Cryptocurrencies for social change
A couple of recent events/news stories have inspired this post. The idea I am exploring is if a cryptocurrency (like bitcoin and I mean like in the sense "similar to", not "such as" -- bitcoin might not be a way to address poverty in Nicaragua. First, the two events that got me thinking.
Iceland has strict foreign exchange restrictions -- pretty much a result of the banking meltdown some years ago. Coindesk reports that a new cryptocurrency, called Auroracoin, is being created and each resident of Iceland will receive equal shares.
Auroracoin is a litecoin-based digital currency, 50% of which is pre-mined. This is where it gets interesting: the pre-mined coins will be distributed to the entire populace of Iceland starting on 25th March. Each one of the country’s 330,000 citizens will receive 31.8 auroracoins.
Unlike most countries who see the banking sector as a good thing, Iceland's banking sector has a bad track record and the people have noticed. This new kind of local money is there to offer an alternative.
Mazacoin is the other recent story. Again, as reported by Coindesk, we are talking about another cryptocurrency with a specific target, this time native Americans in the US.
In both cases, the new currencies are designed to empower a community by giving them their own, non-controlled currency. You need to fully understand the hows and whys of cryptocurrencies to see the big picture but on a very basic level, you are eliminating government controls and banking overhead from a currency. Let's look at the types of changes that can happen.
- Credit/Debit card discount rates (that is, the cost to a merchant for using plastic money) tend to be around 3% in the US but more typically 7% to 9% in this area. That's a huge cost that most merchants cannot afford. Doing transactions with a non-bank currency can eliminate those fees.
- Exchange controls exist. They are very strong in Argentina now, for example, but are becoming more popular. Using a cryptocurrency instead of a fiat currency which must be exchanged eliminates the effect of exchange controls.
- A local currency can fluctuate in value based on real supply and demand. Any country who uses the currency of another nation as their local currency is subject to the economic changes of the nation whose currency you are using. The obvious example is the EU where it is difficult for one country to change currency values to control their own economy. Any currency pegged to a foreign currency (Cordoba to US dollar, for example) is a victim of this problem as well.
- Having a local-only currency encourages buying locally. A LETS offered an early solution here but has management issues and overhead. Cryptocurrencies are clearly the new/better way to address this issue.
I don't have a plan but it seems that considering the possible use of a cryptocurrency in Nicaragua to address solutions to social problems is worthwhile. I welcome discussion on the topic.