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What do the City of Philadelphia, rapper Meg Thee Stallion, and that guy who hit on you at McGillin’s last week all have in common? They’re all exploring cryptocurrencies.
Mayor Jim Kenney has given the go-ahead to vet CityCoin, which creates local cryptocurrencies that can raise money for municipal governments, StateScoop reported last week. Local officials did not provide further comment, but Billy Penn discovered additional details about Philly’s plans on Discord.
The project is already up and running in Miami and New York City.
Proponents claim the currencies could have a major impact on how city programs are funded, with Miami Mayor Francis Suarez alleging it could eventually “eliminate the need for taxes altogether” and bring the city $60 million in revenue this year. Miami recently made its first withdrawl of $5.2 million dollars, and Suarez has proposed it go directly toward the Florida city’s rental assistance program.
Critics of CityCoin, however, are worried the volatility of cryptocurrencies and lack of transparency around ownership may make the funding hard to use.
The online-only nature of crypto has the potential to heighten the digital divide. After news broke about PhillyCoin, former Philadelphia Chief Data Officer Mark Headd expressed concern over the idea, and predicted only 1 in 4 Philadelphians could feasibly own it.
How it works: Crypto enthusiasts vote on which cities should get a custom coin. Then the mayor must publicly endorse the project, and “accept” the digital wallet that could hold the coins (like New York City’s Eric Adams did here). After that, the energy-intensive mining process begins, where people enter smart contracts to compete for a chance to win a MiamiCoin, NYCCoin, or a potential PhillyCoin.
Income generated by the coin is split between people who have holdings and local government, with 30% going straight into a digital wallet the city can cash out at any time. Of course, there’s some red tape around that. Municipal governments can’t technically possess any cryptocurrency of their own, so the CityCoins are converted into dollars and donated as unrestricted funds.
“You can think of CityCoins as a lottery system,” CoinDesk editor Ollie Leech told Billy Penn. There’s no guarantee that mining for PhillyCoin will earn you more PhillyCoin, but there’s a chance. And anyone can buy and hoard it — not just Philadelphia residents.
The Kenney administration’s vetting process is being led by Chief Information Officer Mark Wheeler, who became a crypto fan during the pandemic, according to StateScoop.
In a statement given to StateScoop, a spokesperson said Kenney was “enthusiastic about the potential of donations from a CityCoins program to target pressing problems in the city.” The Mayor’s Office did not respond to additional requests for comment.
Wheeler also did not respond to requests for comment, but a Discord account that describes its owner as the CIO of Philadelphia and goes by “Markaroo” (also in Wheeler’s Twitter display name) has been documenting progress for the PhillyCoin project.
“[Mayor Kenney] definitely wants to pursue, but also to know if there’s any legal hurdles in the way,” Markaroo wrote on Jan. 30.
City Council hadn’t been brought into the discussion as of last December, said Markaroo, but, “I think Council will have many questions.” A Council spokesperson did not return requests for comment.
“While I definitely want their support,” the account posted, “and they do have final authority over the city’s budget, how the mayor and the administration would go about adoption does not require an ordinance by Council.”
Speaking to StateScoop, Wheeler was vague about where funding derived from PhillyCoin might go, citing arts programs, rental assistance, and digital equity programs. A Feb. 3 Discord post got more specific, citing the PHLConnectED broadband internet initiative, and grant funds from the Digital Literacy Alliance and Office of Innovation and Technology.
Untangling exactly how CityCoins operates is a bit of a black hole.
Most entities that deal in cryptocurrencies are DAOs (Decentralized Autonomous Organizations), which is just a fancy way of saying they have a shared bank account but no boss or corporate structure — like the group of people who bought the only existing copy of Wu Tang Clan’s “Once Upon a Time in Shaolin” and the people who tried but failed to buy the Constitution.
CityCoins is decentralized. A grassroots effort, there are no true employees and no generic email address to screen questions or complaints. There is the online Discord server where CityCoins enthusiasts can talk to one another and listen in to community calls for updates.
Even there, no one seems able to answer some basic questions: Who signs the checks that go to local governments? What would happen if a government had trouble accessing the money? What would holding PhillyCoin mean for tax reporting?
“It’s not entirely clear or transparent when it comes to cashing out, which is a bit unusual when you have the potential for problems,” said Leech, the CoinDesk editor. “Tokens on the blockchain are transparent and immutable. But when you then convert it into cash, it’s going to be very difficult for cities and people to understand where that money is going.”
That same lack of transparency applies to CityCoins backers.
Anyone in the world could potentially mine PhillyCoins — which means anyone in the world could potentially donate to Philly’s coffers.
“One thing to consider is who you are accepting donations from,” Max Dilendorf, a New York attorney at Zahn Law Group who focuses on digital securities, told the Washington Post. “I could be a world criminal sitting somewhere in Iraq or in Russia and have a frontman making a donation.”
It would be nearly impossible to determine the identity of a PhillyCoin wallet holder, per CoinDesk’s Leech. You could try a blockchain explorer, but that can only tell you how many digital wallets there are, but not whether they live in Philly, much less who they are.
How are other cities handling shady donations? Miami will not be spending the money for at least 6 months, Suarez told The Washington Post, to prevent immediate fraud or misuse, and give city officials time to respond to issues.
Experts say the structure of CityCoins makes it difficult for the non-wealthy to participate.
“It favors people with deep pockets,” said Leech of CoinDesk. To be eligible for any of City Coins’ local currencies, you purchase STX tokens. Like with the lottery, people with more tokens have a greater chance of getting to hold the currency.
However, like the lottery, holdings are not guaranteed. If you don’t end up with any PhillyCoins despite pouring in lots of STX, you won’t get that STX back — or the money you used to purchase it.
In a city with the highest poverty rate of any big U.S city, and where 25% of residents don’t even have access to a working computer that could mine crypto, critics say CityCoins could make wealthy people with no ties to Philadelphia wealthier, while actual Philadelphians might have to wait to see any positive change.
“[This is] a terrible structure for a local currency because the holders of the local currency aren’t local people,” said Mike Bloomberg (not the former NYC mayor, but an urban technology researcher who was on the technology transition team for new “Crypto Mayor” Eric Adams).
Equity appears to already be a top priority for the Kenney administration.
On Discord at the beginning of January, Markaroo posted what appears to be his initial pitch for PhillyCoin. The presentation deck outlines how it works, possible incentives for participation, and potential risks, including anonymity, technical difficulties, the reputational risks of engaging with crypto, and the potential for leadership change at CityCoins.
“I had to rework the prezo [for] the mayor a bit. Really dove into the equity questions that had been raised in all prior conversations,” Markaroo wrote in a Jan. 30 post. “I think addressing those points upfront is going to be valuable for other cities when they consider the opportunity.”
City Coins’ value is tied to Bitcoin, the flagship cryptocurrency known for being incredibly volatile. That means when Bitcoin is up, PhillyCoin’s value could skyrocket, but when Bitcoin depreciates, so will potential funding for city-led projects.
Case in point: On Jan. 18, Miami’s crypto wallet was valued at $29 million. Just a week later it more than halved in worth to $13 million.
With Bitcoin, the prevailing advice is to HODL — hold on for dear life — in hopes of stabilization and big returns.
“It’ll be bad to think you can continue funding programs like [affordable] housing because you will only be able to get money if people continue mining the coin,” said Bloomberg, the urban technology researcher. “That’s only going to happen if people see returns.”