T h eg o v e r n me n t a l i z a t i o no f c h a r i t ya f f e c t s n o t j u s t t h ed o n o rb u t a l s ot h er e c i p i e n t . . . . T h et r a n s f o r ma t i o no f c h a r i t yi n t ol e g a l e n t i t l e me n t h a sp r o d u c e dd o n o r swi t h o u t l o v ea n dr e c i p i e n t swi t h o u t g r a t i t u d e . Ant oni nSc al i a
Section One: Executive Summary The Idaho Freedom Foundation (IFF) is developing a community care framework that can replace traditional government welfare programs by using blockchain. This blockchain-driven community system would do a better job meeting the specific needs of individuals who require assistance, because smart contracts can be written to release funding whenever a recipient meets specific goals or conditions set by donors. A blockchain solution also costs less than the current government system in which government plays a central role. When the government is
replaced by a decentralized system that directly connects givers to receivers, without the administrative overhead of a byzantine system of bureaucracies, outcomes are better for all parties involved. The first stage of Idaho Freedom Foundation’s plan is to introduce a community care framework designed to replace government welfare programs such as the Supplemental Nutrition Assistance Program (SNAP), the Women, Infant, Children program (WIC), or Section 8 Housing Vouchers. IFF later intends to adapt the smart contract framework to allow non-profits, businesses, groups, and individuals to design and offer fully customizable and scalable programs of charitable assistance to people in need.
Making Welfare Work Without Government
1.1
Problems facing government welfare programs America’s current government welfare programs struggle to foster long-term participant independence, are burdened by administrative inefficiencies, and lack charitable connections between those who give money and those who receive assistance. Fortunately, the world is in the midst of a technological revolution, and blockchain has the potential to deliver a peer-to-peer charity framework never before achievable. Correctly implemented and utilized, blockchain can render the traditional welfare structure obsolete. But do not expect that government will utilize this technology in a way that fundamentally changes existing welfare programs. Rather, one should expect that governmental units, if they adopt blockchain to improve services, will merely use the technology to automate existing systems within the centralized government ecosystem. Blockchain can be used merely so a struggling family receives their allotted money with greater speed and with greater transparency. But the Idaho Freedom Foundation believes blockchain can do more. IFF wants blockchain used so not only do those in need receive financial assistance faster, but from an involved community of people and organizations that truly care. Right now, the government takes money from taxpayers and eventually distributes it to those on government welfare programs. Taxpayers are compelled to provide funding for welfare programs, even if the taxpayer does not approve of the program, thinks it ineffective, or would rather direct his or her money to other priorities. IFF’s solution depends on voluntary philanthropy, in which people give to the causes in which they most believe. Though tax dollars do trickle down to help a working father buy groceries for his family, or a single mother in need of affordable housing, administrative costs at all levels of government welfare programs stack up. Collecting taxes costs money. Distributing taxpayer funds to myriad agencies costs money. Having government
1
employees supervise and run programs costs money; and on and on. One study1 suggests as much as half of the money taxpayers send to government welfare systems is lost to administrative overhead. But, by using blockchain, it is possible to cut out government as the middleman, and transfer welfare more effectively from giver to recipient. IFF envisions a peer-to-peer blockchain community care system that can deliver welfare services more effectively, as well as change our entire government welfare structure for the better. This framework can eventually function completely without government oversight or funding, where the government’s role in funding programs to help those in need is replaced directly by the community, which already ultimately foots the bill.
1.2
The Community Care Alternative to Government Welfare To replace a government welfare program, IFF proposes that community donors voluntarily put their money into a community care blockchain application, which automatically dispenses funds to those registered on the welfare program’s equivalent community care program. Like government welfare programs, such as SNAP, community care program participants would receive a base lump sum each month from donated funds. The revolutionary part? In addition to communities giving money to a community care program, which serves those in need, IFF’s alternative would use smart contracts to allow any individual (including participants themselves) to give money directly to a single program participant’s digital wallet.2 Person-to-person funds would be supplemented by community money with a fund match, so that the community care participant would ultimately receive more money dedicated to healthcare, healthy foods, or housing. IFF intends welfare-equivalent community care programs to be mutually exclusive to the government programs they are intended to supplant. Thus, the peer-to-peer fund match not only encourages welfare recipients to transfer away
1. Payne, James, “The Unnoticed Deficit that Makes us $6 Trillion Poorer,” The Freeman 62, no. 7 (2012): 22-25. 2. A digital wallet is where money on a blockchain is stored. Anyone can add money to a wallet using a public key (think of it like a mailbox slot), but only someone with a private key (the mailbox key) can use the currency inside.
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Making Welfare Work Without Government
from government welfare programs (where they receive only a monthly stipend without supplemental giving), it incentivizes former welfare participants to invest in their own futures for overall gain, and encourages peer-to-peer charity from an involved support network.
1.3
Community care smart contracts available for general use IFF intends to use this blockchain framework to do more than design community care programs equivalent to government welfare programs. IFF wants to offer a tool that can be used by all manner of nonprofits, philanthropists, businesses, charities, and churches, so that anyone can design and implement their own community care program. IFF uses the term “community care framework” to refer to the general system outline, whereas a “community care program” is an individual program (whether designed to supplant a government welfare program, or built by a group of individuals) utilizing the framework and set with certain parameters. In this vision, any group of people can come together, put money into a blockchain application, set certain limitations on how the digital currency is spent (for example, “can only be used to buy fresh foods”) or on how digital currency is unlocked (e.g., “can only be used after attending a vocational training class”). In this way, anyone could develop a customizable community care program. A large non-profit that feeds the homeless could program a community blockchain application to better transfer money from their donors to their homeless clients. A business could program a community smart contract to dispense assistance to employees who need help paying student loans. A family could program a community smart contract to release funds to assist their relative only once she invests funds of her own.
1.4
support money from his family and tennis club friends, rather than from a government administrator. He feels in touch with the community around him, and members of his support network know their help is going to the right place. Imagine a family, struggling to find affordable housing, goes to a small charity (rather than a government agency) for the assistance they need, and gets individualized attention. Or a recovering addict learns to invest in her future, not only by having funds she dedicates to her own recovery supplemented, but by having a digital welfare wallet programmed specifically to her goals.
1.5
World-wide vision With IFF’s charity blockchain program, personal bonds like these are possible all around America. Government welfare programs have long been thought of as the lesser of evils: an inefficient social safety net is better than no welfare net at all. Blockchain technology can be used to ensure that people all over America won’t have to settle for lesser, but can build a network of systems that are good. In sum, IFF’s goal is to ensure everyone in America has access to blockchain community care equivalents to traditional welfare programs, so that they get more personalized service, as well as achieve better long-term success. IFF intends to see community care programs established all over the country within 10 years, and transfer taxpayer funding away from obsolete government welfare programs. Ultimately, the vision is to completely replace today’s government-centralized welfare system with a multitude of private community care programs, run on blockchain and designed by non-profits, businesses, and individuals. IFF wants to make it simple for everyone to design a smart contract program and become a philanthropist.
Better outcomes for everyone
1.6
This framework has the potential to replace most current government welfare programs, which would allow non-profit organizations and communities to assume the role of primary safety nets. Imagine a program where an out-of-work father receives
If America is ever to reach a point where voluntary donations are enough to replace government welfare spending, many of the roadblocks to charitable giving—both
Large scale change
Making Welfare Work Without Government
psychological and financial—must be addressed. This project proposal is too brief to provide more than a quick overview of these challenges and their potential solutions. One should keep in mind, however, that great progress is achieved not by shying away from a peak because it appears too high to climb, but by aiming for a lofty goal and chasing a lofty vision. There is something broken about modern society, and it’s not hard to see with the violence and divisions all too often defining the news. Fostering a connection between people and their communities, between ordinary generosity and those it helps, could be the first step to truly fixing it.
1.7
First steps: a policy framework in Idaho To achieve these goals, the Idaho Freedom Foundation’s first step is to develop the community care framework into a feasible community care program that IFF can present to the Idaho Legislature during the 2019 legislative session. IFF is examining the Women, Infant, Children (WIC) welfare program in Idaho, and designing a blockchain solution to do equivalent work via the private sector. More details about the pilot program goals can be found in Section Four of this proposal.
1.8
Idaho Freedom Foundation’s program proposal In this proposal, IFF will highlight the capabilities of blockchain technology, outline the primary problems with government welfare programs, and summarize why blockchain is ideally poised to solve them. IFF will then present three stages to this basic community care framework designed to replace current government welfare programs, and list the many advantages this design has over current centralized government welfare. This proposal will then briefly address how similar programs could be adapted by charities and individuals to develop their own customizable giving programs.
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Section Two: Blockchain Technology and Problems with Government Welfare 2.1
Explanation of blockchain Blockchain is essentially a new way to record transactions between parties, whether it’s an exchange of currency (like Bitcoin), or information, or goods. There’s nothing particularly special in this in and of itself, banks and governments constantly record and enforce transactions. But the traditional economic system requires trust in institutions like banks not to revise the ledger of transactions once money has changed hands. If a shop wants to buy $500 in coffee from a supplier, both have to trust that their thirdparty intermediary—the bank—will record the transaction as $500, and not $400. However, blockchain is revolutionary because any transaction, once set in the blockchain, cannot be altered. Blockchain is called a chain because of the new way it shares data. Rather than have one entity (in this example, the bank) keep all its transactions recorded in a single, secure database, blockchain distributes the ledger of transactions between many different computers on the blockchain network. The data is stored anonymously, with numbers instead of names, but all the computers can tell if one computer tries to change or erase the data. Because all the computers on this network verify that a transaction has occurred, once money (or information, pictures, or services) are transferred, the record is immutable. This means that when a shop owner pays her supplier on the blockchain, the $500 transfer simply cannot be disputed or lost: The record is written in stone. Blockchain has the potential to decentralize the way society handles any sort of transaction or data sharing: The role of the third-party mediator has become nearly obsolete.
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Making Welfare Work Without Government
2.2
2.3
Blockchain efficiency versus restructuring
Negative outcomes facing government welfare programs in America
One might assume that the introduction of blockchain into a government system will naturally lead to changes in the way government operates, but that’s not necessarily the case. History shows that government merely adds technology onto existing structures, thus bypassing the opportunity to affect a deeper restructuring of government systems. Take public schools, for example. The sum total of all human knowledge can be found in the palm of our hands, on a mobile device. Yet most public schools still operate much as they always have: Loading kids into school busses and transporting them to a building where knowledge is dispensed. Most schools do use internet technology, but the internet has been shoehorned into the classroom, with programs that give every child a laptop or incorporate smart boards. The true change brought about by the internet—change in the way people access and comprehend information—has revolutionized society the world over. But not so much the education system as devised and maintained by government authorities. That’s the danger blockchain faces. It’s quite possible government welfare programs will persist as they always have. They’ll operate more efficiently, but they’ll be missing out on opportunities to change the way society helps those in need, and improving the way in which those on welfare are cared for. Government is already missing opportunities relating to blockchain: State governments that have begun to utilize blockchain technology are using it for purposes like transferring land records,3 making absentee voting more secure,4 and maintaining public records.5 Government oversight is still very much in place; the transactions are merely better recorded and more efficient.
Nowhere is the need for a new status quo felt more keenly than the government welfare system, a labyrinth of programs, agencies, funds, and services. For one, government welfare programs often are accused of fostering negative long-term outcomes. Are these welfare programs effectively fostering their overarching goal, which is to help lift people out of poverty and into self-sustaining lives? Do they help individuals develop the skills and tools necessary for them to live independently, or does the lure of free money keep people on welfare longer than actually needed? All too often, government welfare programs are abused by those who don’t truly need them. For example, when the state of Oregon recently audited its Medicaid program, it found almost half the people on the program did not meet Medicaid’s income requirements. Thus, Oregon paid an extra $88 million in benefits in just six months of 2017 to people who were ineligible, wasting taxpayer dollars that could have gone to those truly in need.6 Often, welfare programs offer no incentive or resources for participants to eventually wean their dependence and move to a life without this handout. Some programs, like the Women, Infant, Children (WIC) program, which requires its participants to receive nutritional counseling from healthcare providers, do try to foster long-term healthy living. However, WIC has very little means to track the success of its training once participants have left the program. In sum, America is left with a system that is often abused, and struggles to equip those in poverty with the resources to lift themselves up.
3. “Blockchain Cook County — Distributed Ledgers for Land Records,” Cook County Recorder of Deeds Blockchain Pilot Program , May 31, 2017, https://illinoisblockchain.tech/blockchain-cook-county-final-report 4. Zhao, Wolfie, “West Virginia Piloting Blockchain Voting App in Senate Election,” Coindesk, Mar 29, 2018. https://www.coindesk. com/west-virginia-piloting-blockchain-voting-app-in-senate-election/. 5. “Illinois Blockchain and Distributed Ledger Task Force Final Report to the General Assembly,” Illinois Blockchain and Distributed Ledger Task Force, Jan 31st, 2018. 19-21. 6. Richardson, Dennis, and Kip Memmot, “Oregon Health Authority Should Improve Efforts to Detect and Prevent Improper Medicaid Payments,” State of Oregon, (2017): 31
Making Welfare Work Without Government
2.4
Administrative inefficiencies Along with their poor incentives, government welfare programs are known for their inefficiencies, susceptibility to abuse, and sheer administrative costs. Take the above example of Oregon’s Medicaid program, where nearly one-half of all participants were ineligible for the program in 2017, yet were receiving benefits. Missed deadlines and cost-overruns for software improvements led to a backlog and a failure to verify participants’ eligibility for the program from 2013 through 2017.7 Periodic eligibility checks (like those that were missed in Oregon) are used in many means-tested welfare programs and Section 8 Housing Choice Vouchers. Because income and other factors that affect eligibility for government welfare programs frequently change, labor-intensive checks are often necessary. This is one factor that leads to costly administrative burdens for each program. Costs stack up due to the excessive bureaucracy surrounding government welfare programs. Take, for example, Idaho’s Women, Infants, and Children program—money flows from state taxpayers to the federal government, from the U.S. Department of Agriculture back to the state in the form of a block grant, from the state to the Department of Health and Welfare, from the department to the health districts, and finally from health districts to those who provide services or to the participants themselves. Each layer of bureaucracy takes away from the funding and flexibility to help those in need. With such a convoluted funding scheme, it’s no wonder that America’s traditional welfare model, seen in other programs like Temporary Assistance to Needy Families (TANF), is fraught with administrative bloat.
2.5
Lack of charitable connection within communities Perhaps the greatest flaw in our current government welfare system does not rest with its inefficient administration or chronic lack of participant selfimprovement, but with the opportunity society is deprived of. It is simply this: Charity is good for us. The
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psychological and health benefits of giving to others, both for the individual and for society as a whole, can be life-changing. The Greater Good Science Center from University of California, Berkeley reports what saints and philanthropists have known for centuries: Giving to others helps you as much it helps others.8 But though it is taxpayer money that eventually helps a struggling single mother buy food for her children, welfare is a forced government giant. Taxpayers don’t feel like they are giving to help the poor, they feel as though they are giving to the government, which holds the money in various channels, spending it on overhead and administration, before it trickles down to buy fruits and vegetables for a struggling family. Thus, there is no peer-to-peer charity: Givers don’t feel like they’ve made a personal difference in anyone’s life, and recipients have only a faceless government program to thank, rather than a connection with the community of people who surround them every day.
2.6
Blockchain can help Blockchain is ideally suited to fix administrative bloat, welfare abuse, and impersonal connection, if government and businesses are willing to take the plunge into this new technology. With smart contract automation, multiple layers of government welfare bureaucracy could be handled seamlessly, and by businesses, individuals, and institutions, including non-profit charities. With welfare distributed on a smaller, decentralized scale, positive and individualized outcomes are far easier to foster. And, finally, when government welfare is replaced by community care funded voluntarily by individuals, societal bonds draw communities closer.
2.7
End goal: Decentralized programs instead of a giant centralized welfare system Right now, the challenges government welfare programs face (as summarized above) partially stem
7. Richardson, Dennis, and Kip Memmot, “Oregon Health Authority Should Improve Efforts to Detect and Prevent Improper Medicaid Payments,” State of Oregon, (2017): 30 8. Marsh, Jason and Jill Suttie, “Five Ways Giving Is Good for You” Greater Good Magazine, Greater Good Science Center, University of California Berkeley, December 13, 2010, https://greatergood.berkeley.edu/article/item/5_ways_giving_is_good_for_you
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Making Welfare Work Without Government
from the fact that welfare programs are simply too large and too bloated with bureaucracy to fulfill their purpose most effectively. Though government agencies can effectively mail out checks, they are far less effective working with individuals for long-term success.9 With the blockchain community care framework outlined below, the Idaho Freedom Foundation hopes to see privately-administered community care take the place of government welfare programs, achieving equivalent (or better) outcomes as current government welfare programs. In addition, IFF anticipates that an abundant network of small, individualised community smart contracts, funded by private donations and administered by non-profits, businesses, and even individuals, will form a decentralized social safety net.
Section Three: The Community Care System Solution 3.1
Step One: The Blockchain Application The main cog of the proposed community care distribution plan would be a plug-and-play blockchain application, which operates on a private ethereum blockchain. This application would be the programmable digital mechanism that would essentially replace the role government entities like the U.S. Department of Agriculture (and its subsidiary administrations, such as the SNAP and WIC programs) play in dispensing welfare to those who need it. The blockchain application would be made up of several customizable smart contracts, which hold donor funds, automatically calculate and dispense cryptocurrency tokens, automatically govern eligible purchases, and facilitate digital wallet customization.
3.1.1
Explanation of smart contracts At present, welfare programs are funded by the federal, state, or local governments, and dispense an allotted amount to those who have who have applied
and qualify for assistance. However, communities no longer need government as the medium. A smart contract is essentially a computer program that automatically executes when certain conditions are met. Think of it in terms of a real estate transaction: A contract can be programed so that a buyer submits their payment to the smart contract, while the seller uploads the property deed. Once the conditions have been met, the contract executes and the commands are fulfilled: The buyer receives the property deed, and the seller receives their money automatically. If conditions are not met (for example, the buyer doesn’t upload their payment in time), the smart contract can be programed to automatically revert the property deed to the previous owner. This example demonstrates the automatic nature of a smart contract. There is no need for the seller to trust the buyer personally, or to hire a third party (a bank or escrow company) to oversee the transaction. Money put into a contract must, by the very nature of the contract, be dispensed for its pre-programed purpose. Blockchain technology makes trustless transactions possible, as its record of transactions (and any contracts written on the blockchain) are impossible to alter. Blockchain smart contracts can handle a wide variety of complicated commands, and allows us to build systems to transfer and distribute money with no need for a day-to-day overseer. A community care program would essentially be run by a series of blockchain smart contracts. Together, this collection of automatically-executing contracts would govern program parameters, without need for constant oversight.
3.1.2
The blockchain application receives donor money and distributes community care In this fashion, a secure blockchain application will use a smart contract to handle all the calculations and distribution of welfare. Community donors— charitably-minded businesses, churches, non-profit organizations, and individual donors—will contribute money to the blockchain application. Once preprogrammed conditions are met (ie. once a month, or upon completion of nutritional counseling, depending
9. Husock, Howard, “Why Government Can’t Replace Charity,” Business APR, Forbes Business, April 10, 2014, https://www.forbes. com/sites/howardhusock/2014/04/10/lesson-for-april-15-why-government-cant-replace-charity/#4f2ebeff79e2
Making Welfare Work Without Government
on program parameters), the community blockchain app would take into account the total amount of money donated from various community sources, while simultaneously calculating how many participants are on the program and their allotted monthly stipend. Then a smart contract will automatically execute, transferring the money directly from the donors to the program participants’ digital wallets.
3.1.3
Building a customizable community care blockchain application IFF’s first-stage goal is to develop a community care program that will serve the same function as and thus can eventually replace government welfare programs like SNAP. This will be done by building a set of automatic smart contracts, administered privately, set with program parameters identical to the government program, but with added advantages to participants, retailers, and administrators to encourage participants to switch from government welfare to private community care. However, Idaho Freedom Foundation intends that this basic blockchain application be developed into a general plug-and-play framework. Accordingly, any non-profit organization, business, individual philanthropist, or group that sees a need could use it. The parameters for these individualized community care programs need not match those specifically designed to replace government welfare programs. For example, SNAP has specific income and purchase requirements that the blockchain application would be initially programmed to account for, but customizable charity applications for a non-profit organization need not have identical parameters.
3.1.4
Tax incentives for donors Once a community care program is in place, private individuals and organizations will provide funds for these programs through a variety of methods. As such charity programs grow in scale and donors, there will no longer be the same need for government taxation to fund the equivalent government welfare programs. Donors to community care programs should thus see their tax liability abated to the amount that they’ve saved government. By reducing taxes owed by them, donors would be incentivized to participate in this
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more effective and efficient method for providing to the economically disadvantaged. Because every state and locality has different types of taxes and different means for assigning tax liability, the exact means of tax abatement would necessarily vary between jurisdictions. For example, in states that pay retailers for the collection and remittance of sales taxes, the state might provide a break on the sales tax to be remitted by a participating retailer. Similarly, donors to the charity program might benefit from a tax cut via a credit on their income tax.
3.1.5
Dollars exchanged for cryptocurrency For the community care system to function, donors transfer money to a community care program out of their bank accounts, and purchase the cryptocurrency used by the program. That cryptocurrency is held by the smart contract. The contract dispenses dollars to the participants on a schedule determined by the program administrators under conditions they’ve set in advance. Why use cryptocurrency instead of just transferring fiat dollars? Because cryptocurrencies are managed by a smart contract through the entire program, it is a simple matter of programing to ensure that the funding can only be spent on eligible items—fresh fruits rather than alcohol, for example—and that the contributions are only able to be spent when the recipient meets conditions that might be imposed by the administrators. Efforts are already underway to reprogram existing point of sale systems to read QR code digital wallet addresses and automatically transfer digital currency to fiat for stores (see section 3.3.2 Point of Sale systems for more detail).
3.1.6
Community care benefits accessed and donated through smartphone app Participants and donors alike will be able to download a smartphone app to interface with the community care blockchain application, and give and receive tokens simply and securely. For those without access to a smartphone (an increasing rarity these days), digital wallets can be accessed via QR codes, which can be printed on paper from a public library.
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Making Welfare Work Without Government
3.1.7
Administration of the blockchain application and node incentives The administrative expenses of this community care system will be covered with just a small portion of the money donors put into the community care system. With each donation given to the blockchain application, a small percentage will directed towards the administration, marketing, and node10 incentives. Using a portion of this transaction fee to incentivize each node on the blockchain network would ensure there is sufficient computing power to verify and process each transaction made on the network. At the execution of each donation, the blockchain application automatically will calculate this transaction fee, and reveal to each donor what percentage of their donation will go towards these overhead expenses. The organization overseeing any community care system would not be able to take a larger percentage of each donation than what is publicly set in the parameters of each individual community care program. As IFF has envisioned it, government welfareequivalent community care programs will be administered by non-profit organizations that provide similar social services. For example, programs that have specific health requirements for participants, the overseeing organization would partner with healthcare professionals to give those who qualify access to a program digital wallet (similar to government agencies’ partnerships with healthcare providers for evaluating participation in many current welfare programs). The blockchain application itself will be maintained through the small transaction fee charged to community donors at the initial donation stage.
3.1.8
Funding sources for community care blockchain application Transfering society’s welfare programs to a voluntary funding model will not be a simple
task, but nor will it be impossible. With proper tax incentives and abundant methods of giving, IFF anticipates that a community care system can receive enough participation to operate smoothly. For example, individuals in a community could easily donate to any community care program through a smartphone app, and immediately see the small transaction fee versus how much of their money is going straight to program participants. In addition, participating businesses could let shoppers round up their purchase total at the checkstand, donating the spare change to charity. Point-of-sale charity campaigns have raised more than $4.1 billion over the past three decades, with limited retail participation.11 With widespread retail participation, funding in the millions is feasible.
3.1.9
Advantages of smart contract distribution 1. Donor money doesn’t need to go through a central authority like Idaho’s Department of Health and Welfare, a particular welfare program, or even a bank to ensure the money reaches those who it is intended to help. Thus, by using a smart contract rather than a banking service and human administration, administrative overhead is lessened by an incredible amount. In 2017, nationwide, a program like SNAP cost $63.7 billion for food benefits, versus $4.4 billion in administrative costs.12 But with an automatic blockchain system, the only administrative costs would be maintaining the blockchain application itself. 2. Donors could feel more comfortable giving to this charitable program, because they know beyond a shadow of a doubt that their money is going directly to help those in need. 3. Transfer of cryptocurrencies via the blockchain can be nearly immediate. Because there’s no need for the transaction to be verified by a bank
10. A node is a computer on the blockchain network that stores and verifies transactions. A blockchain is made out of multiple nodes working together to store information. 11. “America’s Charity Checkout Champions,” Engage for Good, 2017, http://engageforgood.com/2017checkout/: 2-3 12. “Supplemental Nutrition Assistance Program Participation and Costs,” United States Department of Agriculture, Food and Nutrition Service, April 6, 2018, https://fns-prod.azureedge.net/sites/default/files/pd/SNAPsummary.pdf
Making Welfare Work Without Government
or central institution, one need not wait several days for payments and transactions to clear. 4. Blockchain wallets are extremely customizable, based on the program and participant needs. A wallet can be set to expire automatically when a participant needs to have their program status re-evaluated, or when they need to complete a quarterly visit to a doctor’s office or monthly vocational training, for example. 5. With the inherent flexibility of this blockchain system, any charity welfare program run on blockchain would be customizable. Individual donors or charities could set personalized parameters to a person or specific group of people, to better address their unique circumstances and encourage individualized goals. For example, a non-profit that helps the economically disadvantaged obtain (and remain in) decent housing could address a specific client’s difficulty sticking to a budget, and program his wallet to dispense supplemental welfare only once the participant presents proof he adhered to last month’s budget. Again, these parameters could vary depending on the welfare program (e.g., SNAP versus TANF versus a non-profit sustainable housing program). Thus, the personalized nature of peer-to-peer charity would return, which would likely lead to better participant outcomes. 6. Finally, this community care system encourages users to spend, rather than hoard, their cryptocurrency. The world of cryptocurrencies (like Bitcoin, Ether, and Ripple) faces an obstacle in that investors tend to hold their currency in private wallets, while they simply wait for prices to increase. Though a valid investment strategy, such hoarding does nothing to encourage the widespread adoption of cryptocurrencies as a legitimate currency, as relatively few purchases are actually completed with digital currencies in day-to-day life. For those in the cryptocurrency world who are eager to see these new forms of money take a larger role in the public consciousness, community care programs are ideal. They encourage participants to reinfuse their cryptocurrency
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into the economy, as a digital wallet can be programed to ensure that unspent tokens revert to the donor at the end of the month (just like welfare vouchers expire and cannot be hoarded).
3.2
Step Two: Support Network Giving To truly reform the way society handles government welfare, one needs more than just an efficient transfer of money from donor to recipient. As emphasized above, speeding up a program doesn’t reform the underlying system for the better. IFF intends any community care program to be more than a faceless handout. Thus, the central component that allows this community care framework to replace government welfare systems is the peer-to-peer charity match, made feasible by blockchain technology.
3.2.1
Using a donation match to improve outcomes In IFF’s plan, anyone, be it friends, parents, employers, or program participants themselves, can donate directly and privately to a participant’s digital wallet. But this community care system can also be set up to require financial participation on behalf of the program participant. This is an important concept in charitable giving, learned through centuries of experience. Almsgiving— giving money out with no expectation of participation on the part of the recipient—can be as harmful as offering no help at all.13 Smart contracts help overcome this. For example, say a community care program has its peer-to-peer match rate set at 20 percent. If a participant donates a dollar from their own bank account into their welfare account, it would automatically show up in their charity wallet as $1.20. If a friend of a struggling father wants to help him directly by donating $10 to the father’s wallet, the money would be supplemented by the smart contract, and $12 dollars would be added to the individual’s budget (up to a reasonable limit coded into program parameters). If a business wants
13. Payne, James L, “Why the War on Poverty Failed,” Foundation for Economic Education, January 1999, https://fee.org/articles/why-the-waron-poverty-failed/
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Making Welfare Work Without Government
to donate to all its employees who participate in specific community care program, the business’s contribution would be supplemented by the blockchain application’s smart contract.
3.2.2
Spending limits address pricing fluctuations For community care programs with cryptocurrencies, volatile prices can be of concern. But smart contracts can again be used to prevent participants from taking advantage of big spikes in prices. Fiat spending limits can be written into the digital wallet, to keep spending to a maximum pre-set dollar amount within a certain time period. Additionally, the contract can be written to incentivize savings, or written to revert excess funds to the donor.
3.2.3
Advantages of peer-to-peer charity 1. To begin, peer-to-peer charity encourages development of a personal connection between the giver and the receiver, resulting in better outcomes all around. Consider the quip, “One death is a tragedy, one million deaths is a statistic” Similarly, the patron of public service Mother Teresa once said, “If I look at the mass, I will never act. If I look at the one, I will.” These quotes illuminate a fact of human existence: Humans are unequipped to empathize with a faceless mass or a population set. Psychologists have labeled it the “collapse of compassion,” the point at which thinking about all the victims of an earthquake or of human trafficking overwhelms and shuts down emotional connection. When welfare for the poor is handled in this same way, as a sterile world of statistics and masses (42.2 million Americans receiving SNAP,14
40.6 million in poverty15), it is too easy to disconnect, to say that the government should handle it, and over time the welfare state can corrode empathy and the voluntary spirit. In doing so, many people not only lose the opportunity to personally affect change in others’ lives, but lose the social and personal benefits that come with generosity. In sum, it is other people that humans more easily connect with, that awake in us the sympathy and empathy that brings out the best in human beings. 2. There are many personal and mental health benefits for those who freely choose to help those around them. A 2008 Harvard University study16 found that study participants felt happier spending money on another person than spending it on themselves, even though those same participants had initially predicted they would feel better indulging their own needs. Decades of studies have confirmed what ethical guidelines teach: Giving to charity is as good for the giver as it is for the receiver. a. Givers not only get emotional satisfaction, those who engage in direct charitable giving are physically healthier. A University of California, Berkeley study of elderly volunteers found those who gave their time were 44 percent less likely to die over a five-year period when compared with their more reserved peers, even when accounting for factors like exercise and dietary habits. b. Likewise, those who provide social support to those around them tend to have lower blood pressure, less stress, and better immune responses than those who provide fewer charitable donations, which suggests a direct physical benefit to givers.17 c. Finally, a connection between a giver and recipient makes a healthier society in
14. “Supplemental Nutrition Assistance Program Participation and Costs.” United States Department of Agriculture. Supplemental Nutrition Assistance Program. May 4, 2018. https://fnsprod.azureedge.net/sites/default/files/pd/SNAPsummary.pdf 15. Semega, Jessica L., Kayla R. Fontenot, and Melissa A. Kollar. “Income and Poverty in the United States: 2016.” United States Census Bureau. September 12, 2017. https://www.census.gov/library/publications/2017/demo/p60-259.html. 16. Dunn, Elizabeth W., Lara B. Aknin, and Michael I. Norton. “Spending Money on Others Promotes Happiness.” Science 319, no. 5870 (March 21, 2008): 1687–1688. 17. Ward, Lisa. “Does Charitable Giving Lead to Better Health? Study Suggests More Charitable Tax Subsidies Could Spur Reports of Better Health.” The Wall Street Journal. Feb 1, 2015.
Making Welfare Work Without Government
general, by fostering a positive sense of cooperation and interdependence. When welfare participants can directly thank their community, rather than a government entity, for support, loneliness and societal disconnection is lessened. And money taken by mandatory taxes—though it may eventually end up in the same place— feels far more sterile a to both the giver and recipient than when a helping hand is directly offered. 3. Because the community care framework incentivizes donations to a specific person (through the contribution match), it encourages program participants to develop a support network, which in turn develops better long-term outcomes.18, 19 There are many reasons people struggle with poverty, some born of unhealthy habits (like lack of a savings plan) and some from unavoidable circumstances (sudden loss of a job). Regardless, nearly all the factors that lead participants to seek welfare assistance can be mitigated by a strong support network of friends, family, or a voluntary community willing to stand by in hard times.20 Not only can they easily provide monetary assistance, but they can more often effectively offer advice, assistance, and emotional security to those who require welfare assistance. When compared to a government welfare program, a trusted support network is far more likely to help foster longterm success, simply because their emotional and social closeness with the participant offers more constant accountability and care. 4. On the other hand, this community care framework certainly doesn’t penalize those who don’t have the ability or inclination to create a support network. Each participant on the welfare-equivalent community care program gets their standard allotment each month regardless of personal community—but a support network lessens the struggle of going through hard times alone.
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5. The blockchain application assures that charity goes to the right place. A smart contract can easily limit purchases to eligible, healthy items, addressed in the next step. Many people understandably hesitate to give cash to those in need, justifying that it’s likely spent on tobacco and alcohol rather than on food. But the community care digital wallet lessens such worries by making the programs increasingly more difficult to abuse. This means donors can feel far more comfortable with their generosity, which in turn increases a community’s motivation to engage in charitable giving to those around them. 6. Finally, the peer-to-peer fund match encourages participants to invest in healthier options for their own futures. With anything an individual participates in (be it welfare, healthcare, an event, or a contest), when participants contribute some of their own resources—rather than receiving funds for free—any outcome becomes more valuable. Why? Receiving something for nothing doesn’t have the same weight, the same value, as something that requires even a minimum sacrifice. Because the community care participant is incentivized to transfer money from their private bank account into their welfare wallet, they are encouraged to have a “stake in the game,” so to speak. Not only will this net them more money overall, it will encourage good stewardship of welfare benefits. For these reasons, IFF’s community fund-match model revolutionizes government welfare programs by allowing and encouraging individual peer-to-peer giving. Transferring a dollar not just to a faceless group of welfare recipients (through government bureaucracy), but voluntarily to individuals in need within the community makes all the difference in the world.
18. Reblin, M., & Uchino, B. N. “Social and Emotional Support and its Implication for Health.” Current Opinion in Psychiatry, 21(2), (2008): 201–205. 19. Ozbay, Fatih et al. “Social Support and Resilience to Stress: From Neurobiology to Clinical Practice.” Psychiatry (Edgmont) 4.5 (2007): 35–40. 20. Sansone, Frank A. “Social Support’s Contribution to Reduced Welfare Dependency: Program Outcomes of Long Term Welfare Recipients,” The Journal of Sociology & Social Welfare 25, no. 4 , Article 7 (1998): 105-124
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Making Welfare Work Without Government
3.3
3.3.3
Step Three: At the Store
Point of sale systems
3.3.1
Programmable wallet limits spending The digital wallet in which the community care cryptocurrencies are stored will be governed by another smart contract, one that only allows tokens to be dispensed when the user purchases registered goods or services, be it fresh fruits, fresh vegetables, or makes a rent payment, as approved by the program parameters. For example, with most US nutritional supplement welfare programs, stores have electronic readers that automatically sort eligible items from non-eligible items, but many stores still require a cashier or participant to hand-sort items and ring up separate tallies. With a community care system, because the smart contract is completely automatic, there will be no need to sort food at the check stand, or have a cashier ensure that a food voucher is going towards its intended foods, as some welfare programs (like WIC) resort to.
3.3.2
Smart contract automatically exchanges tokens for fiat Now that participants have spent their monthly cryptocurrency allotment at participating stores, stores and service providers are left with a supply of digital currency in their system, and they need some way to exchange them for fiat money. Fortunately, a blockchain smart contract makes that exchange simple. The smart contract can be set with automatic parameters: When stores receive the cryptocurrency token, a smart contract automatically exchanges them for fiat currency once more. Because donors put actual currency into the system, there will never be a circumstance where there is not enough fiat money to cover the amount of cryptocurrency tokens in circulation. 21. https://www.graft.network/ 22. https://pundix.com/
Stores accepting digital wallet tokens from participants will have to establish a point-of-sale system that allows them to accept their customers’ payment in cryptocurrency or tokens. As the market for cryptocurrency point-of-sale systems has only just begun to grow, many companies, such as Graft21 and PundiX,22 are developing ways stores can accept cryptocurrencies at the checkstand. (see section 3.1.6 Dollars exchanged for cryptocurrency). These up and coming companies often have unique approaches to their point-of-sale systems. Graft is developing software that can be integrated with the major systems that are currently in use (such as Verifone), while PundiX has built its own hardware that can be installed at the checkout stand. Purchases made by participants could be made with a community care cryptocurrency wallet, utilizing one of the point-of-sale systems that are already developed, or a new system could be established specifically for use with a community care program.
3.3.4
Advantages of a blockchain wallet 1. A blockchain system has several layers of security to ensure that the charitable program’s guidelines and intentions are followed as closely as possible. When giving money to a program participant, donors can rest assured that it will go to food items, and is incredibly difficult (and hopefully cost-prohibitive) to spend on tobacco products, alcohol, or similar items. 2. Furthermore, advances in biometric identification (for example, fingerprint and facial recognition) will allow any administrator, be it a business, non-profit organization, or individual, to program the smartphone community care application so that the wallet cannot be accessed except by anyone other than its intended owner. Thus, the risk of “trafficking,” where welfare benefits or cards are directly sold for cash, will be greatly reduced.
Making Welfare Work Without Government
3. Time spent sorting eligible foods from noneligible goods will for the most part be drastically reduced for participating retailers. 4. This blockchain system allows for a quicker transfer of money. Here’s where blockchain’s capability as a currency transfer system shines: Because reimbursement does not have to be verified through a bank or state agency, stores have no wait period of several days to receive credit in their account. With blockchain, cryptocurrency can be exchanged for currency with each block processed. 5. Because all the participant’s purchases are governed by a smart contract and recorded on the block chain, accountability is instant and immutable. The transactions are recorded on a transparent ledger, held by many computers, meaning there is a far lessened need for outside auditing, and reduced complexity of any bookkeeping. And because a smart contract will automatically execute when conditions are met (e.g., when a certain cryptocurrency enters a store’s system), there is no need for complex accounting, either.
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4.1.1
Next steps The Idaho Freedom Foundation will introduce this policy concept to Idaho lawmakers and businesses at the end of the summer. The next step is to hire or work with blockchain technology experts to provide a technical framework for the blockchain contracts, and to begin explaining the technology to the Idaho community.
4.1.2
Short-term goals 1. Partner with a technological company that has the capacity to provide the actual blockchain application and program the initial community care blockchain application. 2. Find initial funding to get the WIC-equivalent program off the ground (whether from private donations, foundation grants, or government grants). 3. Recruit healthcare providers, stores, and possibly government agencies to advertise the new WIC-like program to current government welfare system participants.
Section Four: Opportunity and Plan
4. Partner with retailers in Idaho to start services for initial participants while IFF builds a robust donor base.
4.1
5. Develop a policy framework to minimize current structural obstacles to a community care program.
Current goals At this stage, the Idaho Freedom Foundation is designing an Idaho-specific welfare program alternative to Idaho’s Women, Infant, Children (WIC) program. IFF intends to hire a blockchain technology policy analyst, who, in conjunction with IFF’s policy team, will devise a viable framework to present to the Idaho Legislature and governor’s office during the 2019 legislative session. Meanwhile, IFF will also start building interest among community donors and businesses for the initial program, and work with a blockchain technology company to devise the blockchain application and to find the best point-of-sale system to deliver community care on the blockchain.
6. Finally, government cooperation, though not essential, would make implementing this initial community care program much easier.
4.1.3
Gradual withdrawal of government services For a community care program to replace a government welfare program requires incentives for government to gradually withdraw from welfare spending, and to create policies that incentivize community charitable giving. The significantly lowered administrative costs and better participant
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Making Welfare Work Without Government
outcomes of pilot programs should help pave the way for larger scale policy changes. In addition, replacing government welfare means gradually weaning participants off governmentadministered programs and onto community care equivalents. Thus, community care programs and government programs would be exclusive: One cannot have access to a community care digital wallet and receive food stamps (or the program equivalent). Because the community care framework has the advantage of offering participants the opportunity to increase their overall gains (though the support-network match), and ease of use, there are clear incentives to switch programs.
4.2
Long-term goals Eventually, as the initial private WIC-equivalent program grows, it will make the traditional government-run WIC program obsolete. Then, this peer-to-peer community care framework will be taken further by replacing other government welfare programs, administered and financed at all levels by private donors and charities. As the blockchain application will provide a general framework for community care replacing government welfare distribution, there is no reason why similar models cannot be easily adapted to fit the needs of other states, and other types of government programs like Medicaid, housing vouchers, or education programs. Private non-profit organizations already dedicated to working with low-income individuals (homeless shelters, housing assistance programs, charity health clinics, etc.) can give those who meet program criteria access to a community care program wallet. Finally, IFF plans to make the blockchain application framework available to charities and groups of all sizes, so that individual giving programs can be customized not simply to directly replace government welfare programs, but so a multitude of decentralized community care programs could be created and administered at any level.
4.3
Why the Idaho Freedom Foundation is well positioned to introduce blockchain The Idaho Freedom Foundation is a public policy organization, but over the last few years it has carved a niche as a purveyor of high-tech tools to help citizens better interact with their government. The Idaho Freedom Foundation has already developed and maintains a phone app, Testifi, which lets Idahoans across the state easily communicate with their elected officials. Furthermore, the Idaho Freedom Foundation is an established and influential voice at the state Legislature. As a non-partisan think tank, IFF has a long track record of working with lawmakers to develop sound fiscal policy, write legislation, and evaluate public policy. IFF policy analysts have had a constant presence at the Idaho State Capitol since its founding in 2008, and the organization is in a solid position to introduce the potential of blockchain technology to state lawmakers.
4.4
Why Idaho is a great starting point The Idaho Freedom Foundation is confident that the State of Idaho is a receptive audience with a true potential for long-term change. In 2019, the State of Idaho will elect an entirely new administration, one more likely to be open to fostering the kind of restructuring IFF proposes. Thus, system-wide change is far more achievable, particularly for a state actively trying to grow its reputation as a haven for robotics and technological advancement. Furthermore, Idaho has a receptive audience on many sides of the political spectrum. For the younger and generally more progressive crowd in Idaho’s urban centers, the allure of new technologies and continuing technological progress makes blockchain integration seem like a next logical step. On the other hand, Idaho has a reputation as state concerned with reducing the size of government and saving taxpayer dollars. A new method of doing so—once residents comprehend how blockchain works, and more importantly, what it means—is a readily palatable idea. With proper messaging to communicate the potential of IFF’s
Making Welfare Work Without Government
community care system to shrink government programs on a fundamental level, the framework is widely palatable. By working with state lawmakers over the years, IFF is confident Idaho can meaningfully adopt IFF’s new community care framework as an alternative to many government welfare programs, and provide a model for eventual country-wide adoption.
4.5
This opportunity Like the onset of the internet or the telephone, the world is hovering on the brink of an irrevocable technological step, one that could potentially restructure how society—enterprises, trade, and communications—function. Blockchain heralds new opportunities, but government programs tend to change far more slowly than the world they serve. Nonetheless, this community care framework has the potential to revolutionize welfare for the better, for all parties involved. Governments will
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reduce overall budgets, nonprofits will see far less administrative overhead, less spending, and more transparency. Communities and participants will have better outcomes all around, both with ease of peer-to-peer charity and fostering healthier long-term outcomes. Finally, stores will get a more efficient way to handle transactions at the check stand. Social change never comes easily, and large-scale change of entrenched government programs comes even less so. Yet blockchain presents the opportunity to fundamentally restructure a broken system, for the betterment of those who pay for it and those it serves. With this framework, a mother who has lost her job and struggles to feed her child not only receives the help she needs, but receives support and connection from those around her. A generous passerby feels secure giving a hand to any stranger in need. And individual bakers, mechanics, budding philanthropists, students, pastors, farmers, clerks, and people across communities come together to help their neighbors.
Support Network
individuals charities businesses
Fund Matching
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20% match: Give $1.00, participant gets $1.20 50% match: Give $1.00, participant gets $1.50 Match rates can vary by program needs
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Any person or organization can donate directly to an individual participant, and the blockchain application will automatically increase the amount received (up to a set maximum monthly amount)
contract, which automatically calculates and disburses the funds to program participants
Money distribution Donor money enters into a smart
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The blockchain application stores any excess funds to cover operating costs or future shortfalls
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Churches, individuals, charities, and businesses put money into the community care system
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Grocery store
Blockchain ledger
Biometric identification ensures only the participant can spend their tokens
Verification
Participants can use tokens to buy only eligible goods and services
Participant
Businesses and providers automatically exchange tokens for donor money held by the blockchain application
Token exchange
Participant
Every month, the blockchain application dispenses tokens into each participant’s digital wallet
The Blockchain Application
Digital wallet
Eligible goods and services
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