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Introducing Ecuador's Official, Government Sanctioned Cryptocurrency

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Auroracoin Was From Iceland With Love

The one that started it all.
The one that started it all.

In March 2014 someone calling themselves “Baldur Friggjar Odinsson” decided to release the first national cryptocurrency, Auroracoin. Designed to replace the Icelandic Krona, this was a bold idea, and half of the 10 million Aurora to ever exist were pre-mined as part of an “airdrop” campaign. In this airdrop, the Icelandic national registry would be employed to distribute the new crypto to the citizens of the nation.

The stated reason for this new crypto was the consistent loss of value of the Krona over the past five decades. The airdrop was scheduled to take three phases, with each round being open to the entire population of ~320,000. This would allow early adopters to accumulate larger shares of the new crypto since each round would divide the remaining number from the previous round. If you wanted your full share, best to adopt early otherwise you get a smaller initial share. Baldur claimed that distributing 5 million Auroracoin to the population up front, then allowing standard mining to complete the rest, would allow a smooth transition from the Krona to the Aurora.

As the timer ticked down to the date of the airdrop, anticipation built. I  even personally visited the Icelandic Consulate in San Francisco to discuss the matter with Robert Cartwright, the Consulate General. Unfortunately, Mr. Cartwright, while exceedingly polite, didn’t really know anything about it.

An Idea Spreads:  Spaincoin, Mazacoin, and SiliconValleycoin Emege

The Official (?) Cryptocurrency of the Oglala Sioux Nation
The Official (?) Cryptocurrency of the Oglala Sioux Nation

Meanwhile, the value of Auroracoin skyrocketed, peaking at an astounding $68 each before plummeting to their current level of $.07. Still, as we have seen so often, there were a rush of imitators such as  Spaincoin, Mazacoin (for the Oglala Sioux), and even SiliconValleycoin. Spaincoin was an outright scam, and Mazacoin claimed to represent an indigenous Native American nation, but that was a surprise to the Oglala Sioux representatives that I spoke to about it three months ago. Attempts to speak with Payu Harris, creator of Mazacoin, were unproductive.

Isracoin:  A Piece of the Middle East

Isracoin:  An Open Defiance of Anti-Semitic Stereotyping
Isracoin: An Open Defiance of Anti-Semitic Stereotyping

The next major movement in the national crypto scene was the development of Isracoin, the national crypto of Israel. Using a 4-stage airdrop plan, more thought-out and detailed than that of Auroracoin, this crypto had a more nuanced approach to the adoption/distribution plan. Isracoin’s developers pre-mined 10% of their Scrypt-based coin and distributed 500 Isr each to the first 50,000 businesses that applied for them thus releasing 25,000,000  into the wild. That number, as large as it is, only represents .52% of the total coins.

Phase II, wherein Isr will be distributed to the actual population, will have a 3-part series wherein Israeli citizens who can prove themselves will each receive 100 Isr. That offer is extended to 2,850,000 people, totalling an additional 285,000,000 Isr in circulation. And that’s only 5.9% of the total Isr.

Phase III will see the implementation of a credit grant of 5,000 Isr for businesses that accept Isr as a payment method. This is limited to the first 10,000 businesses to apply after Phase-III begins, and is also limited to a max value of $10,000 determined by the exchange rates on the date of grant. The grant is solely for the purpose, and use, between businesses who accept Isracoin as a payment method, and will be carried out through an intermediary system, rather than given directly to the credit-applicant. The total allotment of Isracoins for this phase is 50,000,000 or 1.04% of total coins.

The final phase of the airdrop will be Phase-IV, and is the implementation of a fund for economic development of the Israeli market using Isracoins. This fund will finance operational costs and further development, invest in Israeli startups, donate to charity and support projects that promote equal opportunity and/or economic freedom in Israel. The fund will invest and donate Isracoins, and require recipients to mostly use ISR directly, instead of exchanging it for other currencies. The total allotment of for this phase is 120,000,000, equal to 2.5% of the total.

It’s unclear at this time if Isracoin is going to have any more success than Aurora has, but we do know the price has never reached the same level that Aurora did. Isracoin peaked at $0.68 and is now at $0.007 each. However, we are still in Phase I of their airdrop, so it is worth watching.

These early National Cryptos have all been developed by independent actors, who all claimed that they were intending to help their respective constituencies escape from central bank,s and the whims of the global banking elite. Needless to say, this was not going to win them any points with the ‘Masters of the Universe’ who have a great deal to lose should any of these altcoins succeed. Even the insanely large number of Isracoins eventually slated to exist could be a major threat to the Israeli shekel.

The Meso-American Dream:  Ecuador Creating an Official National Cryptocurrency

I can see this on a coin.
I can see this on a coin.

Now, in a move that has shocked many, Ecuador has announced that they intend to develop and distribute their own national cryptocurrency, while simultaneously banning Bitcoin and other cryptocurrencies. Last month Ecuador’s Congress approved legislation to start a digital currency for use alongside the U.S. dollar, the official national currency. Once signed into law, the country will begin using the as-yet-unnamed crypto as soon as October.  A monetary authority will be established to regulate the money, which will be backed by as-yet unnamed “liquid assets.”

President Rafael Correa, who rose to power in the “Pink Tide” that swept Latin America in the last decade, has increased social spending to unprecedented degrees as part of an investment in national infrastructure. Now, less than six years after walking away from $3.2 billion of dollar-denominated debt, his nation is faced with current-account deficits that are bleeding it dry and record-high financing needs. Using virtual money to pay government workers and contractors would help conserve dollar reserves, but analysts at firms like Landesbank Berlin Investments fear the currency may prompt Correa to boost spending even more and undermine the nation’s ability to repay long-term bonds.

“This is usually the start of debasement, inflation and depreciation,” Lutz Roehmeyer, who helps manage about $1.1 billion of emerging-market assets at Landesbank Berlin, including Ecuadorean debt, said in an interview with Bloonberg. Roehmeyer, who’s been investing in Ecuador for more than 15 years plans to reduce his holdings of the nation’s debt. Landesbank Berlin holds a portion of the $2 billion of bonds that Ecuador sold in June, making this develop of major interest to them.

Government ministers are being highly secretive about the whole affair, with the Economic Policy Ministry declining to comment and referring questions to the central bank. The bank’s press office, however, also refused to comment and referred reporters to a June resolution signed by the bank’s general manager, Mateo Villalba. The resolution says electronic dollars will be backed by liquid assets and can’t be swapped for government bonds. Needless to say this doesn’t explain anything, and the way the situation is being handled is naturally causing concern in the financial sector.

How Did Ecuador Get To The Point Of Creating A National Cryptocurrency?

In 2000 Ecuador adopted the US dollar as it’s sole currency in an attempt to curb inflation and stabilize the economy. In the past four years, however, they have posted current-account deficits each time, largely due to Correa’s social spending programs. This year his ministers projection a $4.5 billion budget gap. To prevent a dollar shortage from stymieing public spending, Correa offered more than half of Ecuador’s gold reserves as collateral to obtain a $400 million loan from Goldman Sachs Group Inc. in May. The same month, it reached an accord with China to borrow $2 billion in return for future oil output, which is going to be interesting as Ecuador’s oil reserves are dwindling.

Then in June, the government sold $2 billion in debt by packaging it as junk bonds, according to Bloomberg. Even that wasn’t enough with Correa seeking help from the Latin American Reserve Fund, Flar, a month later for a $618 million loan. All of this is part of an estimated $35 billion Ecuador will need to borrow through 2017, after which presumably the investments in education and poverty relief should begin to be seen.

Nation-building is a time-intensive process, and in the Digital Age return on investment is demanded NOW not in a decade, so Ecuador’s economy is in a very precarious position.

Some, like Jose Mieles, an economist at Quito-based research institute Cordes fear that the new currency will be used to pay the nations bills. It is a very real concern as members of Correa’s party defeated efforts by industry groups to include a guarantee to back up the new currency with an equal amount of dollars in the new law.

“The problem would be if they began to pay local creditors” Mieles said in an interview. “They could use these resources to get immediate liquidity.”

Others, like Juan Lorenzo Maldonado, a Latin America economist at Credit Suisse Group AG, are more sanguine about this new development.

“If they find a way to make an efficient use of the electronic currency to manage just certain types of payments and make some procedures easier and faster, and they hold themselves on doing it responsibly, it may be a good thing,” he said.

Steffen Reichold of Stone Harbor Investment Partners LP, and others like him, worry that Ecuadorans may try to get their savings out of the country to avoid being paid with virtual money. Stone Harbor oversees $65.3 billion of Ecuadorean assets, and has a legitimate reason for concern.

“I wouldn’t want to be converted into a new currency managed by an untested central bank,” Reichold said. Creating a currency “isn’t straightforward even when you’re in a country with a perfect track record of successful economic management, and I don’t think Ecuador is in that category.”

Whether Ecuador actually follows through on this plan or not remains to be seen. All we know for certain, however, is that Correa’s government, as indebted as it is, is still capable of hiring a team capable of adapting any of the existing cryptocurrencies for their use. It is also feasible for them to develop a new crypto from scratch and implement it in 90 days or less.

What remains to be seen, however, is how successful this experiment will be.



Coin Brief is an open source website for digital news. It provides cryptocurrency tools, mining calculators, tutorials, and more. It was acquired by 99Bitcoins on September 2015.

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