U.S. cities challenging the federal government’s new policies are at risk of going bankrupt due to their reliance on the government for their finances. President Donald Trump has threatened to deprive “sanctuary cities,” or cities challenging the administration’s immigration crackdown, from federal funds. The Californian City of Berkeley, which is argued to be the original sanctuary city, is using technology to bail itself out of this financial crisis. “We’re not going to accept that there’s no money, we’re going to create it,” says Berkeley’s City Council-member Ben Bartlett. To strengthen its local financial independence, Berkeley has decided to exploit existing technology and become the first U.S. city to allow investments in blockchain.
Represented in the City Council-member and Mayor Jesse Arreguín, Berkeley is partnering with Blockchain Lab and finance technology company Neighborly to create an initial coin offering. The Berkeley Blockchain Initiative will help crowd-fund cryptocurrency, allowing Berkeley to take control of fundraising.
Blockchain is a computerized technology that facilitates secure online transactions. A blockchain is a decentralized and distributed digital ledger that is used to record transactions across many computers so that the record cannot be changed retroactively without altering subsequent blocks and the collusion of the network.
In other words, and according to Investopedia, a blockchain is the equivalent of a full history of banking transactions. Transactions are entered chronologically into a blockchain in the same way that bank transactions are, with blocks acting like individual bank statements. The technology uses a digital ledger to efficiently share and track information related to contracts and transactions, the records of which are permanent, verifiable, and secure.
The city is hoping that blockchain investments in its economy will cover affordable housing, homeless shelters, ambulances, street trees, and a community theater. “Blockchain technology is the future of public finance and human economic interactions,” Bartlett added.
Berkeley is home to a population of 121,240, 1,000 of whom are homeless, largely as a result of rising rents. Arreguín and Bartlett agree that homelessness is a “key issue” in Berkeley and have called it that on their websites. “Issuers like Berkeley could use cryptobonds to finance affordable housing and the critical social services that Berkeley needs to address its growing homelessness population while meeting the needs of the socially-minded Berkeley investor,” says Neighborly’s CEO Kiran Jain.
Blockchain investors will potentially be able to spend the cryptocurrency at some Berkeley businesses. Blockchain investors will earn a small return on their investment over time as the city pays them back with interest. “You conceive of an idea, get the costs ready, push it out to the community, they can buy it right away,” Bartlett explains; adding that the investment doesn’t have to be a $100 million bond for a sewer. It could be smaller projects and with lower denominations. The bond is projected to be 50 percent less expensive to investors than conventional municipal bonds.
So far, blockchain technology is being used by governments in Venezuela and Estonia. However, many economists and financial experts argue that blockchain won’t save Venezuela’s economy from international debts amid sanctions. Estonia, on the other hand, has built a strong blockchain model that other countries may benefit from. Dubbed as “the most advanced digital society in the world,” with its estcoin, the ex-Soviet country has become a safe haven for startups.