This new system would revolutionize not only the education sector but our entire society. Today, I am more convinced than ever that this system will lift the human potential across all classes, simply because there are more incentives for people to help each other. Having said that, society would also need to counter the flaws in this new system by implementing new laws and regulations. I believe this is part of every major transformation.
The problem
- In the current system there are almost no financial incentives to help someone getting better, learn new skills or improve.
- The most important people in the lives of young humans — the teachers — have no financial incentive to make someone successful.
- Your friends, your neighbour, your aunt, your coach, or just people you know have almost no financial incentive to make you successful.
Wouldn’t it be better if they had?
The solution
Let me explain this new system again in a very simplified way:
People would be seen as their own company. Its shares (tokens) are traded publicly and are entitled to “dividends”.
The dividend is paid annually. It can be viewed as an “education tax” and is calculated based on the annual income of that person. Let’s say it is 1% of the taxable income. However, we could also make it 0.1% or 2%.
The tax department will collect this 1% education tax through the ordinary taxes and redistribute it to people (shareholders) who educated and supported the person over all the years. Those shareholders are mainly teachers and mentors but can be anyone who believes in the person.
Now, we have already created financial incentives for people to help each other, because you are entitled to get a small part of someone’s future salary. However, I am not only looking at teachers here. Many people will suddenly have an interest in helping you and bringing the best out of you.
All this will be on the blockchain — a shared database — so that everyone can connect to it. If we program it in a smart way then we will create an open, transparent and fair incentive system that brings society a big step forward.
Practical examples
To keep it accurate, I replace the word “share” with “token”. Tokens actually represent value or utility on a blockchain. The dividend is of course not a dividend in the traditional sense but represents a right to a certain payout based on programmed parameters — in our case parts of future salaries.
For every child who enters the national school system the government launches its very own token. Imagine your child is called John Doe. He will soon have his very first day at school. The government will create the unique “JohnDoe Token” and issue 100 JohnDoe tokens. Those 100 tokens represent 1% of your future annual salary (taxable income) — every year.
On day one — the day of the token launch — the government holds 100% of all tokens in existence. To set the incentives right, teachers directly working with John Doe will receive some JohnDoe Tokens directly from the government for free and therefore participate in the future success of your child.
We can discuss about how many shares teachers should receive. Should only the teachers with direct influence on the child’s development get shares? Or maybe the entire team? We can also discuss other parameters: The amount of tokens to be distributed, the time-frame of distribution, or the impact a certain teachers needs to have to claim the tokens. The goal must be to create a fair system with the right incentives for the people working in the education sector so they put maximal effort into educating your child.
Over the years teachers get basically free tokens. They are sent to their personal wallets as part of this new incentive system. This can be seen as a way to say “thank you” to teachers and might make a little or big difference in their life — depending on many factors.
When John finally grows up and starts working, 1% of the salary will be sent back to all his token holders. But remember, this is only a simplified example. In all the years many people might acquire tokens of John — because it is a free market where everybody can participate. Friends & family, a neighbour, a coach, or just anybody who believes in John can buy the tokens. Those people have no “rights” over John itself. He is not required to do anything for them or meet them in person. But token holders will get a cut of his future taxable income.
The market price
The tokens are publicly traded on the blockchain. They might appear on different websites and platforms while the core data remains securely stored on the blockchain. Because of that, a real and fair market is forming — everybody can participate. There will be no problem regarding the liquidity on the order book for buying and selling of those tokens, because in the last few years Bancor invented a new mechanism that solved the liquidity problem of such tokens. You can find out more here: https://support.bancor.network/hc/en-us/articles/360031143851-How-Is-Bancor-Different-than-a-DEX-
In his class, John is considered a clever student. People close to John and people in the education sector and so-called new “educational venture capital funds” recognize this very early on and buy some JohnDoe tokens.
Because technically, with the tokens comes an annual dividend which will probably last for +45 years — or all the years John is working and generating income. The token price itself will probably peak midway in his life because of the time factor that plays into the calculation and the total expected cash flow which will sink as John comes closer to his retirement age.
However, if the token price is too high it will be more lucrative for investors and mentors to buy tokens from Peter, who might not be as smart as John, but is also expected to land a good paying job.
Alex on the other hand is struggling a lot in school and in life. His family is rather poor. The token price of Alex hasn’t gotten any attention and is still extremely low, simply because it doesn’t look like he’s going to be a top earner in the future — unless he makes a big personal development.
A person close to the family wants to help Alex get back on the right track. This could also be a teacher, a neighbour, a VC, or just anyone. This person simply realizes the potential of Alex, buys shares and supports him as a mentor.
Maybe he provides him with free tutoring, buys him computer software for new ways of learning, helps him with his personal network of people or opens him they eyes for new dreams, a new visions, and new possibilities. Now the token of Alex appreciates because other people also realize the personal development Alex has been making lately. Therefore, they participate in his success.
A new form of VC’s
The so-called “Educational VC’s” are probably crucial here. They are something new which don’t exist yet. I compare them to traditional scouts in sports or VC’s in the start-up sector. But they are also a bit like value investors in the stock market — trying to find undervalued assets. They will pour money and resources into students who have not yet reached their maximum potential — because that is where the greatest return is to be found. In the startup sector, if the market price for a startup is too high, it will not be attractive to invest in it because of a bad risk-reward ratio.
In our case, if they find students with a market price too high, they will not invest and look for students with a lower market price. Those students might be underrated. They are exactly the ones which need the most support. VC’s or mentors will invest resources (time, money, network) into them to make that positive change happen and unlock the full potential.
Most money will therefore be invested into students who have not reached their full potential yet. While for top students the token price might already be so high that it makes financially no sense to invest — unless you believe your mentorship will make the student even more successful. Therefore, this market mechanism sets the incentives just right and creates a surprisingly fair system.
Sports, Music or Comedy
In addition, this new system of “tokenizing the human potential” would not only apply to schools or the education sector in the traditional sense. If a mentor or investor realized that someone has talents in a different area like sports, music or comedy the market would realize this quickly and will price it in the token — because now there is a higher probability that the future income will be high.
Investors who jump in early will most likely provide the person with great support — because they have an incentive to do so. This could again be extra mentorship, access to the personal network of the investor, ideas, mental support, resources or just anything that is positive for the development of someone.
Money flows
Another interesting aspect of this system is the flow of money. The government issues the tokens and guarantees the dividend by collecting and redistributing the tax through the blockchain.
Once the government allows the public to trade tokens, the money flows from the private sector to the government. The reason is because at the beginning the government holds 100% of each token. They will distribute free tokens to teachers and put the rest of it up for sale. If a sale occurs, the government earns money. If no sale occurs, they will collect the 1% education tax because they still hold the token.
The government now has the opportunity to redistribute the collected money directly to the school of that particular student, therefore creating even more incentives for all people on the frontline of education to help their own students as much as possible. In the smart contracts many more incentive mechanisms could be programmed.
Ultimately, a whole new incentive system could finally emerge in the education sector and one which lets the entire society collaborate. It is meant not only for teachers but also for private mentors or supporters. The power of people helping each other is everywhere — it’s just not fully unlocked yet.
Maybe at some point ETFs will be created around those tokens. Millions of dollars would find way into a wide range of tokens that represent and support a certain group of students. Due to the market mechanism, the incentive for bigger investors to turn bad students into good students would be gigantic. It would even make sense to support entire schools because that will result in direct results and it’s where the greatest return could be found.
This market price mechanism sets the incentives for people in a way so it’s most lucrative for people to help the weakest the most. In general it can be said that depending on how big the financial incentives effectively will be in this new system it can make a big difference in the lives of many people, because now people have more than one reason to help each other. Even if the returns are years away or even if they will be fairly small, it’s worth it — and it is the right thing to do.
I believe a wide range of financial products could be created to facilitate the funding of the education sector even more. There could be billions of dollars from private sector going directly into the education sector. It will be fully transparent on the blockchain — which is great to counter corruption in this sector.
One more idea:
Years later, students or ex-students could reward their very best teachers, mentors or any influential people in their lives with their own shares and therefore automatically distribute a part of their “education tax” to the people who actually deserve it the most.
All parameters can be programmed securely and transparently in smart contracts. For example, you could program that 1% of new shares are created annually, which people then can only transfer to teachers who already own your shares. Therefore, students a few years after they left school, could look back at life and choose the best teachers they had.
This is only an example, the possibilities are absolutely limitless about what we could program into smart-contracts.
The distribution of the actual money on the blockchain is anyway fully automated and transparent, so there is no risk that the government will lose, delay or mess up payouts.
At the end, I believe the entire idea boils down to one core question:
Do we want a system in which people have financial incentives to help each other?
Or do we just continue like we have done for the last hundreds of years.
