactly what you want to do. If you want to get rich with a crypto asset, that's exactly not what you would like to see, but that's not our goal.

Zürich's local currency Leu is only the beginning

As Alain says, he came up with the idea of founding the Encointer association in 2018. "The way Bitcoin is designed is very asocial." In contrast, Encointer aims to reduce global and local inequality and promote equal opportunities - regardless of age, gender, kinship or nationality.

Zürich is only the starting point. The Encointer association hopes that many similar projects will follow suit in places where people cannot access banking and public services. The vision is that more communities worldwide will start using the same Kusama-based technology to launch their local currencies.

Kusama Parachain slot for common goods

The Polkadot community is supporting Alain's project. Encointer was granted a free Parachain slot for one year.

We were given such a Parachain slot for free because we are considered a common good, meaning that the ecosystem thinks what we are doing benefits the entire ecosystem.

This allows Encointer to offer cheap transaction fees that can be paid with the local currencies instead of the KSM token.

Projects mentioned in this episode

Music Credit

Transcript

This transcript has been created automatically. Expect errors and inconsistencies.

Read more