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.
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 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 salary. It could also be 0.1% or 2%.
The tax authorities will collect this 1% tax through ordinary taxes and redistribute it to people (shareholders) who educated and supported the person over all those 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 can 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.
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 step forward.
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 payout based on programmed parameters — in our case a part of future salaries.
For every child who enters the school system the government launches its very own token. Imagine your child is called John Doe. He will soon go to school. The government will create the “JohnDoe Token” and issue 100 JohnDoe tokens. Those 100 tokens represent 1% of your future annual salary — every year.
On day one — the day of the launch — the government holds 100% of the tokens. To set the incentive right, teachers directly working with John Doe will receive some JohnDoe Tokens from the government and therefore participate in the future success of your child.
We can discuss and agree about how many shares teachers should receive. Should only the teachers with direct influence on the child’s development get shares? Or the entire team? Or we can discuss other parameters: Like the amount of tokens to be distributed, the time-frame or the impact a certain teachers needs to have. The goal must be to have a fair system with the right incentives for the people working in the education sector to put maximal effort into educating your child.
Over the years teachers get free tokens distributed 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.
When John grows up and starts working, 1% of the salary will now flow back to all the token holders. But this is only a simplified example. In all the years many people could acquire tokens of John — because it is a free market. Friends & family, a neighbour, a coach, or just anybody who believes in John. Those people have no “rights” about John itself. He is not required to do anything for them or meet them personally. But token holders will get a cut of his future income.
The market price
The tokens are publicly tradable on the blockchain. They might appear on different websites. Because of that a real market is forming. There will be no problem regarding the liquidity on the order book to buy and sell those tokens, because in the last few years Bancor invented a new mechanism. 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 emerges as 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. Technically, there is an annual dividend which will probably last for +45 years — all the years John works. The token price itself will peak at a certain time because of the time factor and the total expected cash flow which will sink as John comes close to his retirement age.
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 is still extremely low 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 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 and opens up new visions and possibilities for him. Now the token of Alex appreciates because other people also realize the personal development Alex is making and therefore 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 doesn’t exist yet. I compare them to scouts in sports or VCs in the start-up sector. They 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 into them because of risk/reward.
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 which 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 him even more successful. Therefore, this market mechanism sets the incentives just right and creates a fair system of people supporting other people.
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 sports, music or comedy the market would realize this fast and will price it into the token price — because now there is a probability that the future earnings will be high.
Investors jumping in early will most likely provide the person with great support — because they have an incentive to do so. This could again be mentorship, access to the personal network, ideas, mental support, resources or just anything positive.
An interesting aspect is the flow of money in this new system. The government issues the tokens and guarantees the dividend by collecting and redistributing the tax through the blockchain. Once the government allows the tokens to be traded publicly, and there is interest from someone, the money flows from the private sector to the government.
The government now has the opportunity to redistribute the money directly to the school of the student, therefore creating even more incentives for all people on the frontline of education to help students as much as they can. 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. Because the power of people helping each other is everywhere — it’s just not fully unlocked.
Maybe at some point ETFs will be created that will invest millions of dollars into a wide range of tokens that represent and support a certain group of students. Due to the market mechanism, the incentive for certain mentors or investor groups would be gigantic to turn bad students into good students — or even bad schools into good schools because that is where the greatest return could be found.
This market price mechanism sets the incentives for people in a way that makes it most lucrative to help the weakest the most. In general it can be said that depending on how big the financial incentives effectively will be 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 return is years away or 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 industry even more and therefore pour even more money directly into the education sector and directly to schools. There could be billions of dollars flowing in from the private sector into the education sector in a very targeted manner and fully transparent — which is great to counter corruption in this sector.
One more idea:
Years later, students or ex-students could reward their 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 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 / mentors they had. This is only an example, the possibilities are absolutely limitless about what we could program into the smart-contracts to create a working and positive incentive system.
The distribution of the actual money on the blockchain is anyway fully automated, so there is no risk that the government will lose, delay or mess up payouts.
At the end, I believe it 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.