Why don’t cities buy Bitcoin?
It's hard for cities to buy Bitcoin
Many Bitcoin supporters believe that city governments should invest in BTC and put it on their balance sheet. The question of why they don’t has been raised numerous times recently, particularly given the rise of CityCoins, which is built atop Bitcoin’s blockchain via the Stacks Protocol.
Today, most municipal governments are legally prohibited from putting BTC on their balance sheet – but this alone is not a sufficient explanation for why cities aren’t buying BTC. Instead, some forward-thinking cities are opting to directly leverage crypto in ways that do not incur unnecessary risk or costs. For instance, the city of Miami has embraced MiamiCoin, which generated over $15M in crypto protocol contributions in just two months after launch.
Ultimately, the real reasons cities don’t buy BTC boils down to the costs and risks associated with tax-funded BTC purchases. More specifically:
- Cities need money to buy bitcoin
In order to purchase BTC directly, cities would need to either use existing treasury funds or tax their citizens to offset the cost of purchase. Many taxpayers would be understandably upset if their city began subsidizing BTC purchases with higher taxes, and if given the choice most people would rather use this money to buy and hold BTC for themselves.
While cities could opt to purchase BTC on credit, these debts would eventually need to be paid, which would ultimately also result in higher taxes for local residents. As a result, even if a local government was willing to purchase BTC it would be difficult to justify buying a volatile digital asset using taxpayer dollars.
- Cities don’t have money to buy bitcoin
This may come as a surprise to some, but most major cities are cash-strapped and have countless conflicting priorities and emergencies vying for city funding. So, while the dollar value of a large city’s annual budget is massive, the various costs associated with running a city are even more jaw-dropping.
Local officials are understandably risk averse and budget conscious. As a result, it is unfair to equivocate city governments to wealthy investors who have a discretionary budget for riskier assets and more forgiving investment timelines.
CityCoins offer local governments a low-risk way to leverage crypto
CityCoins like MiamiCoin are programmable tokens powered by the Stacks protocol, which is a layer-1 blockchain that recycles Bitcoin’s Proof of Work consensus protocol to settle transactions in a way that is both secure and resource-efficient.
There are three key reasons why local governments should adopt their own CityCoins:
- Cities receive rewards through CityCoins mining
30% of the STX tokens spent mining new CityCoins like MiamiCoin are sent directly to that city’s crypto wallet. Once that city has voted to accept their wallet, they are free to do as they wish with the funds. However, unlike local taxes these funds were offered by MiamiCoin miners with zero obligations and are therefore a new form of revenue from the government’s perspective.
- Cities can earn BTC using their CityCoins contributions
CityCoins’ protocol contributions are paid out in STX tokens, which can be auto-converted into USD whenever the city wishes to withdraw or spend these funds. Cities can also Stack their STX tokens to earn additional BTC, just like any other STX holder. As a result, these cities can earn roughly 10% each year in BTC on their Stacked STX while avoiding the previously mentioned constraints associated with directly purchasing BTC.
- CityCoins provide an open-source tech stack for cities
CityCoins can be mined and Stacked, but their main purpose is to enable a limitless range of community-built applications and services. Just as every startup has their own tech stack, cities with their own CityCoins have their own tech stack with a corresponding programmable token.
Supporters of a city can develop new applications using that city’s protocol instead of other cities’ as a form of support, or create multi-protocol services that enable cross-collaboration between different cities. This collective innovation will further galvanize CityCoins usage.
Cities should take a positive-sum approach to adopting crypto
CityCoins provides cities with a tool to adopt crypto that is significantly safer and cheaper than directly buying BTC, while making it easy for communities around the world to create their own decentralized applications and services.
Rather than taxing citizens out of obligation in order to buy BTC, CityCoins lets cities earn BTC through new opportunities.
The importance of Bitcoin as a settlement layer for truth is undeniable, which is why CityCoins and Stacks are both built on Bitcoin’s base protocol. However, in order to give everyone a reason to participate it’s necessary to leverage Bitcoin’s strengths in a way that enables more scalability, flexibility, and creativity.
CityCoins was designed to fulfill this role, and a growing number of cities and communities are now looking to take full advantage of the limitless possibilities enabled through CityCoins’ programmability and positive-sum design.