Local Digital Currency in Spain: No Blockchain Involved

Cryptocurrency enthusiasts cite many potential benefits of Nakamotan cryptocurrencies (e.g., see [5]). Many of the claims are nonsense (e.g., many of the alleged virtues of “trustless” systems) or based on emotional anti-authority appeals.

Some of the more compelling use cases, though, are about empowering the 99.999%, by enabling access to low cost financial services for everyone, and generally enhancing local economies. These are attractive goals, though little progress has been made to achieve them.

My own view is that blockchain-based systems can be used for such purposes, but are neither necessary nor sufficient. There are better ways to skin that cat.

A case in point are the growing number of local currencies. For example, Aaron Fernando reports on the establishment of a local currency, the grama, in Santa Coloma de Gramanet, Spain. This purely digital currency is created by the local government and is pegged to the official Euro, However, the digital tokens have additional features designed to encourage them to circulate in the local area, rather than immediately fly away to distant banks or corporations.

The currency is only issued in the city, and some local business offer discounts. Most importantly, the currency has a “use by” date, or rather, a “use until” date.

a 5 percent penalty is imposed on exchanging gramas to euros before 45 days, with no exchange penalty after 45 days.

The whole idea is to maximize the value of local spending to the local community.

Personally, I like the idea.

I always try to patronize locally owned businesses, and hire local contractors whenever possible, so it is nice to see a digital system try to enhance this socially positive behavior.

Whether this sort of algorithmic game will have a big economic impact or not isn’t clear to me. For one thing, it’s kind of difficult to draw a boundary around a “local” economy. And however you draw the line, a city or locality is never a closed system.

But it’s better to try something, than to do nothing except complain.

I note that Spain certainly has been brutally punished by using the German controlled Euro [4]. Add in the longstanding nationalist aspirations of Catalonia, and there is a lot of motivation for local economic self-determination, and plenty of justification for experimentation.

The grama is inspired by the Bristol Pound and other contemporary local digital currencies. For that matter, local currencies predate digital technology, including famous case such as Ithaca NY.

So what does the grama tell us about blockchains and cryptocurrency?

I haven’t found much of a technical description of the Santa Coloma grama. I’m pretty sure they are connected to the conventional financial system, though I don’t understand the details.

If they are using a Nakmotoan blockchain, they never say so. I’m pretty suer they have nothing to do with any blockchain, and there is no reason why they would use a blockchain or Nakamoto-style “mining”.. The currency is baccked by Euros (a hated “fiat” currency) and issued by the local city government.

The Bristol Pound is not blockchain based, either, so far as I can tell. Nor are the other local currencies from Qoin.

In short, these leading local currencies could use blockchains, but do not. Why not?

You certainly could use a blockchain, or Bitcoin, or some other cryptocurrency to implement a local digital currency like the grama. But I think there is little reason to do so, and many reasons not to.

In these local currencies, the digital technology is designed to enhance face-to-face interactions among local people, which are inherently trustworthy. Furthermore, the local currency enhances trust in local institutions and businesses, and discourages dealing with anonymous, untrustworthy outsiders.

A local currency is designed to encourage face-to-face, non-anonymous transactions.

A local currency is trusted because it relies on personal relations.

Blockchain technology, in contrast, is designed to move money around the world with little friction, sucking money away from local economies. Transactions are not only not face-to-face, they are partly anonymous. And furthermore, public blockchains such as Bitcoin or Ethereum are “decentralized”, and have no one responsible for them, let alone no local control over decision making.

Cryptocurrencies are the opposite of “local currencies”.

“Decentralized” blockchains are the opposite of “locally controlled” systems.

Cryptcocurrencies are “trustless”, which is antithetical to local solidarity.

The bottom line is that digital technology, including cryptographic signatures, definitely are a good technology for empowering local communities.

However, blockchains in general, and global cryptocurrencies specifically, are really not the right technology for local currencies, and probably not for empowering people in any way.

The key to success for this kind of system is good interface design, local organizing (Santa Coloma has participation from local government and over 100 local businesses), and the backing of the public. It could have a blockchain inside or not—users would never know the difference.

If blockchains are not the right technology for a local currency, then it is worth asking if blockchains are the right technology for any kind of local self-government.

My own view is that, to the degree that blockchain-based systems encourage offshore finance and “autonomous” transactions, they are the perfect tools for the exploitation of local communiities, and likely to be very destructive of local economies.

  1. Bristol Pound Community Interest Company. The Bristol Pound – Our City, Our Money. 2017, https://bristolpound.org/.
  2. Aaron Fernando, How One City in Spain Launched a Local Currency Sharable.June 8 2017, http://www.shareable.net/blog/how-one-city-in-spain-launched-a-local-currency
  3. Qoin. Qoin – Money That Matters. 2017, http://www.qoin.com/.
  4. Joseph E. Stiglitz, The Euro: How A Common Currency Threatens the Future of Europe, New York, W. W. Norton& Company, 2016.
  5. Don Tapscott and Alex Tapscott, Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, New York, Portfolio/Penguin, 2016.


Cryptocurrency Thursday

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