A post we previously published on Coinbet.com attempted to answer the question of where cryptocurrency gets its value from. We surmised three possibilities: pricing, utility, or a combination of both. We would like to take that thinking a step further in this post by discussing a new local coin about to be launched in South Korea. The coin epitomizes the original intent of crypto. It also gives us a little more clarity in regard to utility.
The utility of a cryptocurrency boils down to what it is used for. One particular crypto may only have a single purpose while another has multiple purposes. At the end of the day though, those purposes define utility. This is easier to understand if you look at it in terms of Bitcoin gambling.
Bitcoin has always been a monetary system first. That's why it was originally created. For the digital coins that bear the Bitcoin name to be worth anything, consumers have to be able to spend them. They have to be able to use their bitcoins as money with actual purchasing power. Bitcoin gambling offers such an opportunity. Bitcoin gambling demonstrates the utility of bitcoins as a means of making digital payments.
South Korea's local coin
With the explanation of utility out of the way, let us talk about South Korea's pending local coin. Known as the K token, the coin is set to be tested in a pilot project in March 2019, then released to the general public in April. It is considered a local coin because it will only be available in the city of Gimpo in Gyeonggi Province.
City government intends to issue the equivalent of 11 billion won (USD $9.7 million) in K tokens every year. Some of the digital currency will be allocated for social services and city development projects; the rest will be made available to consumers and merchants.
The interesting thing about it is that K token coins will only have value inside the city. Consumers who hold the coins will be able to freely spend them with merchants located in the city, but nowhere else. As for the merchants, they will have the freedom to convert their coins to fiat currency and transferred to a business bank account anytime they like. Sources say that the transactions will be offered without fees.
Expanding beyond Gimpo
City government has contracted with KT Corporation, one of the leading telecom companies in South Korea, to create the K token cryptocurrency. It turns out that the company has their eye on expanding outside of Gimpo at some point in the future. That essentially makes this first project a trial run.
Assuming things go well in Gimpo, KT Corporation intends to pitch the idea to municipalities they think might benefit from their own local coins. So all eyes will be on Gimpo and the performance of K token for the remainder of the year. By early 2020, KT Corporation could be looking at a number of additional municipalities hoping to develop local coins.
Why go local?
Gimpo's foray into cryptocurrency is by no means a first. As you know, Venezuela became the first country to issue a state-backed coin in 2018. The Marshall Islands recently jumped into the cryptocurrency pool by announcing a new coin they would recognize as legal tender and an alternative to the U.S. dollar. We also know of other countries entertaining the possibility of establishing cryptocurrencies, including the U.S., Canada, and the UK.
What makes this project different is that it is local. Both the coins and the ability to spend them will be confined to Gimpo. But does that make sense? Shouldn't the city be looking at cryptocurrency with a more broad view? That depends on your vision for cryptocurrency as a monetary system.
Issuing a local coin makes a lot of sense when you understand the underlying principles of the granddaddy of them all, Bitcoin. Remember that Bitcoin was primarily developed as a monetary system. More specifically, it was developed to be a decentralized monetary system free from the control of government and central banks.
Despite K token being politically backed by city government, it appears to remain as close to the original intent of Bitcoin as anything else we have seen. As a local coin, it offers quite a few advantages:
- No Central Banks - A local coin is highly unlikely to ever be influenced by or brought under the control of a central bank. There is no need for a central bank to get involved in what is nothing more than a local asset used only by local merchants.
- Economic Protection - By keeping the coins confined to the local area, city officials are providing a bit of extra protection to the local economy. The coins will remain locally, prompting consumers to do business locally. Those from the outside who want to do business in the city might be motivated to remain loyal to local merchants because of the coin.
- Greater Efficiency - As you know, the fact that cryptocurrency payments are digitized makes them more efficient and faster. Consumers and merchants will not be bogged down by traditional payment systems, which should facilitate more economic activity.
- Governance - There are always questions of governance with global cryptocurrency like Bitcoin. Keeping things local reduces the likelihood of conflict while simultaneously encouraging local players to not run afoul of the rules.
A local coin epitomizes the original intent of cryptocurrency by maintaining control within the hands of average buyers and sellers. The local nature of K token is such that investors will be dissuaded from putting their money into it. It is such that large-scale mining will not be necessary. Moreover, the elimination of these two concerns naturally prevents outsiders from coming in and trying to gain a controlling interest.
The one downside to local
It is hard to argue against the advantages of local coins. However, there is no such thing as perfection. There is one big downside to the local mindset: limited utility.
Remember that question of value we opened this post with? If the value of a cryptocurrency is determined by its utility, limited utility would also limit value. That is just common sense. Therein lies the one negative aspect of a local coin. It has no value outside of its local area.
If you are a Gimpo resident looking forward to the arrival of K token, know that you will not be able to use your coins to play MegaMoolah.com. Any desire to make a cryptocurrency deposit on your part will require that you exchange some of your K token coins for fiat, then convert that fiat into bitcoins or another mainstream crypto. Only then can you make the deposit.
You will also not be able to use your tokens to buy online from merchants not located in your city. Again, you will have to go through the two-step conversion process if you want to use cryptocurrency to make your purchases anyway. Do you see where this leads?
Still a better option
Proponents of local coins acknowledge the utility problem. But that notwithstanding, many of them believe that local coins are still a better option. Their biggest reason is that local coins live up to the ideals of cryptocurrency better than global coins. They may have a valid point.
But what if every municipality in South Korea created its own coin? Wouldn't that be as confusing as every city printing its own fiat? It could be, but it doesn't have to be. South Korea could maintain its fiat in the midst of dozens of local coins, making it the base currency that ties everything together.
Residents in each city can utilize their respective coins to transact business with local merchants. They might even use it to pay their taxes along with other local fees. When it comes time to do business outside of their cities, consumers can still use fiat or purchase a global crypto instead.
K Token is a gamble
The team here at Coinbet.com will be watching Gimpo with great anticipation over the coming months. We want to stay abreast of just what happens with K token. Why? Because it looks like quite a gamble on the city's part. This is a project that could end up costing them a ton of money that it never gets back through the issuance of coins.
On the other hand, it could turn out to be a smashing success. It could be that a year from now we are all singing the praises of forward-thinking city leaders who came up with a creative way to level the economic playing field in their tiny corner of the globe.
In the end, K token epitomizes the original intent of cryptocurrency. So it would appear as though the real question before us is whether or not that original intent is practical and achievable. We are about to find out. K token will tell us a lot before the year is out.