How localities are buying into cryptocurrency and the tech behind it

A few weeks ago, a friend tried to explain NFTs to me. Non-fungible tokens (more on them below) are one of the latest ways that blockchain technology has infiltrated our economy and after that conversation, I suddenly started seeing references to blockchain, cryptocurrency and NFTs everywhere. This week’s newsletter examines how governments are dealing with—and embracing—the digital currency economy.

The mainstreaming of blockchain

If ever there was a sign that blockchain was becoming mainstream, it’s the fact that new companies are popping up that finally allow institutional investors to get into the game. One of those is the Morgan Creek Blockchain Opportunities Fund, which Fairfax County, Virginia's employee fund and its police officers pension both invested in last year. Others include Riot Blockchain, Marathon Digital Holdings and NYDIG. All three have pension funds among their clients or investors, as I wrote about for Route Fifty last week.

Blockchain is a type of distributed ledger technology, which allows users to record data and transactions instantaneously in a way that is unhackable. It’s the tech behind cryptocurrency and can also be used for things like identity verification, real estate transactions and medical data storage. 

By all accounts, the institutional investment in blockchain and related technologies is expected to grow. Grayscale Investors, the world’s largest digital asset manager, told Bloomberg last year that they expect pension funds and endowments to fuel their future growth. Not everyone is thrilled with this development. The conservative-leaning Reason Foundation’s Swaroop Bhagavatula says “Bitcoin is just too volatile at this point” and its risks “far outweigh the benefits.”

The takeaway: Blockchain = economic growth. This growing institutional acceptance comes as more states are regulating cryptocurrency and/or adopting blockchain in some fashion. At the same time, some cities and states are targeting blockchain as an opportunity to grow their local economy. Cleveland has taken steps to become a hub for blockchain companies. Miami and New York City are in a friendly race to become the world’s cryptocurrency capital. And Wyoming has set itself up as the premier regulatory haven for cryptocurrency. 

All of this activity signals that some places have decided the digital asset economy is the next big growth opportunity and leaders are racing to get in on the ground floor. As investment manager Gerry Frigon put it to me recently, “This is the next iteration of technology…I think it will completely change the way we make our investments and the ways we invest in growth companies.”

The cities turning to cryptocurrency in a big way

Local governments have been interested in cryptocurrency like Bitcoin and Ethereum for years, and some have begun accepting it as a form of payment for certain transactions. But recently, a few places have decided to go even further.