Everyone in Iceland just got a free wad of digital cash. Will it save their economy?


(Courtesy of Auroracoin)

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Icelanders are getting a free wad of virtual cash from a cryptocurrency enthusiast who isn’t happy with the country’s central bank.

“The people are being held in a financial prison. Auroracoin is an effort to break down the walls of this prison,” the currency’s creator, Baldur Friggjar Odinsson (a pseudonym), wrote in an e-mail to Reuters.

There are 21 million Auroracoins in existence, half of which Odinsson is giving away for free to the 330,000 residents of the island nation.

Starting Tuesday at midnight Icelanders could claim their 31.8 coin allotment, a tidy sum worth about $400 at the time of the first so-called “airdrop.” There will be two more distributions over the course of the year.

Odinsson created Auroracoin, which is similar to Bitcoin, to protest Iceland’s strict capital controls put in place after its economy tanked in 2008. The restrictions make it hard to run an international business based in Iceland, invest overseas, or even go on vacation due to limits on currency exchanges. Intended as a short-term measure, the government has been reluctant to lift the restrictions for fear of more capital flight by foreign investors.

“The people of Iceland are being sacrificed at the altar of a flawed financial system, controlled by an elite that made astronomical bets supported by the government on behalf of the people and ultimately at the expense of the people …. Cryptocurrencies are a very important milestone in this fight for liberty. They bring the hope of a new era of free currencies, immune to the meddling of politicians and their cronies,” Odinsson (apparently the the Robin Hood of virtual currencies) wrote on the Auroracoin Web site.

The distributions of the coins are called “airdrops” but nothing is falling from the sky. Icelanders can claim their coins by logging into their Facebook accounts through the Auroracoin website or by sending a text message. In both cases the identity of the person is verified using a state-issued ID number.

As of this morning, only 3.22 percent of the airdropped coins have been claimed but that’s not necessarily a measure of enthusiasm for the experiment since an Obamacare-esque debacle shut down the Auroracoin Web site due to heavy traffic not long after distribution began.

There were other problems too. At least one person tried to claim his coins only to discover someone else had already registered in his name. Facebook verification errors and problems downloading wallets where the coins are stored were among other reported problems.

Reactions from the public have been mixed. “I have no interest or intention of using this currency. I don’t like the crown either as it is very weak, but it is at least more secure than these Auroracoins,” Reykjavik teacher Hulda Gudmundsdottir told Reuters’s Robert Robertsson.

On Reddit, people were skeptical in the weeks leading up to the drop. But yesterday the experiment found supporters on Twitter:

Iceland’s government is not among Auroracoin’s supporters. Frosti Sigurjónsson, Iceland’s Chairman of the Committee for Economic Affairs and Trade said Auroracoin is a “scam and illegal” in a blog post, according to a translation on Coindesk’s Web site.

Last week, Iceland’s central bank and financial agencies issued a joint statement warning Icelanders about the risks inherent in trading money that isn’t backed by any government. “Current Icelandic law does not protect consumers against losses they may suffer from using virtual currency,” they warned.

Auroracoin faces the same hurdles that Bitcoin and other virtual currencies face, namely getting the government and the people on board.

The new currency isn’t likely to flourish unless Iceland changes its laws so citizens can do things like pay taxes in Auroracoins, Lars Christensen, emerging market economist at Danske Bank, told Reuters. However, “[i]f you wanted to find somewhere where the conditions are in place, where the public is ready to accept an alternative to their own currency, Iceland is the place,” he added.

Several cryptocurrency exchanges have announced they will accept Auroracoin, a positive sign that the currency is catching on.  However, getting local merchants on board with Auroracoin will also be crucial to its success as an alternative to the krona, Iceland’s official currency.

Recent posts in the forum on Auroracoin’s Web site suggests little progress has been made in that regard:

“… you need a merchant acceptance tool that runs FLAWLESSLY. I have decided not to accept AUR in my website until I see this, because to be honest, I have no idea what’s going on,” someone wrote on March 24.

“Yes, merchants accepting AUR is the key for this project to success. I hope, I really hope this happens, but I’m not sure it reached the critical mass,” another added.

“I’m an Icelander curious about my Auroracoin. Where can I spend them?” wrote another. “If the answer after the airdrop is “I don’t know…”, or “On that guy’s guitar in the forum marketplace …”, then all of our efforts will have been technological masturbation, basically.”

The jury may be out on Auroracoin in Iceland, but the idea of using digital money to bolster flagging local economies has become a global trend.  National cryptocurrencies have recently appeared in Scotland (Scotcoin), Spain (Spaincoin), Cyprus (Aphroditecoin), Greececoin (Greece). The American Lakota Nation has already made Mazacoin their official currency.

 

Gail Sullivan covers business for the Morning Mix blog.
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