Saving Iceland’s Economy: Did Auroracoin Fail Its Mission?
Auroracoin’s shine is gradually fading away. Being introduced in seemingly the right place and in the right time, it was the second largest cryptocurrency before it even launched, valued at half a billion dollars
Auroracoin’s shine is gradually fading away. Being introduced in seemingly the right place and in the right time, it was the second largest cryptocurrency before it even launched, valued at half a billion dollars.
Iceland’s major default
For decades, Iceland has had a stable and rich economy that was built on fishing, tourism, and aluminium smelting.
Over time, however, it turned into an Arctic backwater specializing in global finance.
Then was the year 2008 when Iceland experienced one of the most harsh economic and political events.
All three of the country’s major privately owned commercial banks, Landsbanki, Kaupthing and Glitnir, collapsed, having amassed assets worth 10 times more than Iceland’s annual economic output. Offering interest rates higher than anywhere else, they steadily grew their accumulations.
Loaded with the cash, Iceland’s bankers went on a purchasing binge, buying foreign companies, foreign real estate, even foreign soccer teams. However, they were paying high prices for questionable assets.
Iceland’s government could not afford to bail out its banks that had gotten so much bigger than the country’s economy. Therefore, the only choice was to let them go under.
That would mean that only foreigners lost their money, but would guarantee its own people’s deposits.
In November 2008, Iceland imposed measures to fix the broken financial system.
The introduced capital controls slowed capital flight; investors that invested fortunes in Icelandic assets were prevented from selling them, converting the earnings into foreign currency and transferring them out of the country.
In addition, the controls prevented krona-denominated assets from being brought back to Iceland and sold for krona, which then might have been readily exchanged for other currencies.
These limits kept the krona from devaluing as much as it otherwise would have done.
An attempt to fix a broken economy
Since the collapse of 2008, everyone has been looking for ways to exit the Icelandic krona.
Hlynur Þór Björnsson, board member of the Auraráð foundation, says to Cointelegraph:
“Auroracoin came into the picture in 2014 with a fresh idea. Replace the Icelandic krona with a cryptocurrency.”
Auroracoin was designed to break the shackles of the fiat currency financial system in the country.
Cryptocurrency was seen as an opportunity for Icelanders to free themselves from currency controls and government debasement of the currency.
Shine of Auroracoin
Auroracoin is an experimental cryptocurrency based on the Litecoin protocol. The general objective of Auroracoin was to provide the people of Iceland with a digital option over the country’s fiat denomination.
The distribution of Auroracoins started with an airdrop of premined Auroracoins to the Icelandic nation in March 2014.
It was meant to be a one-time event to create the conditions for Icelanders to start using the currency through providing them with start capital and making them aware of the currency and its possibilities. 50% of the total number of Auroracoins were sent to the country’s citizens.
Entering their permanent resident ID on Auroracoin’s official website, every citizen would get 31,8 AUR just for being Icelandic. After the airdrop, the only way to acquire Auroracoins would be through mining and transacting.
Auroracoin is often considered not to be just another novelty currency, but more as a political statement. Even before the airdrop, Auroracoin quickly rose to prominence amongst the myriads of new digital currencies mainly because of its unique approach to community building.
The idea of digital currency being a liberating force quickly spread, and Auroracoin has spawned a wave of imitators, including scotcoin and spaincoin.
Auroracoin was an intriguing phenomenon to many, mostly in terms of the possibilities to begin a new precedent for digital currency dispersion and marketing. There had been many theories on how Auroracoin would perform.
Auroracoin’s creator was smart about the timing: people who are exhausted by one system are far more willing and open for an experiment. Unfortunately, that assumption was too ambitious.
Given that the general public in Iceland is not that aware of Auroracoin, much less digital currencies, some were quite skeptical.
Within a month of the launch, less than 10% of Icelanders had picked up their free money, and the price fell and flatlined. It is now worth $0.330647, down from over $30 at its highest.
Auroracoin’s brief rise was intense and ephemeral, just like the northern lights it was named after. Many claim that it will remain a likely unrepeatable phenomenon.
A number of factors have contributed to Auroracoin’s whiffing away. First of all, even though the airdropping ensured a built-in group of users, it did not give them any place to spend the money, as it did not have any strong retail support.
Besides, many users experienced technical issues. Thus, Icelanders living abroad had problems claiming their shares.
Due to heavy traffic, the Auroracoin website crashed many times, significantly slowing down confirmation times for receiving coins, which made trading almost impossible. If Auroracoin users had a place to spend Auroracoins, those spending confirmations would have been slow too.
The creator of Auroracoin, Baldur Friggjar Odinsson, planned a tiered airdrop, meaning a series of distributions of gift money. In reality, it resulted in inflation -every time he unloaded a new bundle of money, it only devalued the coin.
The entire system appeared not to be very well thought out, amateur and unprepared to deal with any shackles.
The future of cryptocurrency in Iceland
With Odinsson’s disappearance, it is hard to make any conclusions over his real intentions or the future of Icelandic cryptocurrency.
There have been several reports of Auroracoin’s fraud, and vivid debates take place with cryptocurrency community members expressing their opinion that it might have been a scam.
Even though the experimental launch of Auroracoin was not the most successful, it gave rise to debates over the future of cryptocurrency in the country.
Even though digital currencies have yet to gain popularity in the country, an Icelandic bank has started a campaign aimed at educating people on cryptocurrency use.
However, the cryptocurrency has undoubtedly demonstrated that the time might be right for expanding the role of digital currencies to resolving at least some of the issues of the world’s flawed financial systems.