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Cities are chasing crypto. But why?
Apr 12, 2022
Episode 640

Cities are chasing crypto. But why?

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We're questioning the economic boom cryptocurrencies' supporters promise.

Government leaders all over the world are taking a hard look at cryptocurrencies.

El Salvador made bitcoin a national currency last year. Cryptocurrency investors continue to move to Puerto Rico for its tax incentives. And Miami and New York are in a race to become the nation’s crypto capital.

Supporters believe crypto could be a way to drive economic growth and address income inequality and a host of other issues. But how likely is that?

“Right now, there are far better technology or even policy solutions to address the issues local leaders claim to want to address,” said Tonantzin Carmona, a fellow at The Brookings Institution. “Lawmakers do not, for example, need cryptocurrencies to address issues of financial inclusion, equity or wealth inequality. They need political will.”

Carmona is skeptical that cryptocurrencies could solve a city’s problems.

On an abbreviated show today (sorry, technical difficulties!), we’ll discuss why that is and the lessons we can learn from places that have already laid out the welcome mat for crypto business ventures.

Plus, the Joe Biden administration announced plans today to suspend a ban on selling higher-ethanol E15 gas between June 1 and Sept. 15 in an effort to bring down gas prices. We’ll explain why the move might be shortsighted and what it’s doing to corn futures. Also, the subway shooting in Brooklyn is making our fill-in host rethink plans to go back to the office.

Here’s everything we talked about today:

We want your answers to the Make Me Smart question. Send us an email at makemesmart@marketplace.org or leave us a voice message at 508-827-6278, or 508-U-B-SMART.

Make Me Smart April 12, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Marielle Segarra: Alright, so Kai, I’m gonna – I’m gonna need you to hum the thing before I start because otherwise I just …

Kai Ryssdal: I don’t think I can. I don’t think I know how hum the thing cause…

Marielle Segarra: Doo, doo, doo.

Kai Ryssdal: You just start consider that. Consider that consider it hummed. Go.

Marielle Segarra: Hi, I’m Marielle Segarra, welcome to Make Me Smart, where none of us is as smart as all of us.

Kai Ryssdal:  I’m Kai Ryssdal. It’s Tuesday, means it’s time for a weekly deep dive into a single topic. Today we’re talking about cryptocurrencies, specifically how some cities and countries are embracing crypto. And we’re not just talking about El Salvador, if you know, you know, let me just also say here, that this show is gonna be a little different. We’re not gonna be able to do a mailbag because technical difficulties. Happens in podcasts happens in radio and television. It just happened. So we’ll do the interview. We’ll do a little news. And then we’ll send you on your way call it an abbreviated Tuesday show anyway. So crypto and countries. Marielle, go.

Marielle Segarra: Yeah, so I was just in Puerto Rico, where this is happening. A lot of crypto investors moved there because of tax incentives. But we’re also seeing a lot of places in the states whose leaders see crypto is a way to grow the economy.

Kai Ryssdal: And it’s funny because you know, the mayor of New York City has said he wants New York to become a crypto center. Same thing with the mayor of Miami. So there’s a lot going on here talking about the economic boom that people are hoping to get from crypto. Let me just say cards on the table here. I’m skeptical, but that’s why we have somebody really smart to help us explain this, Tonantzin Carmona is a fellow at Brookings also she wrote a piece called “Mayor’s, cryptocurrency won’t solve your city’s problems.” Sounds like she might be a skeptic to Ms. Carmona. Thanks for coming on the pod.

Tonantzin Carmona: Thank you for having me.

Kai Ryssdal: Alright, so look so so brass tacks here, right? Is crypto. And let’s be clear here. We’re not talking Web 3. We’re not talking to NFT’s. We’re just talking basic 101 crypto, right. Is it as it stands right now, because you got to play the hand you’re dealt, is it a way for a city or a country to economically prosper?

Tonantzin Carmona: Ah, well, I think that’s it’s an interesting question. I think it’s a fair question given all of the hype and relentless promotion of cryptocurrencies…

Kai Ryssdal: Is it the right question?

Tonantzin Carmona: I guess I might reframe it a bid ask instead. Why would it? Why would the embrace of crypto currencies or crypto investors lead to an economic boom. And I think the reframing for me at least is important because it shifts the burden of proof so that it doesn’t necessarily fall on us to prove that it won’t lead to an economic boom and instead forces crypto proponents and more importantly, local government leaders to have to prove to us and to constituents how it would or could happen, and whether or how all residents could benefit not just the wealthy. Because I I’m a big proponent of due diligence. And I think my guess is that crypto proponents and government leaders will have a hard time proving how they’ve arrived at this, you know, “crypto will lead to an economic boom” conclusion, partly because right now, what we’re seeing is that many are romanticizing cryptocurrencies and making broad sweeping statements about the potentials of the technology based on assumptions and aspirations of crypto and not necessarily an accurate or adequate understanding of how cryptocurrencies actually function. And partly because we can already look to several places that have embraced cryptocurrencies, but those places are finding that their assumptions about crypto are not meeting expectations.

Marielle Segarra: So let’s break this down. Right, like going to the why question, why might this work? What is the argument? I think in Puerto Rico, it’s more about attracting crypto investors with tax incentives. But other places are saying, well, we could we could have a fund that’s made up of crypto or we could pay benefits and crypto like what are the different ways cities are trying to do this?

Tonantzin Carmona: Yeah, so a lot of what we’re seeing is, you know, a lot of assumptions and unexamined assertions about cryptocurrencies, including that they believe that attracting crypto related companies will lead to economic growth so directly to your point, in Puerto Rico But others believe cryptocurrencies may be a way to address as income inequality or wealth disparities, or they simply believe that crypto will provide alternative payment methods for unbanked and underbanked residents.

Kai Ryssdal: So is the challenge maybe that we’re having this conversation too soon? Because, you know, I for one will not take my paycheck in crypto, as the mayor of New York has said he wants to do because it is volatile. It’s, yes, you can buy it, but you can’t run down the street and buy six pack of beer with it. So I wonder if we should be having this conversation in, I don’t know, like five years, 10 years?

Tonantzin Carmona: Maybe, but I think I mean, you’re definitely getting at something because at least in my piece, you know, I talked a lot about before embracing cryptocurrencies, I want local leaders to ask themselves, “What problems are we trying to solve?” And more importantly, “why? Can or should crypto solve these problems? And are the risks greater than the benefits? And could these problems be solved without cryptocurrencies?” And the reason these questions are important is because you should want government officials to take a human-centered approach in policymaking to listen to their constituents and work to better understand their constituents needs and pain points. First, you know, they should begin that analysis by first identifying a problem or a pain point and then finding a potential solution, be it a policy solution or even a tech solution. But in the case of cryptocurrencies, it seems that mayors and other local leaders are trying to find a problem to solve with cryptocurrencies, that is they’re trying to find the use case for cryptocurrencies and at least when it comes to local governments That’s like trying to force two different jigsaw puzzle pieces to fit together. Because viewing crypto as a panacea is like just far too simplistic, given the tremendous complexity of cities, counties and states and even the needs of constituents. And right now, there are far better technology or even policy solutions to address the issues local leaders claim to want to address you know, we talked a little bit about how they said it will maybe help inequality or wealth disparities and lawmakers do not, for example, need cryptocurrencies to address issues of financial inclusion, equity or wealth inequality, they need political will.

Marielle Segarra: Well, I feel like some examples could be helpful here. Like how is this playing out? It’s been six months for instance since El Salvador allowed Bitcoin as legal tender. What has happened there?

Tonantzin Carmona: Yes, El Salvador is a very interesting, interesting example since this was a country that has so far been the boldest on this front. And I also just find it compelling to explore because it is a country that is almost 70% unbanked. So presumably, you might expect to see the benefits of crypto for the unbanked here or for their local economy. But so far, that’s not what’s actually happening. You know, residents and small businesses are hardly using Bitcoin due to its volatility, the technology’s complexity, and even technical glitches, there have been reports for instances of accounts created through identity fraud, people losing transactions or receiving error codes and try make payments. Others have reported that few Bitcoin ATMs are able to dispense cash or require long wait times. And I think one interesting Chamber of Commerce survey of 337 businesses found that only 14% of those businesses said they’ve transacted in Bitcoin since September, which is when the country became the first in the world to recognize Bitcoin as legal tender.

Kai Ryssdal: What – is it just is it like the “ooh, this is a shiny new thing, and let’s get in on it.” Do – I mean, what’s going on here? Do you think?

Tonantzin Carmona: Yeah. I mean, I want to ask you about those benefits, because it seems like there are some like Miami with Miami Coin, I think they’ve made about $7 million from it already. Do you – can you envision any potential upsides or benefits to governments embracing crypto in some way? Ah, I think it’s a mix of things. So like, I don’t want to necessarily fault lawmakers for wanting to, you know, be at the cutting edge and forefront of new technologies. I think lawmakers are under pressure to adopt new technologies, to adapt to innovate and to improve the lives of the residents and businesses. But I think it’s important to urge local leaders to exercise caution because they are deciding policy agendas based on a limited understanding of the technology what it can do, or, or even just the overstated, like broader economic benefits. Other examples, you know, we’ve seen of places like try to embrace cryptocurrencies, you know, they’re finding it’s not working out or that maybe there’s even negative externality. So like in Miami, the soaring cost of living due to the influx of wealthy newcomers is outpacing the promised tech job growth so they’re not even meeting the tech job goals that they set. And in Kentucky, I think Reuters did a fantastic piece on what was happening over there where lawmakers were looking to replace jobs lost when coal mines and other fossil fuel businesses shut down. So then they started to provide tax incentives to attract Bitcoin mining facilities, only to find that, you know, this is not necessarily leading to more jobs or at least jobs that are comparable to what they used to have. So in the past, you know, coal mining employed an average of more than 6,000 people per mine. And I think with Bitcoin mining facilities, you don’t need a large crew to maintain a facility full of, you know, high-powered computers. I think one company only had five to 10 full time jobs and so like the comparison just isn’t there. Not to mention that then that comes with very localized environmental impacts. And I think when economists estimated that the state’s carbon footprint is kind of equivalent of running 650,000 passenger vehicles. Right. And then there was another example just Plattsburgh, New York, where they’ve actually, you know, have said very publicly that a lot of those economic benefits that were touted by crypto proponents did turn out to be overstated, because, in addition to the environmental concerns, residents and small businesses saw increases in their energy bills, whether or not they were involved with crypto. And the mayor also indicated that the jobs just simply weren’t coming. And there were just limited tax and revenue benefits that came to the city. I guess it would, I just always go back to like my same question of like, just why crypto, why can’t we just do this? With other technologies that currently exists? Like, it just seems like we’re just trying to find a use case for one specific technology? And I think a larger problem that I also just see is that, you know, we have public servants that are endorsing specific products, specific services. And in what other cases, do you see local leaders getting away with endorsing specific products or services to constituents without, say, undergoing a procurement process or some other formal or lengthy oversight process?

Marielle Segarra: Well, thanks so much, Tonantzin, this has been really, really interesting. We appreciate it.

Tonantzin Carmona: Thanks for having me.

Kai Ryssdal: You know, it’s, this is not a thing that’s going away, right? Because crypto is not going away. And Ambitious politicians are not going away, and the need for revenue is not going away. So I think we’re gonna be hashing this one through for a while. Maybe that’s just me. I don’t know.

Marielle Segarra: Yeah, for sure. I mean, I think we’re just gonna keep seeing, because it is, I think we’re gonna keep seeing mayors and leaders trying to embrace it, because it does kind of make them look good. And it is a shiny object. And it is something that can divert attention away from other things that are going on.

Kai Ryssdal: Right. I think that’s totally right.

Marielle Segarra: And maybe to be fair, maybe they really do see potential benefits of this is. I’m not saying it’s all like bad intentions. But I it just seems like one of those things that that’s not fully thought through.

Kai Ryssdal:  Yeah, exactly. Exactly. All right. Well, look, let us know what you think about crypto and cities and towns and municipalities making money from it getting in on it? Is it going to work for them? Is it not? Is it booming where you live by the way? Are you in crypto? If so why? That’s a whole nother thing. But tell us we’d be interested to know 508-827-6278. 508-UB-SMART. Send us a voice memo if you’d like makemesmart@marketplace.org. We are coming right back.

Kai Ryssdal: Alright we’re back. Time for some news. You go first.

Marielle Segarra: Yeah, okay. So it’s kind of a rough news day, to be honest. I have to mention what’s going on in New York. I live in Brooklyn. There was a mass shooting this morning at a Brooklyn subway station pretty close to my house and was actually on my way to the subway when my neighbor texted about it.

Kai Ryssdal: To that station or no?

Marielle Segarra: Not to that station. I’m about one stop away from that station, maybe a 10 minute walk. It has been a weird morning because they have not caught the person who did this and they’ve just been constant helicopters overhead and the area is on lockdown. And it’s one of those things I mean, it is horrific and shocking. And I’m processing that. But also, this was rush hour in New York. And I was headed to the office, and I turned around and went home, back to my house, and I’m supposed to go in tomorrow. And I don’t know if I feel safe riding the subway tomorrow. And it’s, it’s, I can’t imagine that I’m the only person who’s thinking this. Crime has been rising in New York, including on the subways, and it reaches a point, especially when it’s in your neighborhood and right in your face where you start to go, do I feel safe going to the office? How do I get to the office in New York? If not on the subway? I mean, I’m not I’m not going to get a car. So I wonder, I just wonder what this all is going to mean.

Kai Ryssdal: Yeah, look, I totally agree. And the videos, I mean, fair warning, the images are really harsh. So if you don’t want to see him, look away from your screens when when they come up, but yeah, it’s it’s really tough. I don’t –I don’t get it. Go ahead, you got another one?

Marielle Segarra: Yeah. The other is that there was this was easy to miss, I think. But there was an outage of blackout in Puerto Rico for five days, that affected one and a half million people, which is half of the island’s population, and it just ended. But it is amazing. First of all, that that does not rise to the top of a lot of people’s newsfeeds. But it is – it is a huge population of people. And then it also kind of goes back to what we were talking about, because that’s a lot of people without electricity, some without water, the infrastructure in Puerto Rico is not great. But some people can afford generators and others can’t. And when we talk about an influx of wealthy investors into Puerto Rico, and and some of that because of crypto, you know, what does that mean? Who – what can people afford when they come in from the outside versus what people there can afford? And it’s not it’s not totally down those lines, like I have family there. One of my family members is sick, he uses an oxygen machine. They have a generator, because he’s been sick for a long time. And they know that the electrical grid is not great. They’re right. But that was a lot of people who were without. And it just it raises those questions of inequality.

Kai Ryssdal: Yeah, no, absolutely. Absolutely. Okay, mine is a little more, a little, a little less – how to put it a little less principled and a lot more political. And that is the decision by the Biden administration, which is set to be announced later this afternoon. But the word has already leaked that the President is going to have the EPA, the Environmental Protection Agency. Allow what’s called E15 gasoline to be sold this summer when it’s usually not allowed to be sold because it produces more smog. E15 of course, as you’ve heard by now, and news reports and newscast is 15% ethanol, here’s the thing that you may or may not be hearing in the news coverage. The deal with E15 ethanol is that cars that use it get less gas mileage, get fewer miles per gallon than with regular gas. So not only are we going to make a decision that’s going to let more smog develop in the atmosphere because of this plan of gasoline to save 10 cents a gallon. We are also going to burn more gasoline, because we are using this because you get fewer miles to the gallon. And that to me just smacks – and look, I understand why the President is doing it right. Inflation came out this morning, it was eight and a half percent highest in since 1981. All of those things you’ve heard already. But look, we’re we’re doing a short sighted political thing for short term political gain at really long term environmental and climate cost. And that’s not good. And I would just like to offer that as a reality check. Because, you know – Oh, also, by the way, corn futures today, through the roof, why are corn futures through the roof? Because of the demand for E15 ethanol gasoline, which is made from corn, that E15 Part? Ethanol corn, right. That’s going to help inflation go higher. Corn prices are going higher.

Marielle Segarra: Right. Right.

Kai Ryssdal: Anyway, right. Sorry. Just a little rant, little cranky rant.

Marielle Segarra: So first of all, that’s really interesting. You know, I’m always fascinated by the the knock on effects of things are like how you see one indicator in this part of the economy, and it’s talking about or it’s an indicator of something that’s happening all the way over here. But yes, I – the other question. I have, I mean, to this long term versus short term, political gain, if they lift the summertime ban on this now, does that mean it’s hard to ban it again, you know, because this was just a one time thing. But, but then, yeah, it just seems I would not want to be in charge of running this country or any country because the choices you have to make.

Kai Ryssdal: Especially, especially, especially now, I mean, look, I’m sure every president from from today back to George Washington will tell you that they never had a single good choice, because all the easy choices right are made before they get to the president’s desk. And the only thing that winds up on the president’s desk are all the crappy choices that he has to make. But But right now, it just seems like a whole bag full of lousy choices are landing on leaders’ desks, and I guess that’s why they get the big money. I guess.

Marielle Segarra: The big money.

Kai Ryssdal: The big money, the big money. So we’re gonna go as I said up top a little bit, a little bit truncated today because of some technical difficulties on the other side of the studio glass, but that does not mean we don’t want to hear from you. Please let us know what’s on your mind, would ya? It’s makemesmart@marketplace.org, you can leave us a voice memo or just a plain old email or leave us a message at 508-827-6278. 508-UB-SMART. And we are out of here

Marielle Segarra: Make Me Smart is directed and produced by Marissa Cabrera. Our team also includes producer Marque Greene and Ellen Rolfes writes our newsletter. Our intern is Tiffany Bui.

Kai Ryssdal: Today’s program was engineered by Jayk Cherry mixing done by Mingxin Qiguan bet I’d speak Chinese, I used to in a prior life. Ben Tolliday and Daniel Ramirez composed our theme music the senior producer is Bridget Bodnar. Donna Tam is the director of On Demand. Marketplace’s vice president and general manager is Neal Scarbrough.

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The team

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