The real deal with city-backed cryptocurrency. (PLUS: Rising marijuana tax revenue)

Happy Finance Friday! In this week’s issue, I’ll look at what the crash in city-backed cryptocurrency means, explain the root goals of these high-tech gimmicks and give an update on what the future holds for marijuana tax revenue.

What city-backed crypto is really about

The nascent city-backed cryptocurrency market suffered a blow recently thanks to back-to-back losses totaling more than $1 trillion in value. The latest crash has deflated the value of the cryptocurrencies MiamiCoin and NewYorkCityCoin to record-low levels, Route Fifty reported, and bolstered scrutiny around efforts there and in other cities to incorporate the digital currency into municipal operations.

• See also: Why crypto crashed and what happens next

Because of the way the currency created by the nonprofit CityCoins is mined and distributed, the financial risk is all on the investors and cities themselves haven’t directly lost money. CityCoins’ platform allows its users to mine for new tokens and then select a participating city to support. A computer program allocates 30% of the mined cryptocurrency to that city, while users get the other 70%. 

However, the value of Miami’s digital wallet is certainly affected by the fluctuations in the market. What’s more, city officials who have hyped their namesake currencies risk losing the trust of investors and constituents if the cryptocurrencies fail. 

The core issue: As I wrote about earlier this year, city-backed currency is just one of the ways localities are looking to blockchain technology as a potential revenue game-changer. At the root of these efforts is the good old fashioned “buy local” concept. When people spend their money locally, they help their locality prosper and they become that much more emotionally invested in their community. Cryptocurrency and blockchain offer a new way to do that—and give residents the opportunity to make a little money of their own.

A “buy local” example from history

The Greenwood neighborhood in Tulsa, Oklahoma was one example of how buying local can achieve these goals. At its peak over a century ago, it was home to more than 300 businesses serving roughly 11,000 residents. Because of segregation, it was its own ecosystem and residents reinvested whatever they earned back into their community.