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How Miami Coin works and why people should keep an eye on it

How Miami Coin works and why people should keep an eye on it

More than a cryptocurrency named after the Magic City, Miami Coin might transform the financial relationships between citizens and their government. 

January 26, 2022 at 11:30am


FIU College of Business faculty agree: Miami Coin is more than a cute branding opportunity for a city that's famous for crypto-bros. It’s a concept that can bring enormous, long-term benefits to thousands of Miamians—while simultaneously posing a threat to the city’s budget itself if the cryptocurrency falls into the wrong hands. 

One thing is for sure — Miami Coin is more than an ad for Miami. In November 2021, while making an appearance on Coin Base TV Thursday, City of Miami Mayor Francis Suarez said that his government has earned more than $21 million with its Miami Coin since the cryptocurrency debuted in August. 

“That is roughly 1/5 of the entire tax revenue of the City of Miami,” said Suarez, who has previously announced intentions to use the funds for public works or a cryptocurrency dividend.

Theoretically, there is no end in sight for how much revenue the city’s Miami Coin can bring in. Every time Miami Coin is mined—when someone wins a bid through a software program to bring more Miami Coin into ownership—30 percent of the mined cryptocurrency goes into a city-owned digital wallet.  

The diagram below shows how Miami Coin flows into the city's digital wallet. 

miami-coin-city-coins.jpg

In other words, if Miami Coin increases in price while it continues to flow into the city's possession, Miami could have quite the digital bank account. 

“It’s possible that this can be another form of revenue for cities. The value of Miami Coin can be so high that a city can decide to reduce its taxes,” says Assistant Professor Pouyan Esmaeil Zadeh, who researches cryptocurrencies and blockchain technologies at the university. 

Whether Miami Coin will increase this much in price remains to be seen.

According to the cryptocurrency exchange OKCoin, Miami Coin is currently trading at roughly a third of what it did in November.

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Price chart: OKCoin

 

Several factors could be causing the price of the coin to fluctuate, including:

  1. The supply and demand for the coin 
  2. What the city does with its allocation of Miami Coin 

People who hold Miami Coins can also collect rewards in the long term by depositing them into smart contracts.

Miami Coin could become an important vehicle for donations for the city, especially if the city uses its coins for attractive public works. People who want to support Miami could make it their medium of choice for supporting projects in the area. This could encourage people to hold the coin, and the price could go up as a result.

To Associate Professor of Information Systems and Business Analytics Hemang Subramanian, Miami Coin feels reminiscent of municipal bonds in India.

“In India, you cannot always depend on state funds for certain projects. What you do is borrow from people who live locally, and you promise them certain services, like roads. Then you earn interest based on whatever project is undertaken,” says Subramanian, who has authored five books on cryptocurrencies. 

Another potential positive benefit from Miami Coin is that it could help the City of Miami make up for what it pays to the state in taxes, Subramanian says.

“This could actually be a solution to some of the long-ailing problems of city finances, where high-performing cities are not compensated adequately in terms of tax dollars,” Subramanian says. 

While he acknowledges the potential positive uses of Miami Coin, Subramanian says people need to be cautious before putting significant money into it. 

If Miami Coin congeals as an important revenue for the city, a substantial risk may emerge, Subramanian says. Entities and cliques who bought Miami Coin at a low price could amass major influence. 

“So far, Miami Coin has a lot of positive returns. But you don’t know who the original investors are, how much they are holding and what their intentions are,” Subramanian says. “Someone with a monopoly on Miami Coin could basically decide to threaten the city and say, ‘If you don’t do this, we’ll crash the price and cause a lot of pain to you.’” 

There is a way to reduce this threat though, Subramanian says. The writers of the Miami Coin protocol could place limits on digital wallets.  

“In other places in the cryptocurrency sector, there are a lot of governance models that prevent people from taking over,” Subramanian says. 

The concept behind Miami Coin has continued to gain popularity. After launching Miami Coin, City Coins has created similar cryptocurrencies for the governments of New York City and Austin, Texas.

Questions remain about the Miami Coin's future. Notably, FIU professors have explored whether the coin could be officially classified as a real currency, security, commodity or asset. There is also the issue of how Miami Coin might be taxed. But one thing is for sure: this cryptocurrency is raising new possibilities and questions about how the public can interact with government bodies.