Life After Official Currencies: Lessons from Auroracoin, Scotcoin
While Bitcoin is promising to become a universal currency, a new generation of cryptocurrencies is stepping in attempting to solve financial problems in specific countries.
After the 2008 global crisis shook the stability of the financial system, we came to a clearer understanding that everything is not a given. It is inevitable that we eventually start revisiting the current state of things and play around with the idea of money seeking to find what we can do differently.
Bitcoin came out with a promise of a universal currency that does not correlate with the stock markets and is free from any country’s political decisions. This indeed provides a great advantage in times of political and economic uncertainty, right?
However, lately, we have been witnessing an interesting trend with a new generation of cryptocurrencies coming up with a focus on the totally opposite goal - building a money system to solve the problems of specific countries.
Auroracoin a response to a flawed financial system
In February 2014 we saw the launch of Auroracoin, an alternative currency created to address the government’s regulation of Iceland’s krona that has been in place since 2008, severely restricting the movement of the currency outside of the country.
The plans of Auroracoin’s creators were expressed in a manifesto:
“The people of Iceland are being sacrificed at the altar of a flawed financial system, controlled by an elite that made astronomical bets supported by the government on behalf of the people and ultimately at the expense of the people. The power must be taken away from the politicians and given back to the people.”
Icelandic politicians, however, have taken a negative view of Auroracoin. For instance, Pétur Blöndal, a vice-chair of the Parliament’s Economic Affairs and Trade Committee, said that the potential tax evasion through the use of Auroracoin could negatively impact Iceland’s economy. He also emphasized that Auroracoin “is not a recognized currency since no-one backs the medium.”
Frosti Sigurjónsson, a member of the ruling Progressive Party and chairman of the EATC, suggested that there is evidence of Auroracoin being a financial scam.
There have been other currencies that followed in Auroracoin’s footsteps, promising a revolution in the finance industry.
Scotcoin - life after the pound
Alternative money has drawn a lot of interest in Scotland, especially following the 2014 independence referendum. Last year, the Scottish National Party’s George Kerevan called on the government to start experimenting with digital currencies, saying that it could be a way for Scotland to reduce its reliance on the pound. He said:
“If you were to persuade people there are alternatives to using sterling, one way of doing that, rather than having an intellectual debate, is to show people.”
Derek Nisbet, an Edinburgh-based venture capitalist motivated by the Scotland’s uncertain future, has launched Scotcoin:
“There is so much uncertainty with the current financial situation, that introducing a voluntary cryptocurrency, which may in the future act as a medium of exchange for the Scottish people, can only benefit them should there be a major disruption.”
David Low, the owner of Scotcoin, says that Blockchain-based cryptocurrencies are the natural evolution of money, and early adoption would give Scotland an edge in financial technology regardless of its constitutional future. Like other cryptocurrencies, Scotcoin is based on a shared record of transactions, which is definitely a key to improving security and lowering costs compared to traditional banking systems. He is planning to offer the Scotcoin system to the Scottish government, expecting that it can run in parallel to the pound.
Community remains skeptical
While the creators of Auroracoin, Scotcoin and alike are hopeful that people will understand the vision of these projects and the good they can do, the community remains skeptical.
“I am not from Scotland, but it seems they just use it [independence referendum] to promote their coin. I don’t like a coin that is country-targeted, it should be open to all.” (Robelneo)
“All of the country coins are scams. They are artificially pumped up in the value and the volume is ridiculously low. Virtually nobody is buying or selling these coins.” (Sarlangg)
It would be overhasty to jump to conclusions about the nature of these currencies and their future. However, it is apparent that, so far, these currencies have not demonstrated any significant take-up. According to British newspaper the Daily Express, the digital Scotcoin is now worth less than the Zimbabwean dollar, with 1,000 Scotcoins amounting to 86 pence.
Murdo Fraser, a Conservative shadow spokesperson for Finance, says:
“Supporters of independence have got themselves into a complete mess over the currency questions, and the Scotcoin looks like it is another in a long list of failed ideas.”
The question is whether these new generation regional cryptocurrencies are really capable of disrupting traditional financial systems.
Regional cryptocurrencies are able to contribute to greater familiarization with Blockchain
Gavin Smith, CEO at First Global Credit, shared his opinion regarding country-targeted cryptocurrencies. He thinks that the regional coins that have been issued lately have not shown significant take-up due to their unofficial nature. Gavin believes that the real game changer will be when national governments issue Blockchain-based currencies. The Bank of England has discussed this issue extensively over the past 18 months. He says:
“While these national cryptocurrencies have all the same disadvantages of the existing monetary system (ability to print more on demand and built-in inflationary bias), they will have the effect of familiarizing the general populace with the concepts around Blockchain-based currencies. Right now Blockchain-based currencies are still new or even unknown to the majority of the world’s populace.”
In his opinion, these national cryptocurrencies should contribute to a greater familiarization of the general public with Blockchain and create an environment that could lead to a greater acceptance of the world’s leading cryptocurrencies such as Bitcoin, Ether, etc. As more and more people realize the benefits of public Blockchains and a genuinely independent currency they will become more comfortable in conducting business on the Blockchain.
Speaking in regards to independently issued regional crypto-tokens such as Auroracoin and Scotcoin, Gavin expressed concern that they would be squeezed between two camps - lacking the global benefits of Bitcoin, as well as the government backing of ‘official’ regional cryptocurrencies when they are launched.