Cryptocurrency: Not Just Bitcoin (Part I)

 {For a primer on Bitcoin, consider reading Holly’s interview with Emily Neville about her thesis on the currency.}

Unlike state-based currency (like the dollar, the pound, the euro, etc.), cryptocurrencies have no inherent ties to a government or geographic area. They can move freely around the globe and lack a centralized authority that stands behind them. However, some developers aim to reinstate those connections in digital coin, but at a different level than traditional currency. The city of Hull recently introduced a virtual currency called HullCoin that allows citizens to make tax payments and shop at local vendors. The Oglala Lakota Nation, a Native American tribe in South Dakota, recently introduced MazaCoin. In an interview with NPR, Payu Harris, the developer of MazaCoin, says the primary aim of the project is to enhance the tribe’s sovereignty. The coin will certainly serve as a symbol of the tribe’s independence, but also might provide practical support to its autonomy. Pete Earle, chief economist of a firm that specializes in digital currency, suggests that the Lakota could leverage Mazacoin to incentivize tribal membership, hold tribal financial assets, to “formalize agreements,” and reward “outside groups that support the tribe’s best interests.” Harris says he also hopes that MazaCoin will raise funds for social programs stimulate business in the reservation.

These cryptocurrency projects have some potential for meaningful local use, but they face a significant obstacle: buy-in. In order to develop value, these value of these fledgling currencies depends on user demand, which might be especially difficult to develop among the small populations these projects target. No value means no demand and no demand means no value. HullCoin addresses this issue by allowing it to be exchanged for tax and rent, so it inherently begins with some value. However, MazaCoin likely faces a steeper challenge: Harris described MazaCoin’s userbase as “a trickle.”