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What do Ben Simmons and a municipal cryptocurrency have in common? Neither of them could make it in Philly.
A few months after news broke that the city was exploring adoption of CityCoins, a philanthropic cryptocurrency that local governments can use to fund citywide initiatives, Chief Information Officer Mark Wheeler told Technical.ly that Philadelphia is no longer pursuing the idea.
The decision boiled down to CityCoins’ newness, he said, with the lack of use cases and crypto’s volatility making it hard for the officials to envision how Philly could use the funding, let alone steward it.
“The standard practice of the city is to limit fundraising efforts to a specific policy objective,” OIT spokesperson Labonno Islam explained to Billy Penn. “CityCoins presents an on-going fundraising model which doesn’t align to the established standard practice.”
How the coin is supposed to work: After a mayor publicly accepts a digital crypto wallet and the competitive mining process begins, 30% of the income generated by the coins goes into a fund that the city can cash out at any time. As for the other 70%, it goes to people who hold the coin — which can include anyone, not just Philly residents.
Crypto mayors are cropping up in cities across the U.S.. In November, Tampa Mayor Jane Castor expressed interest in receiving paychecks in Bitcoin, while NYC’s Eric Adams is converting his earnings into crypto as the city vets a partnership with CityCoins. And in Miami, Mayor Francis Suarez accepted over $5 million dollars from CityCoins before MiamiCoin’s value depreciated to less than four-tenths of a cent.
President Joe Biden recently signed an executive order greenlighting cryptocurrency regulations, but municipal governments aren’t able to hold any cryptocurrency of their own.
This red tape creates a de facto middleman. CityCoins would have to oversee Philadelphia’s crypto wallet and convert the holdings into dollars before donating it to the city’s coffers.
And CityCoins is a permissionless cryptocurrency, which means it would be virtually impossible for officials to track who owns some PhillyCoin — or who might be using the currency for illicit transactions.
“City governments need to be aware of who is making potentially fraudulent transactions. They can’t be connected to an illicit behavior,” said Mike McCoy, a local technologist with blockchain startup Blockdaemon, and friend of Wheeler.
McCoy said it would make sense for Philly officials to explore other, permissioned entities, which can add an extra layer of security by requiring users to identify themselves with certificates, giving administrators control over who can do what with a coin.
A couple of these already exist to help nonprofits fundraise, McCoy noted. EnDAOment and The Giving Block enable users to donate cryptocurrency directly to a cause or charity of their choice, no profit sharing necessary.
CityCoins public relations liaison Logan Storrer maintained the CityCoin community is supportive of Wheeler’s decision to halt the vetting process.
“We don’t fault anyone in the city of Philadelphia for waiting until the big picture can be seen more clearly,” Storrer wrote over Discord. He said PhillyCoin would be treated exactly like MiamiCoins, where “the city has the ability to request any funds generated from their wallet at any time” even if they can’t directly own the wallet.
In January and February, CityCoin community members communicated closely with Wheeler as he shared some potential use cases included in his pitch to Mayor Kenney. But once the vetting process began, he stopped soliciting input.
Without fixing inflation, cities wouldn’t be able to reap much benefit anyway
One of the biggest questions the cryptocurrency raises: Who should determine where CityCoins funding goes — residents, PhillyCoin stakeholders, or city officials?
“What are the things that local currencies claim that they can help solve?” said urban technology researcher (and Eric Adams transition team member) Mike Bloomberg in February. “CityCoins doesn’t start from that question. They start from building a coin, and telling cities to figure out what it can solve.”
In Miami, the first donation will fund a rental assistance program. Mayor Suarez also noted that the program could help build financial literacy initiatives or displace taxes.
In Philly, Wheeler proposed via Discord that PhillyCoins be used to improve PHLConnectED broadband internet initiative or fund digital literacy programs created by a partnership with the Digital Literacy Alliance and Office of Innovation and Technology.
Storrer, the CityCoins PR liaison, said community members are currently working on building out components that better demonstrate how governments could wield the currency.
There’s a different issue to address first: runaway inflation.
The existing model for CityCoins “presents an annual inflation rate above 20% for the first four years, [resulting] in an extremely small amount of income to the city later in the lifecycle of the coin,” Storrer posted on Discord.
What does this mean? Cities can initially expect big payouts from CityCoins, but over time the currency likely won’t be able to provide the same level of funding. Storrer later disclosed to Billy Penn over Discord that CityCoins is discussing changes that would reduce the amount of CityCoins immediately in circulation, which can gradually increase the potential funds available for local governments.
With this in mind, enthusiasts are debating whether to change the schedule, which would gradually decrease the amount of CityCoins in circulation to avoid outsized inflation. Storrer said these changes aim to “[preserve] the value for the city throughout the lifetime of the city’s coin,” which are unrelated to Philadelphia’s concerns about financial and legal issues.
Still, CityCoins is certain the mounting concerns about inflation, transparency, and actual utility won’t impact interest from other cities still vetting it, like New York and Austin.
“Since Philadelphia announced its decision, key figures in the governments of New York City and Austin have continued to express their interest in CityCoins,” Storrer said.
Austin legislators just passed a pair of resolutions that require the city to use blockchain technology for certain operations and encourage state government to study how crypto could be used elsewhere. Meanwhile, CityCoins’ Discord server was focused on an op-ed published in the Austin Chronicle that likened crypto to a multilevel marketing scheme, sparking many indignant rebuttals and a hopeful op-ed.
“CityCoiners want to defend themselves in Discord, but not other public forums,” observed McCoy, the technologist with Blockdaemon.
Set against this backdrop, McCoy and the NYC tech advisor Bloomberg think CityCoins would have to make major improvements to work within Philadelphia and other cities with sizable wealth gaps — which they don’t think is likely.
“I don’t think CityCoin would make the changes to become a permissioned state,” said McCoy. “It’s a crypto community that lives online, so it doesn’t need Philadelphia. They can just find another city willing to accept it.”