One of the things I like the most about the cryptocurrencies model is that it gives an alternative. An alternative to the standard financial model, where you have a centralized certification authority and issuer, which issues new coins, banknotes, or whatever is the name of the payment object for the payment system. One big problem with that system is that it leads to centralization and naturally converts the places with issuer rights (aka central banks) into cosmopolitan districts. The traditional banking system gives them much more economic power than the smaller and more rural communities.

In comparison with cryptocurrencies, everyone can open a bank. We even can choose whether to have a distributed or centralized issuing model. In Bitcoin, for example, the issuing model is a distributed one, and this choice regularly leads to significant fluctuations in the exchange rates with the standard fiat-based currencies. Additionally, there is a cap on the number of Bitcoins, which can be issued, and this way, there is no realistic option for fighting inflation or even speculations. Having that in mind, I think we could agree that the Bitcoin model is far from ideal and could only play a digital alternative for gold, which automatically means that Bitcoin is not a currency in the traditional sense.

On the diagram, you can see a standard blockchain architecture, where the ledger is distributed, leading to distributed transaction signing and verification

Let’s analyze what will happen with the other model of a centralized issuer and no cap for issuing new coins. Still, it is essential to note that the transaction verification will remain distributed, such as in Bitcoin, but we will centralize only the issuing part. For sure, the model will need a legal way to inject itself into the standard fiat financial model and play nicely with it. At the same time, if we want to increase the local communities’ economic power, we shall need a solid local legal government-based entity doing the coin generation. And such a legal entity is the local area municipality.

Such an idea will effectively transform every municipality into a local central bank issuing new coins based on the economic stats for the metropolitan area governed by it. Additionally, at the moment, all the taxes are sent to the centralized bank. Once per year, the government decides how to distribute these taxes to all different city areas’ budgets. As an alternative, with the proposed model, we could choose to receive 30% of our income in the local municipality cryptocurrency and even pay our taxes on this 30% to the local municipality-based bank. Furthermore, the municipality could use this money to plan its budget.

In conclusion, cryptocurrencies can give us quite interesting financial alternatives. For sure, the exchange rates system between the different local municipality-based currencies will be an exciting problem to solve. However, we should keep in mind that we are already solving this problem globally, and we could take inspiration from how it is already solved. Some smaller cities and towns already tried issuing their cryptocurrencies. But, without the local taxes part, such endeavors are not economically viable and will not lead to any mass scale change.