👾 When Cities Go Crypto - Issue #16
What's behind the current urban gold rush to crypto and blockchain?
There’s currently a lot of hype around the concept of “crypto cities”, namely cities that leverage the power of crypto currencies to improve their functioning while also becoming hotspots for Bitcoin, Ethereum and NFTs fanatics 🤑
As cities such as Austin, Miami, and New York City have launched – or are planning to launch – cryptocurrencies, the interest and activity in this space have rapidly accelerated.
New York City Mayor-Elect Eric Adams has suggested schools teach cryptocurrency and its technology. He has also pledged to explore a mechanism to allow New Yorkers to be paid in virtual currencies and even vowed to take his own first three paychecks as mayor in Bitcoin.
Both Miami and New York City coins are powered by CityCoins.co, a new platform that enables communities in cities to create their own coin, and have some portion of the issuance of those coins go to the local city governments as revenues.
This space is shaping up quite fast so I decided to dig a little deeper.
Blockchain-based technologies have long left me a bit skeptical. Despite its interesting origins, I find the crypto movement plagued with speculation, scams and a terrible environmental footprint, due to the huge amounts of computing power needed in the mining process. Why Bitcoin is Bad for the Environment? Bitcoin-mining operations worldwide now use energy at a rate of nearly 120 terawatt-hours per year. This is about the annual domestic electricity consumption of the entire nation of Sweden ⚡️
But as much as I disagree with the current features of the movement, blockchain and crypto have inarguably moved into the mainstream.
Cities seem to be the next frontier of crypto fans. Which makes me wonder, what kind of promises do blockchain and crypto hold for cities? And why do we need crypto cities in the first place?
The Promises of Crypto Cities
I recently came across this blog post Crypto Cities, written by Vitalik Buterin.
If you don’t know Buterin, it means you need to up your crypto game (just like me). Buterin is a Russian-Canadian programmer who is best known as one of the co-founders of Ethereum, the second biggest crypto currency after Bitcoin. Buterin regularly shares his views about the future of the blockchain and its potential to transform our societies.
In this post, Buterin unpacks the concept of Crypto City and addresses the following question: “Why should we care about cities?”, from a blockchain guru point of view.
I’d love to change the question to “Why should we care about crypto?” but let’s lend an ear to Buterin’s main arguments.
Cities are great spaces for experimentation and many urban areas are currently toying with blockchain and crypto
Yes, cities are more agile than, say, central states and are hotspots for innovation and experimentation. Buterin sees the fact that some cities in the US embark on blockchain-related projects as the living proof that the time for crypto cities has come. Personally, I see those initiatives as another manifestation of global urban competition, in the race to catch the latest economic trend and attract talents and investors. It has more to do with economic positioning in uncertain COVID times than with a genuine embracement of crypto thinking but, let’s face it, cities might well become the next global stage of the blockchain experiment.
From experiments with NFTs to fund local artists, to the issuance of city coins to be used in local businesses or the creation of crypto-oriented cities from scratch (CityDAO or Decentralised Autonomous Organization, in Wyoming), there are as many shades of blockchain cities as you can imagine.
Blockchain could be used to create more trusted, transparent and verifiable versions of existing processes
Buterin suggests that blockchain-based technologies could help cities improve bidding processes, procurements and asset registries.
Possible use cases include an internal-use only coin for government purposes to make fund transfers within governments more transparent. The system could also be extended to auctions for government procurement where auctions could be run on the blockchain, and contractors could make bids with a public bidding process. A smart contract could determine the winner, such as awarding jobs to the lowest bidder.
They are many ways through which the blockchain could help smoothen the functioning of a city administration, reduce frictions, fight corruption and improve transparency. I guess the whole construction value chain could benefit from such solutions.
Blockchain could be used to implement new and experimental forms of ownership for land and other scarce assets, as well as new and experimental forms of democratic governance.
That’s where it becomes interesting 🧐
In addition to the blockchain overlays onto things that governments already do, Buterin proposes to look at blockchain as an opportunity for governments to make completely new and radical experiments in economics and governance.
Experiment #1: a more comprehensive vision of city tokens
Buterin’s first big idea is to use blockchain, and more specifically “city tokens”, to improve economic alignment between residents and the city. Basically, he suggests to replace home ownership by creating a divisible (can be divided into smaller units of value) and fungible (one unit is viewed as interchangeable with another) city token. Residents could hold as many units as they can afford or feel comfortable with, and the value of these tokens goes up as the city prospers.
There is an inevitable political tension between a home as a place to live and a home as an investment asset, and the pressure to satisfy communities who care about the latter often ends up severely harming the affordability of the former.
Home ownership does this: as home owners make mortgage payments, they build up their net worth by default. City tokens could do this too, making it attractive to accumulate coins over time, and even gamifying the experience.
Don't unduly favor wealthy people over poor people (as badly designed economic mechanisms often do accidentally). A token's divisibility, avoiding a sharp binary divide between haves and have-nots, does a lot already, but we can go further, eg. by allocating a large portion of new issuance to residents as a Universal Basic Income.
Home ownership is surely a debatable policy and Buterin is right to point the tensions between a home as a place to live and a home as an investment. Home ownership is sometimes seen as the West’s biggest economic-policy mistake. The soaring cost of housing in Western cities has created huge inequalities and inflamed the generational divide. A lot of young people living in cities feel that housing is actually out of reach.
Even in Singapore, which has one of the highest home ownership rates in the world, some experts recognise that housing prices may not rise as astronomically in the future and that it is important to inculcate different attitudes to prepare for economic changes. An over-emphasis on home ownership can come at a cost to society.
Replacing home ownership by city tokens, based on blockchain, sounds appealing but will it fix inequality problems?
As much as I like the idea of creating better alignment between residents and the city, I am not sure crypto can do just that. One simply needs to look at the current massive centralisation of power among crypto miners, exchanges, developers and wealth holders to understand that the blockchain world is not a balanced nor an egalitarian system.
Even if city tokens could be reserved to residents, there is always a risk that external financial players (for example, faraway hedge funds) infiltrate, speculate and ultimately mess up with the local system.
Experiment #2: more radical and participatory forms of governance
The second experiment builds on the ostensibly strong libertarian roots of the blockchain community. Since we could abolish home ownership, we could also do that with any other assets!
Buterin suggests to combine the blockchain technology with the Harberger tax and quadratic voting. Let me use this article to explain what those are This economist wants to abolish private property using blockchain.
The Harberger tax is an economic idea (highlighted in the book Radical Markets) which proposes to transform society into a continual auctioning process: people set an ideal price for each of their possessions (houses, cars, clothes) and be ready to sell it to whoever comes forward bidding for it.
Every person would pay a hefty tax on their overall wealth, which would be higher, the higher the self-assessed value of their possessions. In other words, property will either be auctioned and decentralised across the society, or generate a high tax revenue, which could go on to fund a Universal Basic Income for the have-nots.
On top of that, quadratic voting is a system where users can pay (using tokens, again) for additional votes on a given matter to express their support for given issues more strongly. This results in voting outcomes that are aligned with the highest willingness to pay outcome, rather than just the outcomes preferred by the majority.
In a nutshell, let people trade their assets between themselves and let people better express their preferences through voting, and it will benefit the community as a whole.
As innovative as these ideas might be, they remain largely untested and are somehow conceived in a vacuum. Local governments are already experimenting with new forms of governance, from participatory budgeting to citizens’ assemblies on climate change. Blockchain leaders should first look at how to give these initiatives a boost, before toying with more radical ideas.
Buterin also seems to overlook the already well-documented challenges to civic participation. Participatory forms of governance are about levelling the playing field, creating space for people coming from all walks of life, including digital illiterates, the elderly, people living with disabilities, minorities. There are many invisible barriers to voting and public participation and technology, whether blockchain or not, can only address a fraction of them.
Finding the blockchain’s urban purpose
One of the biggest difficulties is to actually identify the urban problems blockchain could solve. In Buterin’s post, there is no mention of climate change, urban heat or the need to transition to a circular economy.
But that’s precisely where the blockchain technology could play an interesting role, for example by supporting the harvesting of construction materials at the end of a building’s life, a topic we discussed in our last podcast episode. On the journey to a circular economy, don’t forget your materials passport.
Clear sharing and privacy guidelines on the information in the passports and how to share it (and with whom) are essential for making optimal use of a material passport’s value. Finally, the information needs to be trustworthy. The fourth owner of a building or a component, needs to be sure that the information about materials and their supply chain has not been changed by any of the first three owners. This requires investment in an independent agent that everyone can trust, or a system like blockchain which makes earlier information almost impossible to retroactively edit.
Another area of interest for the crypto community could be to join the fight against CO2 emissions, through the creation of a Carbon Coin. This idea has been floated in Kim Stanley Robinson’s latest sci-fi book The Ministry For The Future (which I highly recommend). In the book, the task of fighting climate change falls to the members of a new organization, the Ministry for The Future, created after the Paris Agreement to keep Earth livable for present and future generations. The Ministry manages to convince the world's most powerful central banks to back a new crypto currency, the Carbon Coin.
The Ministry for the Future describes carbon coin as “a digital currency, disbursed on proof of carbon sequestration to provide carrot as well as stick, thus enticing loose global capital into virtuous actions on carbon burn reduction.” The profits of keeping fossil fuel deposits in the ground would suddenly become even more profitable than extracting them.
As you can see, there are many meaningful use cases through which the crypto and blockchain community could have positive impacts.
Despite all of these potential benefits, the huge energy consumption associated with the technology is one of the main hurdles that needs to be overcome. That should be the priority of the industry and some players are working on ways to address the issue. The Ethereum Foundation is for example working on a new way to verify transactions. By switching to a different method (called Proof of Stake), the Foundation says that the energy cost of each transaction could be cut by 99.95 %.
So, do we need crypto cities? In a time when crypto powers financial greed and environmental degradation, becoming a crypto hub is a questionable move. After all, the last thing a city would need is to fix some of its woes (thanks to blockchain technologies) on one hand, only to accelerate rising temperatures and climate vulnerability on the other.
But if the trend is here to stay and if the industry can come up clean again, maybe we could give some thought to this technology to improve urban living.
📝 Read this week (crypto and others)
Inside Crypto-Twitter @jack is out at Twitter, but his crypto-mania is alive and well under his new CEO
Busan, South Korea: The Port of Asia, Now Reborn as the Nexus of Blockchain Busan has hosted in November the first official city-ran NFT Festival. Speaking about the global urban crypto game..
Welcome to CuldeSac, the first car-free neighbourhood built from scratch in the US. Please someone tell them to change their name..
The Technology That Could Turn Buildings Into Climate-Fighting Tools Bold ideas from design firm SOM, introduced during COP26
Six Urban Technology Jobs of the Next Decade - How long before you meet an Algorithm Auditor, Equity Designer, Metadata Interpreter, Investor-in-Recovery, Living Labs Ombudsman, or Urban Tech Quality Control person?
That’s it for today. As usual, a small 🧡 at the bottom of the article goes a long way !
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See you next Wednesday for a last podcast episode before the Christmas break.