Today’s entry: I keep hearing the mayor say it's a theory about the digital currency they created. Is there anything valuable backing this crypto? Honestly, until there is something valuable backing it that's all it is, a theory. We saw what happened when a country adopted bitcoin as its currency. It dropped in value by 30%. How am I wrong?
Bottom Line: I’ll start by picking up on the point you referenced regarding bitcoin’s adaptation by El Salvador’s government. There are a couple of distinctions that are important in that conversation because the way it was originally reported was generally misleading without greater detail. The way it’s often been presented suggests El Salvador replaced their own currency with bitcoin. That’s not the case. El Salvador doesn’t have its own currency. The US Dollar has been the country’s default currency since 2001, and though bitcoin is now accepted currency in El Salvador, the US Dollar remains legal tender in the country. So, nothing’s changed or replaced, bitcoin’s been added as legal tender in the country alongside the dollar.
Regarding the price reaction by bitcoin to the announcement, you’re right that there was a negative reaction, though it wasn’t near 30%. Bitcoin closed 10% lower the day El Salvador announced the addition and recovered most of that over the next week. The recent pricing action is consistent with the recent selling we’ve seen in the financial markets generally and isn’t attributable to El Salvador’s adaptation. That said, many advocates would prefer that governments remain independent of bitcoin as much of its allure is to not be tied to government fiat. Aside from illicit activity, the independence from fiat is at the root of the validation for cryptos.
Now, MiamiCoin and the premise of the CityCoin platform with which it’s derived. The answer to your question regarding whether anything valuable is backing it is yes. Bitcoin BTC and Stacks STX. Successful miners of the MiamiCoin accumulate bitcoin and stacks. Seventy percent of what’s obtained is kept by the mining community, 30% goes to the City. Thus, as long as bitcoin and stacks retain value, the MiamiCoin will as well. Independently, the mined MiamiCoins are also traded on crypto exchanges, and they retain their own value assigned to investors based on supply and demand. As of this entry, a MiamiCoin goes for about 4 cents each. In this regard, to the spirit of your question, the process to mine MiamiCoin has value backing them in the form of widely embraced blockchain and cryptocurrency. The MiamiCoin once mined is really the entity that retains only theoretical value. That’s why it’s so cheap.
What isn’t theoretical is the real-world money it’s generated. Having already brought in over $5 million for the city of Miami with approximately an additional $5,000 generated every ten minutes, with no strings attached. And to that end, other cities are quickly taking note around the country. San Francisco has taken note and is next up. Other Florida cities currently in contention are Jacksonville and Tampa. If you’d like to nominate your city for consideration, you’re able to do so here. I understand skepticism regarding cryptos. They really have just been willed into existence. But then again look how valuable sports franchises are. What’s backing them? Much of what’s been assigned value in society is arbitrary. Culturally there’s a huge market for cryptos and to the extent, cities can benefit from the process and potentially be able to cut taxes, as Miami Mayor Francis Suarez has stated is his plan... Sign me up.
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