Feb 5, 2022
On Zealotry and Cryptocurrency in Government
The devil can cite Scripture for his purpose.
― William Shakespeare, The Merchant of Venice
Ten years ago this year, I rode a growing wave of enthusiasm for how governments manage and share data into a position as the first ever Chief Data Officer for the City of Philadelphia.
The open data movement had started a few years prior, and quickly caught the imagination of civic groups and technologists interested in helping make government work better. These groups wrote data scrapers, held hackathons, partnered with other civic groups, and lobbied elected officials to make the goal of publishing valuable data in easy to use formats official government policy.
A wave of new local government executive orders and the adoption of resolutions followed, culminating in the enactment of an Executive Order by the Obama Administration the turned publishing open data into the default for the federal government. This Executive Order took open data mainstream, and now it’s more likely than not that a city (or county, or state) has an open data program, policy, or platform.
At the time that open data was still catching on in the late aughts and early teens, I remember the feeling I had of being swept up in the growing movement. I advocated for it with what felt like a religious intensity. It became the focus of my professional life — regardless of what job I was in at the time, open data ended up being all I wanted to talk about.
I was a true believer. And I still am, to some degree.
So it’s interesting now to watch another wave of enthusiasm start to sweep city governments and catch the attention of innovators. Like the open data movement before it, this new wave seems to be starting with local governments. Unlike the open data movement, this one seems to be driven not by civic groups and people outside government, but by elected officials themselves.
People that advocate for the use of blockchain technologies or cryptocurrencies in government tend to sound evangelical about it. They are true believers. I can relate to that.
But this new enthusiasm for blockchain in government is misplaced. It is a poor foundation for public policy and government operations.
Recently, the City of Philadelphia became the latest local government to jump on the blockchain bandwagon, joining several other cities in offering a new city-branded cryptocurrency.
The logic of this decision seems to be that it offers a way for people in or from Philadelphia to mine the new city-branded coins, with 30% of the value generated being dedicated to the city coffers. It has the additional theoretical benefit of signaling to crypto and blockchain entrepreneurs that Philadelphia is a “friendly” environment for their business concerns — whatever that means.
A new revenue source to fund city initiatives, and a fresh coat of polish for local business development efforts. What’s not to like?
It turns out, a lot actually.
Full disclaimer — I’m not an expert in cryptocurrency, but you don’t have to take my word that there are serious problems with the idea of a city-branded cryptocurrency. I can say that as an approach to municipal finance, it probably leaves an awful lot to be desired. (I can’t imagine a program like this coming up in any serious way in discussions between — for example — city officials and any one of the bond rating agencies that weigh in on municipal debt issuance. The city would likely get laughed out of the room.)
City-branded coins are likely just a gimmick. An empty gesture meant to (hopefully) convey some level of technology relevance to the business community, and enable elected officials to pay lip service to “exporting the tax burden.”
Pure nonsense.
But the adoption of a city-branded cryptocurrency in Philadelphia specifically raises several serious problems that are worth considering when we talk about these kinds of programs.
First, the appeal of a city-branded cryptocurrency isn’t just that it can generate money for the city. It’s also that you — yes, you! — could get rich. Investors aren’t wild about crypto because of its stable, predictable, longterm returns. The idea that people can mine their own money and get rich quick has enormous resonance. The volatility of crypto is part of the appeal.
But in a city like Philadelphia that continues to struggle with poverty, and has the highest poverty rate of big cities in the U.S., this is an especially troubling position for a city government to take. You could argue that city-branded cryptocurrency is the moral equivalent to state-sanctioned lotteries, which run ads pushing another way to get rich quick. But this isn’t Harrisburg sanctioning a program which disproportionately falls on lower-income citizens, this is the city doing it to it’s own people.
A key strategy in the fight to lift people out of poverty is giving them tools and resources to strengthen financial literacy. What lessons will the City of Philadelphia convey to its citizens living in poverty with a city-sanctioned cryptocurrency that is unregulated and highly volatile?
What’s more, participation in city-sanctioned cryptocurrency programs requires access to technology. According to the city’s own numbers, fully 25% of city residents don’t have access to a working desktop or laptop computer. How do we square that with the supposed upsides of the program?
If mining city-branded coins is indeed a good investment, that has benefits for both currency miners and the city, it’s likely that 1/4 of Philadelphia residents wouldn’t be able to participate in the program. The city has suggested that funds generated by the program could be used to help close the technology equity gap:
…Kenney’s office said Philadelphia is “enthusiastic about the potential of donations from a CityCoins program to target pressing problems in the city,” including funding for digital-equity initiatives, rental assistance and arts programs.
This statement helps to highlight another connection to state-run lotteries — a promise of earmarked funding to muster political support and blunt criticism. The promise of targeting lottery proceeds for education is a tried and true way of insulating such programs from critics who contend that they aggravate problems with compulsive gambling and overwhelming fall on the backs of low-income citizens. But the track record of earmarking funds from morally questionable government programs to those that are politically safe or popular is far from clear.
It’s hard not to interpret such statements as taking a page out of the state-run lottery playbook. They seem like a transparent attempt to burnish the appeal of such programs by connecting them to those that have less controversy and wider appeal.
Ten years ago, I became one of the first municipal chief data officers in the country. But that appointment, and my time spent in that position, are less important to my way of thinking about using blockchain or cryptocurrency in government than what came before and after. I have spent almost my entire adult life studying about and working in government. For the last two decades I’ve focused specifically on using technology to improve the way government operates.
I want to believe in the power of new technology to change government in radical ways. I really do. I’ve proven myself an enthusiastic disciple of this faith. I’ve kneeled at the altar before.
But with blockchain and cryptocurrency, there is simply nothing there that can help government do the jobs it needs to, in the ways it needs to.
Our best course of action when dealing with proposals for municipal cryptocurrencies is to heed the warnings of false prophets, and get on with the business of making government work better for the people who need it most.
