Osborne Clarke’s Ian McKenzie, a UK-based blockchain lawyer, is featured in this article from Cities Today which looks at local currency schemes.
The article discusses how city currencies and payment platforms are evolving and how the accelerated shift to cashless transactions, thanks partly to covid-19, is creating new innovative models.
Cities Today was launched as the first global magazine to contain analysis, comment and best practices on sustainable urban development, connecting local governments with public and private sector solutions. In 2019 it also launched the Cities Today Institute to assist community leaders in the design and implementation of policies and projects.
With cryptocurrencies now one of the most discussed financial topics, Ian McKenzie has provided some additional in-depth comments on city-specific currencies:
Are ‘CityCoins’ a significant development for cities and the cryptocurrency space?
“This is certainly a novel concept – I’m not aware of another token that promises to deliver benefits to a city in such a direct way (as well as to the hodlers). I’d love to see it work out, as I think it’s a fantastic idea, but whether it’s significant or not remains to be seen – as with any new token, the question will be whether the crypto market, and more generally the relevant city dwellers, sees the benefit. Clearly, there will need to be a critical mass of participants to deliver meaningful benefits to cities, especially ones the size of Miami!”
Does it relate to other trends you’re seeing?
“There are other tokens that deliver benefits related to urban dynamics, although primarily for the hodlers – for example discounted travel or vehicle insurance – rather than the cities themselves. Adopting a proof-of-stake model is also a smart move by Freehold, given the wider crypto market’s focus on the carbon footprint of proof-of-work-based blockchain networks (although it appears that STX is cashed out as Bitcoin, which has been at the centre of some of those environmental concerns).”
What are the risks and possible rewards for cities and residents?
“The big question for me is how easy it will be for cities to spend the STX they accrue and whether the CityCoins can deliver the benefits Freehold have identified. If cities cannot spend the STX, they will be left hodling tokens with little inherent value. On the flipside, if there is a critical mass of participants and cities find their coffers full of valuable tokens, it’s not a huge stretch to imagine how that will benefit residents. The value of STX appears to be pegged to Bitcoin which, as we have seen recently, can be extremely volatile and may make it more difficult to understand and predict the value of participation.”
“Another risk area is that some aspects of how the creators hope CityCoins will be used appear close to financial instruments (the creators use the language of financial investment, yield etc). Financial and securities regulation and compliance are likely to be relevant to such aspects. Moreover, the vision for how CityCoins could be used is very wide and open (e.g. investment, lending, digital ID, preferential access), which may make it subject to various different legal compliance regimes.
“The broader societal issue of digital inclusion may become relevant if the creator’s vision of CityCoin participation creating access to local services, spaces or benefits takes off.”
What are your thoughts on the public’s and city decision-makers’ understanding of cryptocurrencies and how this will affect perception, adoption and the ultimate success of initiatives like this?
“Historically, a lack of understanding has been a barrier to adoption. But we’re seeing a greater level of understanding and a cautiously optimistic acceptance of crypto by consumers and in some government quarters, so I don’t think that will necessarily be the determining factor in whether the initiative is successful. It’s worth noting that requirements for explanations and documentation may significantly increase if CityCoins fall within the scope of financial regulation.”