Could Adopting Crypto-Fueled Local City Revenue Pay Off?

News, Opinion, Regulation | December 14, 2021 By:

In a bid to grow city income, municipalities like Miami are implementing new crypto-based city programs and initiatives. These schemes take advantage of cryptocurrencies in various ways, but all aim to leverage the growing crypto market to generate revenue for the city.

The plans have had limited success so far — but critics have voiced concerns about potential consequences to widescale adoption of crypto by city governments.

This is how these new crypto programs have worked, how they may develop in the near future and why financial experts are divided on their use.

An Early Win for City Cryptocurrency Programs in Miami

MiamiCoin (ticker symbol MIA) is the name of Miami’s unofficial cryptocurrency. The coin is the byproduct of the city’s cooperation with CityCoin, a crypto startup that allows users “to support your favorite cities while earning yield in Bitcoin.” 

While the city has not officially adopted the coin — described as a “grassroots initiative” on CityCoin’s website — it hasn’t sworn it off, either. City commissioners accepted a $7.1 million donation from CityCoins on September 13. Miami mayor Francis Suarez invested a portion of this donation into Bitcoin holdings for the city.

The Miami city coin is powered by Stacks (ticker symbol STX), a smart contract crypto protocol that provides users with Bitcoin rewards for “stacking” STX — locking certain amounts of the currency into a contract for a predetermined amount of time. 

Owners of the MIA coin can use CityCoin software to mine additional MiamiCoins. 

This process requires miners to pay STX tokens into a smart contract in a specific Stacks block. Every time enough tokens are forwarded and a block is completed, the protocol generates mining rewards in the form of additional STX. 

A fraction of the mining rewards (currently 30%) goes to the city. The rest are awarded to a randomly selected miner that forwarded tokens to the block. Miners that spend more are more likely to win — somewhat like a virtual, crypto-based slot machine.

Additionally, it’s possible for CityCoins holders to “stack” their MiamiCoins, locking their MIA into the MiamiCoin protocol for a certain amount of time to earn STX.

MiamiCoin was the first CityCoin to arrive on the market. It has since been joined by NYCCoin, the unofficial coin of New York City, and AustinCoin, which is tied to Austin, Texas. As in Miami, these coins have been mostly welcomed by their respective city governments.

Right now, the Miami city wallet, which holds STX proceeds from MiamiCoin-related mining, is worth $21 million, according to data from miamining.com, which tracks publicly available wallet data.

Miami mayor Francis Suarez has plans for further adoption of crypto, as well — including a new crypto mining station near a South Florida power plant and programs that would allow city employees to be paid in Bitcoin. In November 2021, he also announced that he would take his next paycheck in Bitcoin.

El Salvador Has Plans for a “Bitcoin City”

In late November 2021, El Salvador president Nayib Bukele announced the country is planning to build a “Bitcoin City” funded by cryptocurrency. 

The city, which will be built near Conchagua volcano in southeastern El Salvador, will have “residential and commercial areas, services, entertainment, restaurants and an airport,” according to CNBC. Construction is slated to begin in 2022. 

Just months before the announcement, El Salvador also became the first country in the world to accept Bitcoin as legal tender.

Growing Interest in Crypto May Guide City Policy

Both of these moves come as government officials around the world attempt to court the growing cryptocurrency market. 

For example, Eric Adams, currently mayor-elect of New York City, is one major proponent of the technology who has pledged to take his first three mayoral paychecks in Bitcoin and explore “a mechanism to allow New Yorkers to be paid in virtual currencies.”

Adams has said he hopes to make New York City the center of the growing crypto economy.

Crypto Adoption by City Governments Has Some Concerned

Not everyone is convinced that their governments should mix policy and crypto. In El Salvador, thousands took to the streets to protest the law that made Bitcoin legal tender, many of whom feared that adoption of the currency could lead to further instability and inflation in the country.

Security experts have warned that crypto could present a possible security risk for cities and state governments. Along with new regulations, new infrastructure and rapid growth in data collection, crypto adoption could significantly disrupt governmental cybersecurity operations. 

Environmental concerns may also push city officials to slow cryptocurrency adoption. 

According to analysis from University of Cambridge researchers, bitcoin mining currently consumes more energy annually than the entire country of Argentina. Creating new coins or encouraging investment in Bitcoin would increase the amount of energy that the crypto space consumes.

Cities Consider New Crypto Programs to Grow Revenue

For Miami, New York and Austin, crypto is currently providing a new city revenue stream. The city of Miami in particular has benefited from having its own unofficial city token. 

Outside of the U.S., there are plans for cities to be funded almost entirely by cryptocurrency.

The rapid growth of city-crypto programs has some concerned, however. Crypto-related worries around cybersecurity, potential environmental impacts and economic instability are all likely to become serious topics of discussion if cities continue to launch or accept crypto programs.