Puerto rico government

These local governments are paving the way for cryptocurrency adoption

In November 2021, Mayor of Miami, Francis X. Suarez, tweeted that he would take his next salary in bitcoin. Shortly after, Eric Adams, now mayor of New York, tweeted that he would take his next three paychecks in bitcoin. Maybe not to be outdone, Suarez then said he would take all his salary in bitcoin.

It is not just large urban areas that are embracing digital currencies. The city of Williston, North Dakota – with a population of around 25,000 – hosts a digital currency machine at Williston Basin International Airport and accepts cryptocurrency as payment for city utility bills. The mayor of Jackson, Tennessee, proposed have the city mine bitcoin and also pay salaries in cryptocurrency.

Municipalities are looking to incorporate cryptocurrency into their operations more frequently in recent years, said Alicia Antonetti-Tricker, director and consultant to municipalities at accounting firm Crowe. One of the catalysts is the desire to attract tech-savvy residents and businesses that can spur innovation and job growth. Another goal, according to some cryptocurrency proponents, is to provide an alternative payment tool to reach more individuals, including unbanked or underbanked residents.

As cities and other government entities consider cryptocurrency initiatives, they will face several challenges. One is a fluctuating regulatory environment. Seventeen states enacted laws or passed resolutions related to cryptocurrency during the 2021 legislative session, according to the National Conference of State Legislaturesand 33 states and Puerto Rico had such legislation pending.

Some states are already restricting virtual currency activities. New Yorkfor example, requires individuals or companies who engage in what they call virtual currency business activity (VCBA) to obtain a bit license. VCBA encompasses, among other functions, receiving virtual currency for transmission or transmission of virtual currency; store, hold or maintain custody or control of virtual currency on behalf of third parties; and buying and selling virtual currency as a corporate client.

The laws were enacted to reduce the likelihood of some using cryptocurrency for money laundering, said finance professor David Yermack and business transformation at New York University. Complying with current state registration and disclosure requirements is “more difficult than getting a banking license,” he said.

City leaders also need to consider whether they have the technology to accept cryptocurrency payments, either through their own systems or by partnering with payment processors, Antonetti-Tricker said. Municipalities also need to know how they will record transactions in their financial management system, as not all can handle such transactions, she added.

There are also concerns about the volatility of cryptocurrencies. In the first month of 2022, bitcoin fell nearly 25% in value from $47,686.81 to $38,483.13.

The significance of cryptocurrency volatility will vary depending on how a municipality plans to use it, Antonetti-Tricker said. Incorporating it into an investment strategy would likely be considered higher risk than accepting cryptocurrency payments, as the city may turn to a third-party cryptocurrency payment processor to exchange them for dollars. . Williston, for example, has partnered with virtual payment merchant BitPay, with utility payments it accepts in cryptocurrency for a 1% fee – less than the 3% fee on payments it accepts in GooglePay, ApplePay and PayPal, the city said in its announcement.

Some wonder how much a pro-crypto stance will help cities. “I think its importance is greatly exaggerated,” Yermack said. He notes that mayors who have announced they will be taking their paychecks in cryptocurrency could simply take their salaries in dollars and then buy the cryptocurrency themselves. And until the technology used to accept cryptocurrency payments becomes more scalable, it’s unlikely to see widespread use in city payment functions, he added.

Initiatives to use cryptocurrency to help the unbanked or underbanked — for example, by accepting payments for services or taxes in cryptocurrency — also face questions. David Rothstein is senior director of the Cities for Financial Empowerment Fund, which works to improve the financial stability of low- and middle-income households. Many of those who are unbanked need to know that their money is safe, stable and easily accessible, he said. Cryptocurrency is currently insufficient in these areas.

That’s not to say cryptocurrency can’t play a role. “While it’s not a solution for everyone who’s unbanked or underbanked, it’s another tool in the toolbox,” Antonetti-Tricker said. In particular, it can help people who don’t have the paperwork required for traditional bank accounts, she added.

The amount of energy required to mine cryptocurrencies also appears to run counter to sustainability goals set by some cities. According to a New York Times studyyouhe Bitcoin creation process consumes about 91 terawatt hours of electricity per year, more than the amount used by Finland’s 5.5 million citizens.

However, the regular financial system also consumes amounts of energy, Yermack said. And proponents note that cryptocurrency mining energy demands can spur the development of renewable energy resources or tap into resources that are currently wasted, such as surplus natural gas at oil and gas drilling sites.

Despite these potential costs, civic leaders jumping on the cryptocurrency bandwagon see the opportunities the currency can provide. “Local government will lead the way in #Bitcoin adoption and with it, usher in a new industrial revolution with sustainable economies that will help close the wealth gap,” said Jackson Mayor Scott Conger. tweeted Last year.