No, a Cryptocurrency Can’t Fix a Broken Economy

Auroracoin, the digital currency given as a free hand-out to every resident of Iceland, was supposed to be a a salvo for a country rankled by a broken financial system. It was heralded as the beginning of hyper-localized cryptocurrencies; it became the second-largest cryptocurrency before it even launched, valued at half a billion dollars at its peak.

And then it fell apart. A failure that's a blow to the entire crypto community, because as outlandish as it was, Auroracoin was launched in the right place at the right time, and it still crash-landed.

That right time was March 2014. When a mysterious entrepreneur proposed a bold plan to "airdrop" digital money upon the masses, the political climate in Iceland was ideal for introducing a radical idea.

Iceland was still reeling from the 2008 financial nuclear meltdown. Its largest private banks collapsed and the krna plummeted in value. It made the recession in the US that year look like the roaring 20s. Six years later, despite a rebound, the aftershocks were still harsh. Tight capital controls initially adopted to bolster the krna remained in place, limiting what Icelanders could do with their money.

Enter Auroracoin! It wasn't just a weird new novelty currency, it was a political statement: Creator Baldur Friggjar Odinsson wanted to "break the shackles of the fiat currency system in Iceland" by urging the country to adopt his coin. "The people of Iceland are being sacrificed at the altar of a flawed financial system," his manifesto clucked. It leaned on public sentiment that people deserved better than the limpid krna, that there needed to be some reparation for the immense damage done in the financial crisis.

Of course, "Baldur Friggjar Odinsson" isn't a real person. Like Satoshi Nakamoto, the furtive creator of Bitcoin, Odinsson is a pseudonym, a mashup of references to Nordic gods. Like Nakamoto, Odinsson concocted his own cryptocurrency, but its hooks were substantially different than Bitcoin. It was squarely aimed at one local population. It would start out 50% pre-mined by Odinsson, who would distribute a set number of coins in stages to each citizen of Iceland by using the country's Kennitala identification system. Everyone would get 31.8 coins just for being Icelandic.

It was also the right media moment. Auroracoin was catching a ride on a hype machine at its most powerful. The outlook was wildly optimistic, and the amped-up speculation skyrocketed the value of the digital coins.

But the swarming interest soon vanished.

Cryptocurrencies are notoriously volatile, but the popping of Auroracoin's hype bubble was especially hard and quick. Auroracoin lost over 50% of its value within a few days of its March 25, 2014 launch and never recovered. A month after it was gifted to them, less than 10% of Icelanders had picked up their free money, and the price fell and flatlined. It's now worth a paltry $.016 USD, down from over $30 at its highest. Like the northern lights it was named after, Auroracoin's brief rise was intense and ephemeral, a strange and likely unrepeatable phenomenon.

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No, a Cryptocurrency Can't Fix a Broken Economy