Cesare Fracassi likens this moment in cryptocurrency’s history to the Internet in the early '90s: A select number of people were using it, while the rest of us were pretty wary of it.
“It was slow, it was not very user-friendly and only people that were really into tech were doing it,” Fracassi, an associate professor of finance at UT Austin, said.
But he anticipates cryptocurrency will eventually go the way of the Internet: Though most people may not be be able to explain how it works, they'll use it every day.
And maybe, one day, your city government will, too.
Austin City Council members on Thursday voted in favor of considering — yes, this is very preliminary — whether the city should dip its toes, if you will, into the cryptocurrency sea. The resolution asks the city manager to look into what it would mean for the city to adopt, use or hold cryptocurrency, including the most well-known type, Bitcoin.
"Like many of you, I'm also skeptical. But this is just a study," Council Member Mackenzie Kelly, who represents Far Northwest Austin and brought the resolution forward, said before the vote. "I believe that it will provide us with more information back to the community so when this question continues to come back to us we can actually point to a document that tells them whether or not we can accomplish these things."
Kelly told KUT she does not own any cryptocurrency.
Three of the 11-member council abstained from the vote, including Mayor Pro Tem Alison Alter and Council Members Kathie Tovo and Leslie Pool.
"I am really uncomfortable with the notion of us accepting payments in crypto anytime soon," Alter said.
The council also voted in favor of an item from Mayor Steve Adler that asks city management to consider the uses of and to promote blockchain technology.
Confused about what cryptocurrency and blockchain are? Not a white man? That’s all right. Let me try to explain.
Let’s start with blockchain, the platform through which cryptocurrency flows. Experts describe it as a “digital ledger,” a place where transactions are both decentralized — i.e., not overseen by a bank — and impossible to erase.
“The blockchain is a real breakthrough in accounting,” David Yermack, a professor of finance at New York University Stern School of Business, said. “It's really the biggest thing since double-entry bookkeeping, which was invented about 700 years ago.”
Local governments keep millions of records — think vehicle registrations, real estate deeds, building inspections.
“There are so many public ledgers that are not well-maintained and not terribly secure that if these migrated to blockchains, that would create, I think, a lot of benefits and cost savings for taxpayers,” Yermack said.
“[Cryptocurrency has] just been one of the riskiest investments you could possibly imagine. It behaves a lot like a technology stock.”David Yermack, professor of finance at NYU
The City of Austin has already tried out some uses of blockchain technology. In 2017, the city received $100,000 in grant money to pilot the use of blockchain to help people living on the streets keep track of their personal records.
Yermack is less enthusiastic, though, when he considers whether local governments should become involved in cryptocurrencies. Cryptocurrency is digital money that can be bought and traded, with transactions recorded via the blockchain (that public ledger). Think of it like stock shares, but you have access to the cash without selling your investment; in other words, you could pay for a cup of coffee with your shares in Starbucks.
But in the same way stocks are subject to an often volatile market, the value of crypto fluctuates.
“It's just been one of the riskiest investments you could possibly imagine," Yermack said. "It behaves a lot like a technology stock.”
In one case, the value of Bitcoin fell 20% in minutes.
If Austin's local government does indeed get involved in cryptocurrency, it would be following cities like Miami and New York. New York City’s new mayor, Eric Adams, said in November he would accept his first three paychecks in cryptocurrency. By doing so, the mayor may have lost some money.
That’s where this whole thing loses legitimacy for Yermack.
“100% this is a publicity stunt,” he said of local governments getting into cryptocurrency.
Fracassi, though, sees some potential.
“The question is, what is the right thing that government should do? I'm pretty much in favor of using cryptos as a form of payment as long as it's more efficient than the traditional form of payments,” he said.
People could pay their property taxes in Bitcoin or Ethereum or Polka Dot (yes, this is a type of cryptocurrency), Fracassi said. Governments that currently accept crypto payments immediately turn it into legal tender, he said, so the government isn’t holding onto what is akin to shares of a volatile stock.
“Should the government own shares of Tesla? Probably not,” Fracassi said.
Jordan Cooley, a graduate student at UT Austin who researches city implementation of cryptocurrency, said there is the opportunity for digital currency to break down barriers marginalized communities historically have faced when dealing with banks.
For instance, people of color have more trouble than white people qualifying for mortgages.
“If you need a small business loan or if you need a personal loan … you can access this liquid fund without all of the barriers of going to a bank and having to put in an application and having to wait that amount of time,” she said.
At a meeting Tuesday, several council members expressed concerns about spending time studying how the city could use cryptocurrency.
“We have some really basic technology challenges that we have not mastered, like electronic timesheets,” Alter said. “I do worry about us going too far into blockchain and these fancy things when we have some real basic technology challenges that we need to be focusing our energy on.”
