Berkeley is Turning to the Blockchain for City Funding

In an effort to reduce their reliance on federal and state funding, the City of Berkeley is turning to a surprising source: cryptocurrency. The idea is to leverage the blockchain — the technology that makes bitcoin and other cryptocurrencies possible — to spur private, crowdfunded investment in affordable housing and other local projects.

Read the Article at the Source: Berkeley is Turning to the Blockchain for City Funding

Led by Berkeley Mayor Jesse Arreguín and City Councilmember Ben Bartlett, the city is partnering with University of California Berkeley’s Blockchain Lab and finance technology company Neighborly to create an initial coin offering. The offering will allow individuals to buy Berkeley’s cryptocurrency to fund city-issued municipal bonds. The money raised will pay for things such as affordable housing, homeless shelters, ambulances, street trees, even a community theater. Coin owners will potentially be able to spend the cryptocurrency at some Berkeley businesses. As with any municipal bond, investors who get in on the offering will earn a small return on their investment over time as the city pays them back with interest.

The idea grew out of concern over the impact corporate tax cuts (not to mention threats to cut funding to sanctuary cities) would have on their ability to address their affordable housing and homelessness crises. With lower corporate tax rates, corporations have less incentive to buy low income housing tax credits, a key source of affordable housing funding. In addition, big banks raised interest rates on loans to local governments in the wake of the tax cuts.

“We have over a thousand homeless people in Berkeley and expect that to grow by a factor of five,” says Bartlett. “We knew we needed to find a way to fund these things. This need is going to grow and it’s already a disaster that’s affecting our moral and physical integrity as a city.”

Beyond that, Bartlett says conventional municipal bonds are expensive, slow and have lots of red tape for investors, making it hard for individuals to invest in them at all, let alone in the small denominations most people might have to invest. With their idea, bonds could be smaller and be issued more quickly.

Neighborly was launched to do just that — to allow individuals to crowdfund municipal bonds. Austin issued a bond on the platform to pay for historic preservation. Cambridge, Mass., used it to fund schools and utility infrastructure.

Berkeley’s idea operates on a similar principle, but will use the blockchain technology to improve security and transparency, factors they hope will help spur investment (and provides a bit of flashy tech-factor that Bay Area residents might find appealing).

“You conceive of an idea, get the costs ready, push it out to the community, they can buy it right away,” Bartlett explains. “It’s more flexible. It doesn’t have to be a $100 million bond for a sewer. It could be smaller projects and with the lower denomination ability…It’s projected to be 50 percent less expensive to the issuer [than conventional municipal bonds].”

In simplified terms, a blockchain is a database stored concurrently on a peer-to-peer network of computers, making it less vulnerable than storing everything on a central server. Each copy of the database serves as a permanently available public record of every transaction on the blockchain. The technology keeps every copy of the database updated as people buy and exchange each “coin.”

“It’s immutable. It’s transparent. There might be fewer concerns about misappropriation of funds,” explains Stacie Olivares-Castain, who recently became state of California’s first ever senior advisor for impact investments and blockchain.

Olivares-Castain says she is encouraged by Berkeley’s experiment. “It’s very, very early, but what we’re starting to see is the blockchain can be used to improve a sense of individual agency and create more opportunity. The Neighborly model is a very interesting partnership. I think it could be used by other communities, too…Through the blockchain, there’s more democratization of access to capital.”

There are plenty of criticisms of cryptocurrency — coin wallets getting hacked, the wild fluctuation of currency value, the absurd amount of energy bitcoin “miners” consume to run their computers as they continually search for new bitcoin tokens produced somewhat randomly by digital algorithm. Bartlett says none of those issues apply to Berkeley’s project. There will be no coin “mining” for Berkeley’s coins, so the city’s coins “won’t be a tool for speculation. It has a set rate of return at darn near public rates,” he explains.

There are still plenty of details to work out in the plan, but the city is aiming to launch its initial coin offering in May. Bartlett says he’s already fielding calls about it from cities in the U.S. and abroad and is confident that there’s a future for their approach to city funding.

“Digitization, crowdfunding—these are just social impact bonds for the next generation,” he says. “For cities to survive this escalating disinvestment in the public trust, we’re going to have to start thinking outside the box and creating our own resources.”

Read the Article at the Source: Berkeley is Turning to the Blockchain for City Funding

* Photo by Joe Parks

Singaporean Dollar Tokenized Through Ethereum’s Blockchain by the Monetary Authority of Singapore

The future is here. So say a report by the Monetary Authority of Singapore (MAS), which in collaboration with a number of banks and blockchain technology firms recently announced that phase one of tokenizing Singaporean Dollars through an ethereum blockchain has successfully completed.

“The Distributed Ledger network consisted of two MAS nodes running Ethereum and MQ Client with the genesis block created by one of the MAS nodes and eight bank nodes running Ethereum, MQ Client, and Common Payment Gateway (CPG),” says the report.

Read the Article at the Source: Singaporean Dollar Tokenized Through Ethereum’s Blockchain by the Monetary Authority of Singapore | Trust Nodes

The project connects current systems, such as clearing houses and processes running through MQ Clients or other software such as MAS’s MEPS, to an Ethereum private blockchain as, according to the report, there can be a number of benefits. The report says:

“MAS can create “atomic” transactions for the first time for cross-border fixed income products with payments directly on central bank money. This would enable true Delivery vs Paymen (DvP) where security and corresponding payment switches ownership simultaneously at the deepest technical level.

This could remove the occurrence of late payments and payment failures. Certainty around delivery and near real-time, same-day (t+0) delivery also becomes viable. These could make both domestic as well as cross-border transactions more attractive from both a technology and end user experience standpoint.

Furthermore, the reduction in counterparty risk may drive a reduction in collateral requirements in some circumstances.”

The process of tokenizing Singaporean Dollars through Ethereum’s blockchain – image source MAS.

The tokenization was inspired by R3’s Project Jasper, which was trialed by the Bank of Canada, but they seem to have opted for the use of Ethereum, probably because it has a public blockchain which may allow for greater interoperability and security.

“The distributed ledger network (Ethereum-based blockchain) was designed to interface with existing MEPS+ and RTGS systems, which allowed for a working integrated transfer prototype,” – the report says.

They now plan to move to the second phase, focusing on cross-boarder payments as well as further evaluation of the technology for domestic payments, according to the report.

The Race is On

The Central Bank of England has for quite some time studied the potential use of blockchain technology to digitize the pound, but not much has been heard from them recently.

The deputy chair of Russia’s Central Bank has stated digital currencies – like a crypto-ruble – are the future. They are looking to see how they can make that a reality.

China’s Central Bank has long stated they may digitize their money, but according to Andrew Keys from ConsenSys, their focus may have now moved to see how they can tokenize Yuan through ethereum’s blockchain.

It will probably be some years until we see the pound or dollar become a copy of eth, but it appears nations are becoming aware that blockchain technology can upgrade money from static paper to dynamic code, just as it was upgraded from shells to metal to paper.

A race, therefore, might be underway as the benefits of dynamic money over static fiat are clear and potentially greatest for whoever manages to get there first.

Blockchain to be breakthrough tech for Dubai and government – Khaleej Times

As part of the World Government Summit, ConsenSys – an American software consultancy -will release a paper that offers governments a clear roadmap to harness the power of blockchain technology and implement robust blockchain strategies.

The report – “Blockchain, Hyperconnectivity, and the City of the Future” – is the product of a collaboration between ConsenSys – a venture production studio and custom software consultancy building decentralised applications (DApps), enterprise solutions and developer tools, focused primarily on Ethereum – and Vinay Gupta, a technology strategist who was instrumental in the creation of the Dubai Blockchain Strategy and went on to found Hexayurt.Capital, a VC fund dedicated to building the Internet of AgreementsT.

Along with a comprehensive analysis of the state of blockchain today, the paper explores how national and municipal governments can leverage the technology to accelerate smart cities and IoT initiatives, improve services like healthcare and transportation, and make strides toward financial inclusion.

In 2016, Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Executive Council of Dubai, announced ambitious plans for Dubai to become “the first government in the world to execute all its transactions using blockchain technology by 2020”. With this commitment to leadership in blockchain, the government launched a number of initiatives that make Dubai fertile ground for breakthrough and transformative technologies, including the highly selective Dubai Future Accelerators programme.

The Accelerators elicited a staggering response, with over 2,000 companies from 73 countries competing for 35 places. Since then, the first batch of companies in the Accelerators have had an unprecedentedly high success rate of 64 per cent.

Blockchain Virtual GovHack was the largest virtual blockchain hackathon in history, with 1,011 participants of 41 nationalities working on 131 projects. It off-ered $140,000 in prizes for government technology pioneers with the best ideas for blockchain-enabled solutions to global challenges. “The Blockchain Virtual Gov Hack, which is part of the World GovTechioneers Race, has received a high uptake from across the globe, reflecting the great international interest in developing government work through utilising latest technologies to serve societies,” said Hessa Essa Buhumaid, Assistant Director General for Government Services and Pioneership at the UAE’s Ministry of Cabinet Affairs and The Future.

 

Source: Blockchain to be breakthrough tech for Dubai and government – Khaleej Times

Cryptocurrency Can Shift the Balance of Power Between Cities, States and Nations

One of the most powerful tools of a modern nation is its central bank’s ability to create money “out of thin air.” Nations can use this new money to purchase their own nation’s debt in the form of treasury bills, bonds and notes, allowing it to spend more than it earns in taxes and other income. If a nation prints too much money, however, it can create inflation, which reduces the value of their currency. In some instances, central banks can lose control of their currency’s inflation rate, destroying the value of the nation’s currency, collapsing its economy and leaving it at the mercy of predatory financial interests. Fear of inflation keeps nation’s from printing infinite amounts of money.

The US dollar is a bit different than other currencies because it isn’t simply the “reserve currency” for the United States, but also functions as the world’s reserve currency. Ever nation in the world uses US dollars because it is the easiest, and sometimes only, currency that can be used  to purchase large quantities of commodities in international markets. The most important of these commodities is oil. Some commentators call this monetary arrangement the “petrodollar system” and view it as the successor to the Brenton Woods system, which still relied on nations to maintain gold reserves. The Petrodollar system was established through a series of arrangements between the US and Saudi Arabia in the 1970s.

Since the 1970s, we’ve seen the development of other transnational monetary systems such as the Euro and the development of giant commercial “money center” banks, which have further consolidated the monopoly on monetary production in the hands of fewer and fewer institutions. If you asked an economist a decade ago about the future of global monetary production, they’d have predicted more consolidation. The Euro in Europe would be complemented by the Amero is North America, and slowly but surely, the world would integrate into a single market with a single currency.

The financial collapse of 2008 helped undermine the vision of a global currency, but it was the invention of Bitcoin and the blockchain technology behind it that has given people a viable alternative to global monetary consolidation. Blockchain is a new type of database that is extremely good at producing “digital cash” and executing financial transactions. It’s open source, so there are no limitations or restrictions on who and how this technology can be used. Currently, blockchains are making it possible for people to create secure, digital money systems for extremely low costs. It’s being used by big banks to speed up their SWIFT international fund transfer systems, it’s being used by countries to create new national digital currency systems, and it’s being used by entrepreneurs and online communities to create their own currency systems outside the purview of the nation-state. It’s only a matter of time, it seems, before sub-national governments and municipalities create their own currency systems and begin to challenge the nation-state’s monopoly on the production of money.

Under normal political conditions, the idea that cities and states would risk disrupting the current monetary order by creating their own currency systems would be outrageous. US city and state governments benefit greatly from the US government’s petrodollar system. Not only does the federal government give cities and states significant amounts of money in the form of grants, they also allow people to deduct income from municipal bonds from their federal taxes. The makes it possible for cities and states to access tremendous amounts of capital at a rate much cheaper than corporations or individuals. These municipal bonds are used to fund everything from a local government’s general operations to specific infrastructure projects. But with the Trump administration and sub-national governments around the US on a collision course over immigration and other policies, it’s possible that federal governments will start trying to squeeze the finances of “sanctuary” cities and states. In fact, Trump declared he’ll do precisely that by threatening to cut off federal funding to cities and states that don’t implement his widely unpopular immigration policies. Eliminating the federal tax deduction on municipal bonds would be an even more aggressive move that he could try to use to coerce cities and states to follow his policies.

In the past, the only institutions that cities and states could look to for financial assistance were the federal governments and large commercial banks. But that is changing. The blockchain makes it possible for sub-national governments to create their own financial systems and begin to insulate themselves from federal monetary policy and budgeting decisions. Cities and states could do many things with their own cryptocurrency networks. They could create cryptographically secured paper monies, credit and debit cards and online transaction systems that enable their residents to more easily engage in local commerce, create international remittance systems allowing residents to transmit money around the world, and create new types of financial contracts that aren’t mediated by the commercial banks or federal entities. These monetary systems could be “backed” by valuable assets owned by cities and states such as real estate, taxes and other revenue streams. The technology to implement these types of systems is new, but its developing rapidly. Financial institutions invested nearly $2 billion in blockchain-based technologies in 2016. And the commercial banks are investing billions of dollars a year to continue to improve these alternative systems.

By developing autonomous, networked, blockchain-based financial systems for themselves, cities and states can create deep and direct financial ties with each other and challenge the US government’s monopoly on the production of money. This challenge, if delivered in a credible way, could threaten the US government’s capacity to pay its debts and seriously impact the federal government’s financial health.

I want to be clear: I’m not advocating for a financial war between US cities and states, and the federal government. Rather, I’m recognizing that blockchain-based technologies could enable sub-national governments to build a new type of power that they currently don’t have: the ability to compete with the nation-state-based monetary systems. This threat could be an extremely powerful tool for cities and states when they negotiate with the Trump administration. If the federal government is going to threaten to undermine the financial health of cities and states, then cities and states should find ways to credibly threaten the federal government right back.

If you’d like to read more about how the blockchain technology fits into a broader history of DIY finance, check out my essay Finance without Force.