Seven months after partnering with a little-known nonprofit called CityCoins, Miami Mayor Francis Suarez announced earlier this month that the venture's cryptocurrency brainchild, MiamiCoin, had reaped $5.25 million for the city. Now Miami Commissioner Ken Russell is co-sponsoring legislation with Suarez to allocate those funds into a rental-assistance program to help residents whose rents have increased more than 20 percent.
While that sounds promising, how is that even possible as the Miami-branded cryptocurrency continues its decline — having lost over 90 percent of its value from its peak of six cents — and is now worth four-tenths of a penny?
"I don’t know whether it’s going to work or not,” Suarez told the Miami Herald on Friday. "Innovation doesn’t always work."
Whether they love MiamiCoin or hate it, most locals don't understand what the heck it is, let alone how it was supposed to transform our city into a tax-free utopia and "cryptocurrency innovation hub."
On a recent 50-minute episode of the FinReg podcast titled "Beware the Crypto Mayor," Mike Bloomberg — not the billionaire, but the visiting researcher at Cornell University's Urban Tech Hub and public infrastructure fellow at the New Cities Foundation — succinctly explained MiamiCoin in layman's terms and addressed the potential perils of Miami going all-in on crypto.
For the uninitiated: Cryptocurrency is a digital currency that's secured using blockchain technology, which is a tamperproof network of computers that makes it nearly impossible to counterfeit. It's not regulated by the federal government and doesn't use banks to verify transactions.
To generate new cryptocurrency into circulation, users must "mine" tokens, in turn earning a percentage of the cryptocurrency they successfully create. For Bitcoin, for example, miners must solve a random and complex cryptographic puzzle (AKA "mining") to generate a 64-digit hexadecimal number (called a hash). On the Stacks blockchain, miners aren't trying to generate a random and complex hash, but instead commit Bitcoin to the Stacks blockchain for a chance to generate (and earn) new Stacks tokens.
The simplest way to think of MiamiCoin, Bloomberg tells New Times, is by comparing it to a raffle in which you have no idea of the odds. CityCoin users commit Stack tokens for a chance to generate new MiamiCoin. When they do, 30 percent is automatically sent to the City of Miami's digital wallet and, if users are successful, the remainder of the MiamiCoin they generate goes to them.
"You’re asking people to donate a dollar and you’re getting 30 percent of it, and that doesn’t make a lot of sense," Bloomberg said on the podcast. "They’ve managed to convince the mayor that’s free money for the city, but when you start looking under the hood, you realize that it’s not free money."
New Times spoke with Bloomberg to understand what MiamiCoin is, how it works, and ultimately whether it's an innovative ploy or a reckless gamble. The conversation below has been edited for length and clarity.
You buy Stacks and you commit your stacks to a raffle, and if you win that raffle, you're rewarded with MiamiCoin. They call that "mining," but it's very different in the sense of the mining for Bitcoin: You're not using computing power to solve a cryptographic equation. You're just participating in a raffle.
In the MiamiCoin raffle, what happens is 70 percent of all the Stacks tokens that are committed to the raffle go into a pool. Thirty percent automatically goes into this wallet for the city. So if I'm a Miami resident interested in mining MiamiCoin, I'm taking the equivalent of $1, and giving 30 cents to the city and 70 cents to participate in this raffle, which you don't know your odds of winning.
What is the argument from the City of Miami for residents to invest in MiamiCoin?
The mayor is talking about dedicating city resources and using his position as mayor of the city to boost and promote this coin. Except that money is not really free. He is encouraging people to participate in this coin, which currently has no value. He's encouraging people to engage in speculation and, in exchange, the city makes a little bit of money.
Let's pretend for a moment MiamiCoin actually takes off and grows in value. How could the city benefit in a best-case scenario?
The best-case scenario for the City of Miami is that the city doesn't invest any of its own resources in trying to find an off-ramp and use for MiamiCoin, and they essentially walk away with the bribe. It's essentially money that the city has received. It's akin to Suarez not following through on a bribe and in that case, you've gotten free money and you walk away.
You used the term "bribe." Can you help us unpack that a little bit and tell us what you mean?
These tokens have no value except for speculative value, and one way that you can increase speculative value is by getting other people to believe it's valuable, right? One way you get other people to believe it's valuable is that you pay for promotions, you pay for marketing. Mayor Suarez, through this pool of funds, is essentially acting like a commercial for MiamiCoin. As the value of the currency grows, the city gets more money — except it's a speculative bubble because there's no underlying value of this coin other than speculation. He's encouraging people to gamble.
You make it sound like a pyramid scheme.
Because that's exactly what it is. You know, when I first heard about this, I went down this rabbit hole, and the fundamentals are terrible. Unfortunately, there's just so much on regulators' plates right now, and there's so much money being spent to convince people that it's not a grift. Regulators just aren't there yet.
We have Miami Commissioner Ken Russell co-sponsoring legislation that would supposedly allocate that $5 million disbursement into a rental-assistance fund. What's your general reaction to that?
Great! I mean, it's a bad idea to take bribes, but, you know, it's better they spend it on that than something else, right? To me, that's the equivalent of what's happening here: The city and the mayor are getting some free money in order to tout something that, again, is valueless and is a multilevel marketing scheme. They're helping convince other people that it has value when it does not, and they're being rewarded for doing so.
Why has the value of MiamiCoin dipped so dramatically and only continues to fall?
There are hundreds of millions of MiamiCoin out there. So if you can get, like, one-tenth of one-tenth of a penny but you own a million of these things, users just do the math and ask "Is it worth it to sell?'" I truly believe that there are a lot of people involved in this who are putting money into this and are losing money thinking that by participating in this project, they're somehow helping the City of Miami. They're not. And then there are other people who did this to make money: Some folks made that early money. If you're going to sell, there has to be a buyer. But who wants to buy something that has no value?
Would you deem it wise to invest in MiamiCoin?
Would it make sense to invest in MiamiCoin? No, absolutely not. I'm not saying the entire crypto industry is bad and you shouldn't be involved in crypto. Like, if you're investing in cryptocurrency because you believe in that, for whatever reason — that's a different story. But this one in particular is terribly structured. There are always two questions: Is it bad? And: Is it a bad investment? There are a lot of things that are "bad" that are good investments. This is both bad and a bad investment.
What else do we need to understand about MiamiCoin that isn't really being discussed?
One of the things that's frustrating is that you often see Mayor Suarez and other technology folks hiding behind this idea of, "You know, we have to try. We have to experiment. We have to participate in these things." And to that end, as someone who's been in city government and played the role of CIO [chief information officer] within a city, I'm sympathetic to that. In my role as a technology researcher at Cornell Tech, I've seen the potential that technology has to help improve city operations. But there's an element of basic due diligence that should be required. What you have here is Mayor Suarez has already promoted this, right? He's already touted it as being a good thing, and so he's already gone down that path and that means he is either stupid or he is complicit. And if I were a resident in Miami, I wouldn't want either of those things to be true. He either did not do his research, or he did his research and totally understands what's going on here and is supporting it.