Vitalik Buterin — who is best known as the cofounder of Ethereum — recently penned this post on his blog where he argues that “crypto cities broadly are an idea whose time has come.” (Credit to Shamez Virani for sending the post to me this morning.) There has been a lot of discussion over the years about the rise of smart cities. I for one am not really sure what that means besides the fact that it sounds good and it likely involves a bunch of tech and data collection. But maybe crypto can help.
What Vitalik argues in his post is that we are now at a point in time where blockchain technologies have the opportunity to do two things for cities. One, we can take existing systems and processes and use blockchains to make them more “trusted, transparent, and verifiable.” That would be a very good thing. But the more interesting one is number two. We have the opportunity to use blockchains to create radically new forms of asset ownership (land and other scarce assets) and municipal governance.
One specific example is that of a “city coin”, which cities like Miami are already experimenting with. Supposedly they are one of the first, which of course aligns with Mayor Suarez’s vision to position Miami as a preeminent tech and crypto hub. Though as Vitalik points out in his post, it’s important to maintain some optionality, especially since we are still very much in the early innings of this new frontier. (This recent episode on the Tim Ferriss Show had a great analogy in saying that the anthem at the beginning of the game isn’t even over yet.)
So how might a “city coin” living on a blockchain work?
Well let’s imagine that there are incentives in place for all of us who live in Toronto to own the Toronto coin (there’s still time to come up with a better name). You need it to pay your property taxes, you need it to pay for parking, and you need it to vote in the next election, among many other things. So there’s an incentive to buy and hold it if you’re a resident of this great city, but there is far less incentive to hold it if you don’t live here. (Maybe you own a bit of it because you’re a frequent visitor and/or your relatives live here.)
One of the interesting things about something like this is that it would immediately create economic alignment. Now all of a sudden, everyone who lives in Toronto and owns Toronto coin would have a vested interest in seeing Toronto thrive. At the very least they would want to see the coin hold its value and ideally they would hope to see it appreciate.
At the same time, the Toronto coin could be used for all sorts of governance matters. Take for example, land use and zoning decisions. What if we set things up such that these decisions weren’t made by the people who show up to community meetings in the basement of their local church but that they were instead made by everyone who holds the Toronto coin? i.e. The entire city, all of whom are, in a way, equity holders.
In theory we could do this kind of voting today. However, part of the problem is that the economic alignment isn’t there without something like a Toronto coin. Right now a big part of the economic incentive rests with homeownership. If I own a home and a new development is proposed next to me, I am incentivized to do whatever it takes to selfishly maximize my own individual outcomes. And if that means no development and no more homes for people, then so be it.
But what if we all had part of our net worth tied up in the Toronto coin? And what if when housing supply did not meet housing demand, the value of our coins dropped because it meant fewer residents (less demand for Toronto coin) and more people voting with their feet and moving to other geographies (more demand for some other coin)? This is one of the things about the crypto space. It turns everyone into evangelists because there are now strong economic incentives to be that way.
Who knows if this is the way that things will actually play out. But it is part of the promise of crypto and it is not some pipe dream. It is already starting to take hold around the world and in the US in places like Wyoming and Colorado. For more on this topic, make sure to check out Vitalik’s full blog post.
I get it. Crypto is hype. Crypto has mindshare. By saying “crypto”, one might be able to sell something to the public that would otherwise fly under the radar. But I think it’s important to take a step back and ask, every time someone goes “crypto yaaay”, whether there isn’t maybe a better solution out there. So I’d like to recap the very particular requirements that made blockchains necessary.
Blockchains are useful when there are:
– multiple competing parties
– who act independently (write access) on a common resource
– and they don’t trust each other
– and they can’t agree on a trusted authority
If you have a trusted authority, you’re better off with a simple database. If you need auditability, you add a cryptographically verified ledger. If you need transparency, you make this ledger public and distribute it to independent parties so it can’t be falsified without being noticed.
“Crypto”, as in crypto currencies (the popular notion) and not cryptography, is a great choice if AND ONLY IF all of these requirements are in place. For all other cases, you’re picking the wrong technology because buzzwords and hype train. Not only that, you’re committing to some heavy-weight downsides like massive use of storage/computation resources, having to carefully set all the rules in advance or risk getting exploited with a loophole, and not being able to change the rules without forking the entire chain.
Now, I get the competing parties, independent write access and lack of trust parts. But for a city coin? Don’t we have a common trusted authority who is involved in all of this, and without which the whole thing is worth exactly zero anyway?
The truth is that we already have a city coin. It’s the economy, it’s what people make in their jobs here, what real estate is worth, how much we pay in taxes, what happens all around us. Everyone who wants to have a say is able to play their part – lobby councillors, create businesses and communities, or just be a decent human being treating others with respect and empathy. Everyone who doesn’t give a damn will continue to sell out their time and standing for selfish interests, coin or no coin. People already have a stake in the health of the city and they still decide that their own backyard is more important than the common good.
The city could introduce Swiss-style elections on every little question already. Most people have a vote, just excluding immigrants who haven’t been here for very long or decided not to trade their passports by free will. Many make use of the tools they have.
The ones who don’t will not magically start getting involved because they get a crypto coin. What makes you think that these coins will go toward the common good, as opposed to going into the hands of the people who value them more highly than the many tag-alongs? What’s the secret with crypto that Toronto couldn’t solve by giving the common people more of a vote? Hell, what makes you think that hyper-local governance will be anything but tribal interests and home ownership associations?
Governing a city has many technological challenges, and it’s important to solve those with appropriate technological solutions. Just as important, though, is that we don’t try to solve social problems with technological solutions. Crypto for everything reminds me of the saying that when all you have is a hammer, to treat everything like a nail.
Let’s adopt good ideas, but let’s also question along the way if all new ideas are in fact appropriate solutions for actual problems, or just proverbial hammers.
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