With the slow but sure mainstream adoption of cryptocurrencies, countries are beginning to get on the boat by issuing their own national cryptocurrencies.
Venezuela has decided to come up with its own national cryptocurrency called Petro, apparently backed by oil and gold reserves.
The Marshall Islands, on the Feb 26th, 2018, officially passed the Act to issue its own cryptocurrency Sovereign, to be used as legal tender alongside the U.S. dollar.
Will these government-issued cryptocurrencies succeed? It remains to be seen, as the whole idea of having a cryptocurrency is to have it decentralized i.e. not controlled by any single entity.
Yet, while we don’t have a fully successful cryptocurrency yet, we have a reference from the past of a failure: Iceland’s cryptocurrency called the AuroraCoin.
The AuroraCoin was launched in Feb 2014, created by an anonymous person named Baldur Friggjar Óðinsson.
We suppose this person who created it wanted to follow in the footsteps of Satoshi Nakamoto. Without a ‘head’, the currency becomes safe from a single point of failure -i.e. the arrest or assassination of a founder.
Its purpose was to become a legal tender alongside the Icelandic Krona and Bitcoin.
Many people felt that Iceland was a good place to start a crypto because of its openness to technology and in particulate a great interest in Bitcoin itself.
THE DISTRIBUTION OF THE COIN
The AuroraCoin was as high as USD97 or 0.14 BTC (March 4, 2014) before the airdrops began on March 25, 2014.
By the time the airdrop started, it had fallen to a price of USD$12 or 0.02 BTC.
1 year later, after the airdrop on March 25, 2015, after the final phase of the distribution was complete, the price would have fallen to USD0.015 or 0.00006105 BTC.
Basically, it became almost worthless by the time the coins were distributed to the Icelanders.
What really caused the Icelanders to just dump the Aurora coin? After all, weren’t they interested in Blockchain and future tech?
There would be many possible causes, but here is my suggestion for the top two reasons.
THERE IS NO FREE LUNCH
The coin was free.
In many airdrops we have seen up to til today (19 March 2018), most of the coins have degenerated into pump and dumps.
One example was NXT during the IGNIS airdrop, which saw NXT have a huge pump leading up to the airdrop, and then an immediate dump after the snapshot was taken.
All these happened in literally seconds.
Likewise, we saw that with ZClassic and the BTCP airdrop. We saw the exact same behaviour on ZClassic – a pump leading up to the airdrop and then a mad dump of up to 80%. It, too, happened in seconds.
It left many people bagholders, feeling cheated or even scammed.
Are NXT or ZClassic really bad coins (shitcoins)? No way. Both are coins with great potential.
But what we saw was the market psychology in action.
People got something for nothing, and the fastest (and smartest) people sold their coins early into fiat or Bitcoin before others could. The ones who sold late were left with less valuable coins (in USD terms).
After all, if you received something for free, the best thing you can do is to sell it for something more universally valuable!
It’s kind of like selling your old furniture for dollars because you can then use your dollars to exchange for something else.
I believe the same thing happened with AuroraCoin. Because it was given to the citizens of Iceland for free, people figured the best thing to do with it was to sell it for Krona which had far higher utility and countrywide adoption!
The creators and distributors of the coins probably did not anticipate that, given that it was probably one of the first airdrops in the crypto space.
However, there was another factor which would possibly prevent the dump of AuroraCoins.
MARKET ADOPTION (OR LACK THEREOF)
If merchants and retailers were requested or even dictated to accept the AuroraCoin, then there would have been the immediate utility of the coin. It would have prevented a dump.
For example, if major retailers would say that they would accept 1 AuroraCoin pegged to 100 Krona, then that was the most the AuroraCoin would fall.
It would always be around the value of 100 Krona given that a big retailer is willing to accept it.
However, the case was that merchants and retailers refused to accept this new idea for their goods and services. In other words, there was no consensus on AuroraCoin to be used as an actual currency.
So if you were someone holding on to AuroraCoin but no merchant would accept this for goods and services, what would you do?
You would do what everyone else did. Sell them on the exchange!
Hence, the horrific dump and the failed experiment.
However, it’s not the end of AuroraCoin. Developers are continuing to work on the coin and it is slowly gaining adoption among some small players.
This is evident in the price as at the time of writing, one AuroraCoin is at USD1.22.
Would it stage a revival?
It remains to be seen.
WHAT DOES IT MEAN FOR FUTURE NATIONAL CRYPTOS?
The story of AuroraCoin serves as a lesson for future governments who seek to implement a nationwide cryptocurrency.
If there are no merchants or retailers willing to accept the new crypto, then there’s only one sensible thing for a holder to do: sell it off.
So governments, in the least, have to get major retailers or merchants to start accepting the new cryptocurrency before launching it.
Another thing: you can’t force people to use any crypto.
The whole premise of cryptos is to break free from the tyranny of governments controlling the money supply – so to force people to use your cryptocurrency goes against the whole spirit of cryptos in the first place.
What do you think? Will a national cryptocurrency ever work?
Leave your comments in the section below.
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