Preface:
Communities within American cities are currently facing numerous economic and social issues, the severity of these issues are stagnant at best and in many cases worsening. It is my belief that many of these problems are caused by a lack of incentive in both individuals and public officials to increase the prosperity of their city. This theory and paper is written as a generalization and not meant to discount the efforts of public officials and individuals that are desperately trying to stop the crime, social issues and poverty. I believe that if people in a city can be financially incentivized to improve their communities, it will cause an eventual reversal of crime and poverty. In this paper I will attempt to explain how this can be done through a tokenized city utilizing blockchain and cryptocurrency.
Solving poverty & crime by utilizing the Geographic Tokenization Program:
A year or so into the second decade of the 2000s, sometime around the aftermath of the economic collapse of 2008, the economists and political figures started to slowly stop clamoring for their few moments in the spotlight to discuss what they would have done to stop the recession, how they had tried to warn people etc. This was a welcomed relief to most, although this also meant that it was inevitable people would begin to stop talking about finance, economics and the problems that are bound to repeat themselves in similar but likely more extreme and prolonged recessions. The conversations began to shift to how people can protect their savings against future economic catastrophes, a very important topic that many care too little about given the current financial insanity of negative interest rates, national debt and ever increasing inflation. Today, there are enough economic doomdayers to cover those topics at length, so we are free to avoid them for now.
Through the conversations of safely diversifying one’s savings, the typical topics appeared, buying real-estate & gold, having a diversity of stocks and bonds. Very few new ideas appeared and little was worth remembering except for one idea which was technologically impossible at the time, the idea goes something like this.
In an interconnected, globalized world of trade, markets are interdependent and tied to each other with a very high correlation. Two seemingly unique markets can now have a high level of dependence or codependence, for instance, if the US housing market collapses, a significant decrease in the Japanese auto sector can be expected as one of the many results. This relationship that has appeared over the past 50 years can be seen in many markets and industries and is ever increasing. This creates an obvious issue for investors when attempting to safely diversify, however, if it was possible to bring in millions or billions of additional investments into the market that people have never been able to directly invest in before, then a true diversification could occur. During the interview, it was proposed that cities, states, countries, private companies, universities, sports teams and even people could be treated as potential investments. Currently, most of these examples have extremely limited or at best, very indirect investment vehicles. This results in the obvious question, ‘how could one invest in something that doesn’t allow share ownership?’ Such as a person, city, or a sports team? There isn’t a definite answer but a variation on a case by case basis. A potential solution is, to create a token that is tied to some aspect of the individual, city or sports team, helping creating a micro ecosystem around it.
As stated earlier, a system this complex was impossible to create based on earlier technology, however, thanks to the evolution of decentralized databases with cryptocurrency, creating and deploying completely decentralized tokens is a process that can take minutes, albeit, hopefully much longer to plan. Tokenization can simply be thought of as slices of a digital pie, each pie representing the ecosystem (schools, businesses, cities, humans, countries etc.) Each slice of the pie can be traded for different benefits within the ecosystem. For instance, a university could create and distribute a token which could be redeemed for tuition payment, sports tickets, voting privileges etc; cities could issue tokens that could be used for payment in parking tickets, taxes, park usages, welfare and many other possibilities. This would ultimately be a net positive for the issuer and allow for many potential benefits for the purchaser of the tokens. The tokens would have a fluctuating value in fiat currency (US dollars etc) in relation to the growth or weakening of the ecosystem they represent, this would create both incentive for the issuer and the token holder to help improve the ecosystem as it would directly cause the price to increase, and in turn, the token holder’s net worth. Tokens could and should be traded on multiple of the existing centralized and decentralized cryptocurrency exchanges in order to increase liquidity and visibility of the token.
This theory can be implemented and benefit many areas, the potential positives are nearly limitless as incentives can be tailored by each ecosystem and their specific economic and social goals. For the purposes of this article, we are going to focus on the crisis of economic issues and crime in American cities. This will be known as the 'Geographic Tokenization Program.'
Financial incentives are one of the most important foundations of ensuring any economy is successful, although, financials alone are generally not enough – social freedoms, preserving the environment and a degree of law to ensure safety, fair trial and property rights are some of the additional areas that help ensure that a city, state or country are prosperous and enjoyable places to live. Blockchain ecosystems are one of the few remaining markets in which economic incentive has been the nearly sole driver of prosperity, thus, creating a hyper competitive and highly incentivized network. Many blockchain projects with little leadership and investment can survive and in cases flourish with nothing more than the community (token owners) working on development, marketing, documentation and other necessities to help the ecosystem grow. The community is not directly paid for these contributions but indirectly incentivized by an increased price of their token for improvement in the project. This core principal is what separates a Blockchain project from a business, the customers of a business cannot step in and work in the case of potential failure whereas this is often seen with Blockchain projects. However, it is likely that this will decrease overtime due to it being easier to just sell and buy into a new project as competition is now extremely high, there are now, very few barriers to movement between different blockchain projects.
A tokenized system that has barriers to abandonment, if executed properly, could provide incentive to help that system improve significantly. American cities offer the perfect opportunity to begin experimenting with a tokenized economy with distribution based on geography. Since moving out of cities and communities is relatively low for citizens, abandonment of the system would be low on a year to year basis. As crime and poverty in America continue to be a major issue and in many cases is getting worse in cities, failed efforts in increased welfare and policing have to be understood as ineffective, while instead, a motivated, incentivized community has to drive positive change. A tokenized ecosystem that effectively motivates its token holders through financial incentive, will be able to help drive positive change in both social and economic issues. Before we begin to look at the outcomes of a tokenized city, let’s look at the common issues that currently face many American cities.
• Economic stagnation for lower and middle class.
• Ever increasing reliance on welfare, little reliance/ need from the community/spouse.
• Limited non minimum wage job opportunities without college degree.
• High crime rate, desensitization to violence.
• High and open drug usage.
• Single parent families.
• Poor schooling.
• Poor policing tactics/ distrust of police.
• Little investment from outside businesses due to many of the issues mentioned above.
Before approaching a tokenized city, a planning committee would have to look at the issues that are most prevalent to their area and approach the economic model of tokenization in a way to help tackle the biggest problems. For instance, if a city is currently struggling with outside economic investment in the form of small businesses, the token distribution and inflationary spending model can be done in a way to help incentivize small business investment. The token model can be tailored for nearly any shortcoming, or also help encourage the positives that exist. One of the key benefits to a decentralized ecosystem is the ability for proposals and voting to occur in a fair and transparent way. If the ecosystem is functioning on an inflation of 5% per year, proposals on how to spend the additionally minted tokens can be created and voted on. An example of this would be, a proposal for a new sports facility at the local high school, a new park or the hiring of additional police officers. The community could also propose and vote that the inflation only be spent on running the local government, thus lowering or eliminating the need for tax payments. In addition to the benefits mentioned above, some of the hopeful results are listed below, the theory is that these would accomplished directly through an incentivized community.
• Allow the issuing city/ area to use funds to spend on infrastructure, policing, events etc. This should be outlined thoroughly prior to any distribution of tokens.
• Unite people within the city, creates a commonality and a team environment working towards a common goal of increasing token price and growing their ecosystem.
• Token holders, either within or outside of the city will be incentivized to create positive externalities that increase the value of their token.
• Investing capital into businesses, parks, schools, restaurants etc.
• Stopping littering and polluting.
• Alerting police to crime, stopping crime.
• Directly incentivized to want to increase tourism to their city.
• Businesses, governments and people would begin to accept tokens as form of payment which would help drive the benefits and increase token price.
• ‘Undervalued’ cities/ tokens would become a clear investment opportunity as capital injection could help increase the value of the token.
• Policing practices could improve if the police were also token holders.
• There would be a demand to get more tokens, tokens can be sold on the open market and profits can be injected back into the community (fixing one’s house, opening a business etc.)
• Tokens could be a form/ portion of welfare so that recipients are not discouraged to work as in the current systems. Current systems stop a recipient from wanting to get a job as they will lose some or all of their welfare (If a minimum wage job is 8$ an hour and welfare receipts are equivalent to 3$ an hour, the motivation to move off of welfare is much less than the salary gained by getting a job.)
Although there are a numerous potential benefits for creating incentivized ecosystems, there are definite concerns that would have to be planned for and would be exposed as each ecosystem matures. In cryptocurrency, it is often seen when people or groups actively try to hurt the price of tokens for a project, a similar case in tokenized cities is absolutely possible, however, with properly preparing and active policing, these issues could be easily limited & avoided.
• A large percentage within the geographical boundaries could immediately sell to geographically foreign investors, incentive to improve the area would fall from people inside the community.
• Short sellers in the market could inject crime, pollution, negative press - this could be enforced but is still a possibility. Regulation over shorting would be close to impossible due to decentralized cryptocurrency/ token exchanges.
• A decrease in token price could have negative impacts on moral etc.
As many areas in the world remain or become economically stagnant and dangerous, it is clear that the solution is not to fill up jails until there are no criminals or to give out welfare until no one is poor, but to incentivize communities to work together and attract investment to help drive positive change and ultimately, increased wealth and social prosperity. Although this system might not produce the exact benefits that are theorized, the power of financial incentive has taken humanity to where it is today and should not be ignored.