Auroracoin, the “cryptocurrency for Iceland”, will begin distributing auroracoins to the country’s citizens this week, starting tomorrow, 25th March.
The distribution, which is being called Airdrop, will send 50% of the total auroracoins in circulation to the country’s populace. Icelandic residents that enter their permanent resident ID on auroracoin’s official website will receive 31.8 AUR (roughly $385 at press time).
The fourth-place digital currency in terms of overall market cap, Auroracoin quickly rose to prominence amongst the myriad new digital currencies for its unique approach to community building. Further, as it climbed up the market cap leaderboard, auroracoin spawned a wave of imitators that has so far included scotcoin and spaincoin, among others.
Part of the reason for the interest was the altcoin’s strong nationalistic message.
Auroracoin’s creator, Baldur Friggjar Óðinsson, told CoinDesk the purpose is to give Iceland an alternative form of money to the Icelandic krona, or ISK:
“They [the government] want to force people to use a ruined currency, the ISK, of which they have printed way too much and which will be heavily sold when people will be free to do so.”
This idea that digital currency could be a liberating force, quickly spread.
But, this week’s Airdop may have the final say on whether or not it has a lasting impact on Iceland and the digital currency community in 2014 and beyond.
How the Airdrop will work
In a detailed Airdrop blueprint section of the auroracoin website, there is a strategic plan in place to distribute the altcoin to Iceland’s residents in stages.
Over the next four months, everyone in Iceland with valid permanent residency ID will be able to obtain 31.8 auroracoin. After that, there will be two additional stages where remaining AUR will be distributed. That amount will come from the remainder of the total premined 10.5M AUR set aside for Airdrop.
The stages are:
- Stage 1 – Every Icelander will be able to claim a gift from me [Óðinsson] of 31.8 AUR, commencing on midnight March 25th. This stage will last 4 months.
- Stage 2 – The Airdrop is reset. Every Icelander will be able to claim a part of the coins leftover from Stage 1 in the premine addresses. The amount of coins shall be calculated in the following way: (Stage 1 remaining coins / 330,000 = coins awarded). In this stage and the following, both the original recipients of the coins will be able to retrieve their gifts, as well as other Icelanders. This stage will last another 4 months.
- Stage 3 – The Airdrop is reset again. Every Icelander will again be able to claim a part of the coins, leftover from Stage 2 in the premine addresses. The amount of coins shall be calculated in the following way: (Stage 2 remaining coins / 330,000 = coins awarded). This stage will last 4 months. At all stages the claimed coins will be a irreversible gift with full transfer of ownership.
Óðinsson warns on the blueprint page itself that there are uncertainties with Airdrop:
“I can not guarantee a 100% fair outcome of the Airdrop and no claim can be made against me if there are imperfections in the process.”
Experts offer predictions
Auroracoin is an intruiging effort to many, not in terms of technological innovation, but in how it could mark the beginning of a new precedent for digital currency dispersion and marketing.
Travis Skweres, the CEO of altcoin exchange CoinMKT, addressed this point when speaking to CoinDesk:
“One of the biggest problems that bitcoin faces is distribution. If [auroracoin] is wildly successful, I think we will see this model emulated in the future, it could be a very very big deal.”
Auroracoin is challenged by a lack of awareness, however, argues Dan Held, co-founder of Zeroblock and a product manager at Blockchain.info.
“I think the concept of adding cryptocurrency as a meta layer on top of a pre-existing demographic is a cool idea, [but] I highly doubt more than 1% of the Icelandic population even knows about it.”
Others indicate that auroracoin’s core technology will be its biggest obstacle.
Peter Bushnell, the founder of feathercoin, noted that scrypt ASICs, which may lead to centralized mining operations, are coming soon.
“I remember several SHA-256 coins being devastated by SHA-256 ASICs when they turned up. I am not sure why auroracoin or any other coin right now would launch scrypt coins.”
Still, until it proves successful, some simply view it as an interesting novelty.
Adam Draper, whose Boost VC incubator accelerates bitcoin startups, summed up this view, saying:
“Like bitcoin it is an experiment, however, they are claiming a nationality. I think that is an interesting concept.”
The case for auroracoin
Still, there is a powerful incentive for the country to embrace auroracoin.
In the wake of the 2008 global economic crisis when Iceland’s banks defaulted on $85b, the Iceland government enacted capital controls to protect the krona.
Over the past three years, Iceland’s rate of inflation has been over 4% annually.
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Since enacting capital controls, Iceland has maintained a larger money supply. Source: Trading Economics
In 2009 the IMF published a report that Iceland’s capital controls were actually helping the country, but that over time capital outflow restrictions should be removed gradually.
But, the government has not acted on this advice yet, and there are concerns that the continued controls could cause massive sell-offs of the Krona in the future. A mix of annually high inflation numbers with anxiety about capital controls is the impetus for auroracoin as an alternative for Iceland’s population.
Óðinsson says that auroracoin is a tool to give some power back to Iceland’s people:
“One of the most important power in society is the power over money. That is why the government monopolizes the Icelandic currency.”
Government views
For now, it’s clear that the existing digital currency community has been the most receptive to auroracoin’s message.
Auroracoin’s relatively small number of coins in circulation has created a speculative market for it, and at one point it was more valuable by market capitalization than litecoin.
10-day AUR/BTC pair on Cryptsy, one of the most popular auroracoin markets. Source: Cryptocoincharts
Whether because of speculation or the country’s capital controls, the powers that be in Iceland are suspicious of auroracoin.
On March 14, the country’s Parliamentary Economic Affairs and Trade Committee held a closed meeting to talk about the altcoin. No official notes regarding the meeting’s agenda were made public on the Parliament’s website.
Vice Chair of Economic Affairs and Trade, Pétur Blöndal, told a media outlet at the time that “consumers were not warned of this medium,” as a method of exchange, while the chairman of the committee, Frosti Sigurjónsson, has written on his website that he believes auroracoin is a scam.
Predicting the results
Theories abound on how tomorrow’s airdrop will be received. Given that the general public in Iceland probably knows very little about auroracoin, much less digital currencies, many are anticipating tepid results.
Of course, a number of people could go claim their coins, dump them on the market and fill up the sell order book, dropping the price. Though counterintuitive to the purpose of auroracoin, the fact of the matter is, it’s free money for people living in Iceland, and those inclined will see the opportunity to cash out.
Exchanges see the opportunity, too. UK-based bitcoin buying and selling service Bittylicious has announced today that it will be bringing on auroracoin. Others will do so as well.
Auroracoin, in effect, will allow Icelanders to circumvent currency controls. The question is whether it will cause the price of each coin to drop precipitously.
Images courtesy of auroracoin