Sarah Holder is a staff writer at CityLab covering local policy, housing, labor, and technology.
The city of Berkeley is planning on developing its own cryptocurrency, to fill affordable housing funding gaps left by the federal government.
The camera company Kodak pivoted to KodakCoins; Long Island Iced Tea Corp. started mining bitcoins. Russia’s considering the crypto-ruble; and Venezuela proposed the Petro. It seems like every day, another currency or corporation goes crypto.
Now, liberal U.S. cities are following. This spring, Berkeley, California, might become the first to develop its own digital currency for buying municipal bonds.
This “crypto-impact” project is the brainchild of Berkeley city councilman Ben Bartlett and Berkeley mayor Jesse Arreguín, who are championing an initiative to launch an initial coin offering, or ICO, later this spring—or, as Bartlett likes to call it, an “initial community offering.” They have partnered with the UCBerkeley Blockchain Lab and Neighborly, an online municipal finance group, to develop the underlying blockchain technology that will support it.
Berkeley’s initiative was born out of fear that, after tax breaks at the federal level, the city would not have a funding mechanism to mitigate the effects of rising housing prices on its poorest residents. “Essentially, we would like to explore some new ways of financing because we have terrific needs,” said Bartlett. “And we are concerned about our ability to fulfill our moral and legal obligations for our residents here.”
“The resistance,” he said, “requires a coin.”
Federal budget cuts have had a very local impact in Berkeley: The Trump administration has slashed the budget for the U.S. Department of Housing and Urban Development, cut funding for Section 8 housing credits, and lowered the corporate tax rate to 18 percent, giving corporations less incentive to fund affordable housing using tax equity finance. Meanwhile, Berkeley has a growing average median rent of over $3,000, and more than 1,000 homeless people on the streets. And the city’s public university has been directly confronted with the possibility of federal defunding: After UC Berkeley students protested alt-right speaker Milo Yiannopoulos last year, Trump took to Twitter to threaten as much.
“The federal government has committed itself to [tearing] us apart, to dividing people by race and gender,” said Bartlett. “And through its fiscal policies, it’s taking away the ability for cities to fund [things like] affordable housing.”
If that antagonism deepens, and the pool of federal money shrinks, what’s a city to do? “We do what we always do: We get creative,” said Bartlett. “We make something from nothing.”
If you’re imagining Berkeleyites orbiting around a digital universe, opening crypto-wallets to buy coffees and relegating people from L.A. to different, cash-only lines, that’s not exactly the future Bartlett and Arreguín envision. (Though it’s not out of the question: Berkeley’s crypto could eventually be traded just like regular currency.)
Instead, unlike most other ICOs, which deliver coins for future value or services, “these coins will actually represent a real security issued for a specific purpose,” said Kiran Jain, COO of Neighborly. “In this case, municipal bonds for affordable housing or homelessness.”
The paper-based municipal bond issuance process as it exists now is complicated, and involves multiple stakeholders. By transferring the whole system to a digital platform, thereby creating a more efficient process, Berkeley is hoping to encourage more residents to invest in social impact projects. The city can create a public ledger that lays out the city’s financial statements transparently, and cuts out the middle man. This reduces the transaction costs normally associated with bond issuances.
As sexy as cryptocurrency seems, it’s not typically considered reliable—the worth of many coins has zigzagged dizzyingly over the past year. Bitcoin climbed from $1 to $19,000 from January 2017 to December, only to fall back down to $8,000 by February. A Long Island Iced Tea company appended the word “blockchain” (the technology supporting bitcoin) to its name hoping to boost its value. It did receive a subsequent stock spike, before falling again.
But Berkeley’s cryptocurrency is designed to support a fragile, and important, market—and as such, it’s built on sturdier legs. “It’s not a speculation tool,” said Bartlett. “It’s like a non-profit, special purpose vehicle, meant to fund social good.” The key distinction will be that it’s backed by a real asset. “It’s ‘crypto-impact’ and that’s its purpose,” he said. “It’s not meant to be traded all over the world,” like other cryptocurrencies are.
Berkeley is the first city to experiment with cryptocurrency, perhaps because it’s teeming with progressives, mission-driven investors, tech-heads, and UC Berkeley professors teaching classes like “Blockchain, Cryptoeconomics and the Future of Technology, Business and Law.” The city also has a history of e-financial trendsetting: It was the first of almost 30 to implement PACE financing for renewal energy systems in 2008.
But Bartlett hopes that other cities will follow its lead. “It seems like a fairly obvious thing to do,” said Bartlett. “Traditionally, financing is so expensive for cities and so unwieldy and so not connected to people.“ Once the technology is developed in Berkeley, says Neighborly’s Jain, it will be easy to scale up.
There’s still a lot Berkeley doesn’t know about how to go crypto—like whether people outside the city will be able to use Berkeley’s coins, or if anyone inside the city will, either. They don’t have a name for the currency yet—Bartlett suggested B-coins, but the resemblance to Bitcoins might be a deal breaker—nor a fully-functioning code. They don’t even have an affirmative vote to proceed from the city council. But if other government officials don’t get on board in May, Bartlett says he would be willing to turn to a privately managed system, instead.
“This municipal coin, this token, whatever you want to call it,” said Bartlett. “It’s meant to… hopefully produce a really demonstrable new paradigm of shared prosperity.”