Beyond Bitcoin: 'National' cryptocurrencies woo users with free money
The Northern Lights won’t be the only things glistening in the Nordic sky this week. On March 25, some 10.5 million auroracoins will begin to fall from the sky over Iceland—not literally, of course—ending up in the digital wallets of many of the country’s 320,000 residents.
As Bitcoin tries to shake off nagging reputational concerns while continuing to make inroads to the mainstream, developers of new cryptocurrencies are turning to places where traditional economies have failed.
Iceland and Spain, as well as a poverty-stricken Native American nation in South Dakota, have been the first frontiers. Within the past month, separate teams of developers have launched Auroracoin for Icelanders, SpainCoin for Spaniards, and MazaCoin for the members of the Oglala Lakota tribe, a sovereign nation of about 47,000 people, most of whom reside on the Pine Ridge Reservation.
It’s no coincidence that Bitcoin got its start shortly after the global financial crisis in 2007–08. Bitcoin creator Satoshi Nakamoto, near the time of Bitcoin’s 2009 release, even wrote of his frustration with banks. And Bitcoin’s popularity began to surge last year in the wake of Cyprus’s financial collapse as people stored their money in Bitcoin to avoid banking woes.
Similarly, it’s no coincidence that each of locations targeted by these new “national” cryptocurrencies have experienced significant economic turmoil in the short or long term.
Iceland’s banking system collapsed in 2008, and the country imposed strict capital controls amid the global financial crisis. In Spain, the unemployment rate surpassed 27 percent last year, in what Business Insider dubbed “the worst unemployment crisis in modern history.” But that’s nothing compared to the Pine Ridge Reservation, where the unemployment rate is said to be somewhere between 70 and 90 percent.
“People don’t trust the financial system [in Iceland], so there are people looking for something else,” Eli Dourado, a research fellow at George Mason University’s Mercatus Center, told the Daily Dot. “It’s a really interesting way to try to get a currency off the ground—to take advantage of the distrust.”
For something like a cryptocurrency, which doesn’t exist in physical form, to have value, it needs to be technologically secure, and it needs what Dourado described as a “critical mass” of users who believe that it’s valuable.
Now in its fifth year, Bitcoin has essentially proved, from a technological standpoint, that digital currencies can exist. The system is not perfect, as shown by security problems like the recent Mt. Gox hack, in which the former largest Bitcoin exchange lost hundreds of millions of dollars worth of customers’ bitcoins. Regardless, Bitcoin is currently trading at around $600, approximately 10 times its value at this time last year.
Bitcoin, of course, has already attracted a relatively robust user base. Creators of newer cryptocurrencies have tried various gimmicks to lure users, perhaps most notably fashioning the currencies after popular memes and celebrities like with Dogecoin and Coinye.
Appealing to peoples’ national identities and to their disappointment with nationalized institutions is an even newer tack for cryptocurrency developers. In fact, the concept of nationalized cryptocurrencies is paradoxical in a certain sense. Part of the philosophy behind entities like Bitcoin is that they're supposed to be free from the constraints of geological borders and governmental regulation.
Be it the start of a lasting phenomenon or transient experiment, the era of nationalized cryptocurrencies is set to begin in earnest this week, when auroracoins, which already have been extracted from mathematical “mines,” are dropped from the digital ether to any and all Icelanders who wish to claim them.
Auroracoin’s founder, who uses the pseudonym Baldur Friggjar Óðinsson, is calling the event the “Airdrop.” The point is to dole out half of the supply of auroracoins that will ever exist—10.5 million.
These auroracoins have been pre-mined—a term that refers to the complex process by which new coins are created and entered into the marketplace—and each resident of Iceland is entitled to at least 31.8 of them. That translates to roughly $400 at current exchange rates. As laid out in a blueprint on Auroracoin’s website, the Airdrop is expected to be a three-stage process that will take one year.
“Doing an airdrop solves the critical mass of ownership problem,” said Dourado, the George Mason University Bitcoin researcher.
Essentially, giving away money is a good way to get people to take notice of the currency and jumpstart public acceptance. Well beyond the Iceland’s borders, people have taken notice of Auroracoin.
At more than $121 million, Auroracoin currently has the fourth-highest market capitalization of the 190 listed on Coin Market Cap.
“I think that people see the potential of freeing people from fiat currencies,” Óðinsson, Auroracoin’s anonymous founder, said in an email. “Auroracoin has had a lot of attention and that has inspired many.”
The attention has been so great that Iceland’s government has taken notice. The country’s parliament held a closed session last week to discuss the matter. If Auroracoin becomes popular, it would offer people a convenient way to work around Iceland’s capital control, which include restrictions on exchanging Icelandic krónas within the country.
Óðinsson claims he uses a false name to keep himself and his project safe from the government “should Icelandic politician get any such ideas.” Even so, he doesn’t think the government of a country that consistently ranks near the top of Internet freedom reports will try to interfere.
I have had no interaction with the government. Some negative comments have been made by government officials, but no indication of attempts to thwart this. Auroracoin is legal and I think it would be a bold move by the politicians to try to stop people from claiming this gift. Politicians have been known to make unwise choices, but Auroracoin cannot be stopped, unless they shut off the Internet.
Keeping one eye on Auroracoin, Dourado said it could prove to be a catalyst for future nationalized cryptocurrencies.
“One thing is pretty certain, which is if something like Auroracoin does get off the ground, if it succeeds, I think it will have imitators,” Dourado said. “People will take the same strategy and they’ll try to do the same thing in other places, for sure.”
In fact, they already have.
Crypto-controversy at Pine Ridge
The Pine Ridge Reservation, home of the Oglala Lakota Nation (also called Oglala Sioux), sits mostly on the prairies and badlands of South Dakota. It’s certainly not the most likely birthplace for a cryptocurrency, being both far from any tech infrastructure and mired in poverty. But late last month, something called MazaCoin hit the exchanges.
“I think cryptocurrencies could be the new buffalo,” Payu Harris, MazaCoin’s founder, told Forbes. “Once, it was everything for our survival. We used it for food, for clothes, for everything. It was our economy. I think MazaCoin could serve the same purpose.”
Forbes and other publications wrote that the Oglala Lakota adopted MazaCoin as their official national currency. Harris said that, as a sovereign people, the Lakotas were the first nation to use a cryptocurrency as their official national currency.
"We have something that's uniquely ours,” Harris said. “Everyone can use it, but this is starting to become a matter of national pride. We're the first ones to do this."
Earlier this month, Harris set up camp at the Bitcoin Center in Lower Manhattan’s Financial District for a week of interviews and speaking appearances to promote MazaCoin. When he left South Dakota for New York, one MazaCoin was worth about $0.001. Within days, the currency increased exponentially in value, jumping to $0.11, which at the time made it the 13th-most-valuable cryptocurrency by market capitalization.
To Harris, MazaCoin can be the key to further establishing the sovereignty of the Lakota nation and lifting the Lakota people out of what he described as “beyond third-world poverty.”
"Will this currency help rebuild our economy and rebuild the country? Honestly, I don't know,” he said. “I believe that it will."
There’s just one small problem: The Oglala Lakota Tribal Council and President Bryan Brewer deny they’ve made any agreements to officially adopt MazaCoin, and that Harris has not taken the proper steps to get their approval.
“I don’t know where [Harris] thinks he got the permission to do this in our name,” Toni Red Cloud, a spokeswoman for the Lakota Tribal Council, told the Daily Dot. “We’re a reservation, but we still have protocol; we still have policies that people need to follow.”
Red Cloud also said Harris isn’t even a member of the Oglala Lakota.
Harris responded by telling us that he’s federally enrolled as a member of the Northern Cheyenne tribe, but that he has family in both tribes and he’s considered a member of both.
The way Harris explains it, there are two governing bodies for the Lakota tribe—the Tribal Council and what he called the more traditional “Treaty Chiefs.” Harris said the traditional chiefs, specifically a man named Chief Floyd Hand, told him to move forward with MazaCoin.
Harris even indicated that he had a written agreement with the Tribal Council but that the tribe’s government reversed course after facing pressure from the U.S. government.
“Most of this resistance stems from President Brewer’s Department of Interior handlers who are working to derail the project because they know full well the power of this idea,” Harris said in an email.
On the heels of the Tribal Council’s disavowment, the price of MazaCoin has dipped back down to $0.002. Even if Harris can find a way to navigate tribal politics, he still faces an uphill battle trying to bring a high-tech cryptocurrency to a region that may not have the infrastructure to support it.
During our conversations, Harris mentioned he spoke to South Dakota state Sen. Bruce Rampelberg about MazaCoin. We reached out to Rampelberg to see if he thought the currency had a chance to succeed. Rampelberg said he did indeed talk to Harris, but he was left with only a “fuzzy picture of how MazaCoin works.”
“I have read several articles in the past several months that have talked about a growing trend where Internet users have formed a sort of e-monetary system for paying for services or software, etc,” Rampelberg said in an email. “I do not really know anything more than that.”
National cryptocurrencies cross new borders
Developers in other nations aren’t waiting around to see if Icelanders snatch their auroracoins out of the air. Already the model is popping up in other countries.
Bitcoin may be the Spanish Armada of the cryptocurrency world, but only one promises to be “the perfect cryptocurrency for the Spanish people to break free from their shackles.” That would be the aptly named SpainCoin.
Following the Auroracoin’s model, SpainCoin’s creators say they have pre-mined half of the 50 million SpainCoins that will ever exist to give away to the Spanish people, starting in mid-April.
“I thought that Auroracoin was a brilliant idea that deserved a more mainstream (bigger country) version,” SpainCoin’s creator told the Daily Dot in an instant message. “The idea of giving an incentive to people to adopt it is great.”
The person, who claimed to be a 32-year-old software engineer living in Spain, would only give us his first name and last initial—Alvaro S.—because he doesn’t “really like attention much.”
Just like Auroracoin, SpainCoin has already attracted a good deal of attention. It’s currently the 15th-most-valuable cryptocurrency with a market capitalization of $6.8 million. Alvaro said he hopes to seize on the interest the currency is generating to help the Spanish people better understand cryptocurrencies.
“It will be explained to them so they can understand it,” he said. “We're preparing didactic content on how to use SpainCoin and what cryptocurrencies are. When they're informed they can decide on their own whether it's convenient for them or not.”
Like Auroracoin and MazaCoin, SpainCoin is also trying to seize on citizens’ mistrust of national institutions to generate interest.
“The people's distrust for the banks and governments can make them more likely to react, yes,” Alvaro said.
The tide of “national” cryptocurrencies seems to be rising. The month-old Scotcoin project, according to its website, plans to give away nearly all of the billion scotcoins that will ever exist to residents of Scotland in order to “create a digital economy in Scotland, where the Scottish people are offered an alternative medium of exchange.”
Almost every aspect about the idea of national cryptocurrencies is in some way counterintuitive, from taking an entity that’s borderless by design and giving it a national identity, to inventing something that’s inherently worthless and injecting value into it by giving it away.
As Paul Graham, who built the multibillion-dollar Y Combinator startup accelerator, once wrote, “Some of the best ideas are outliers everyone ignores because they seem crazy.”
Photo via kenteegarden/Flickr (CC BY-SA 2.0)