Written by Benjamin Freed
When Francis Suarez of Miami took over the U.S. Conference of Mayors in January, he encouraged fellow city leaders to join a “cryptocurrency”, promising that assets such as bitcoin could facilitate access to financial services for low-income residents and not banked.
Suarez, who is betting on his reputation for consolidating his city as a global hub for cryptocurrencies, had a receptive audience: Cleveland Mayor Justin Bibb, a well-known cryptocurrency owner, called the argument “right.” New York Mayor Eric Adams, just a few days in office, boasted of his plans to buy bitcoins and ethereum with his first government paychecks. And New York, Philadelphia, and Austin were considering moving to Miami to do business with CityCoins, a coin-operated company that raised money for their respective cities.
Many city leaders have spent 2021 looking for ways to take advantage of a growing cryptocurrency market, seeing a highly speculative and largely unregulated asset class as an attraction for the technology and financial services industries, but as a new source of revenue for their governments. Bitcoin even surpassed $ 68,000 in November, when Suarez detailed plans to distribute a $ 21 million MiamiCoin stash.
But in the intervening months, bitcoin has fallen by more than half, dropping to $ 26,000 in recent weeks. It hasn’t completely destroyed the hype in town halls, but some cities have become a little less talkative about their cryptocurrency prospects.
“It seems like for the most part everyone is trying to be a little quiet,” said Tonantzin Carmona, a fellow Brookings Institution who has been critical of cities pursuing cryptocurrency efforts. “It’s in all the news, so it’s not like they don’t find out.”
“I don’t even know what they’re trying to solve”
Since the decline in cryptography began, Philadelphia has formally withdrawn its plans to partner with CityCoins, citing market volatility and the lack of obvious use cases. That decision came just weeks after City Information Director Mark Wheeler told StateScoop the project had received a blessing from Mayor Jim Kenney. (Wheeler, who earlier this year told the New York Times that he had even stopped listening to the morning news in favor of cryptographic-themed podcasts, did not respond to requests for comment).
And while CityCoins still plans to release themed tokens for Austin and New York, there is far less hype in those cities than in Miami, where Suarez said in February that the city was able to withdraw $ 5.25 million to fund an assistance program. for rent. Austin City Council passed a resolution in March exploring whether the city could accept payments in bitcoins and other digital currencies, including a “complementary local currency.” Members did not respond to requests for comment.
As for New York, Adams continues to promote the state of the city as a financial center so it should be a cryptocurrency magnet – “this city may be at the forefront of these new emerging sectors,” a City Council spokesman said recently – but his own investors have suffered a setback, falling by about 30% since spending those first three salaries.
But instead of pursuing market changes, critics like Carmona say cities should take more methodical approaches to emerging technologies.
“My view is that government officials should take a more human-centered approach in their policy-making,” he told StateScoop. “They have to listen to the voters, the pain points of the voters and then find the solution.”
Crypto, he said, does not fit that model.
“With cryptography, it looks like we put the cart before the horse, that the mayors are looking for problems to solve,” he said. “More specifically, they are trying to find the use case. Because right now, the main use case is speculation. I don’t even know what they are trying to solve.”
Carmona is also not sold with arguments that cryptocurrency paves the way for marginalized communities to access financial services. In addition to the technology needed to operate a digital wallet, cryptography is another barrier to entry, in particular the lack of widespread acceptance by real-world sellers, fluctuating prices, and transaction fees that can increase depending on the value of a trade. of the global market volume. . The crypto industry also has a growing fraud problem, with an estimated $ 1 billion lost to scams between January 2021 and March 2022.
“That’s scary. And there are no consumer protections,” Carmona said.
“A way to differentiate”
But even amid criticism and hype, more cities are moving forward with their cryptographic plans. On April 26, a day when bitcoin fell near $ 2,000, Fort Worth, Texas, became the first U.S. city to extract cryptocurrencies from a government building when Mayor Mattie Parker set fire to three mining platforms within the IT department.
The move, according to a 38-year-old mayoral press release, was made to make Fort Worth a “technology-friendly city.” But Parker’s office declined to comment, but referred StateScoop to the Texas Blockchain Council, an industry group that aims to further fuel the growth of the crypto industry in the state and donated the three Antminer S9 computers that are now working out equations. all day in Fort. Worth Township.
“The city was looking for a way to differentiate itself,” said Lee Bratcher, founder and chairman of the board. “At the very least, it’s been a good exercise for your innovation muscles.”
Like MiamiCoin, which is run by private investors, with a share that goes to an account that can only be accessed by Mayor Suarez’s government, Bratcher believes Fort Worth’s new endeavor poses no financial risk to Fort Worth.
“They don’t have money at stake,” he said. “They can extract it and convert it directly into dollars or they can keep it.”
Under the Parker-launched program, Fort Worth could periodically collect some of the bitcoin it raises to fund technology education programs in the city’s schools. But there is no guarantee of unexpected profit.
“It could lose a lot of value,” Bratcher said. “There is no guarantee that it will increase this year. It could end the year lower or worse.”
But the risk of cryptocurrency is outweighed by its popularity, Bratcher said, pointing to a survey commissioned by his group, which found that bitcoin has a “+10” favorability rating among Texans (though a third of respondents said who had no opinion). His survey also found that bitcoin was very popular with blacks, Latinos, people under the age of 55, and respondents across all party lines.
While the Texas Blockchain Council may donate more mining platforms to more cities in the future, Bratcher said it is not pressuring anyone to invest individually.
“We present that this is not financial advice,” he said. “This is something the city has chosen to do. It would be much more examined if the city bought bitcoins with public dollars.”
Nothing but code
There have been other developments since Fort Worth. Chicago Mayor Lori Lightfoot celebrated last month the opening of a new headquarters for FTX, a major cryptocurrency exchange that included a program that offered $ 100 low-income residents monthly payments of $ 500 and financial literacy classes. But Carmona, who has previously worked for the city of Chicago, noted that those payments will take the form of an FTX brand debit card. He was concerned that it could lead to “predatory inclusion.”
“Marginalized communities are pre-defined as access to a good,” he said. “Suddenly they are given access, but it comes with conditions that compromise the benefits.”
Meanwhile, Miami’s Francis Suarez said at the World Economic Forum in Davos, Switzerland, last month that he continues to convert his paychecks into bitcoins and that he was not bothered by his sharp drop, or the fact that MiamiCoin lost 95 % of its value in the last nine months.
Critics say that should give cryptographic mayors some perspective.
“Cryptocurrencies are based on nothing more than code,” Carmona said, “and the fact that we trust people to consider it valuable? What happens when no one does?”