A new cryptocurrency was created in February, the Auroracoin. It is comparable to Bitcoin (actually it’s based on Litecoin, but that would be too technical for this blog post) and on March 25 every citizen of Iceland will get 31.8 Auroracoins. For free. Just by using their ID number.
That in itself is an interesting experiment, because what will happen when everybody gets a small amount of a crypto currency? Will people start using it and create a second economy or will it not take off? When I first heard about it last month I did not really believe it would work but I still followed the coin a bit.
When Auroracoin was launched the value was very small, so 31 coins did not have a lot of value. But then something unexpected happened: people outside Iceland started to buy the currency before it was even distributed to the citizens of Iceland and the price shot up. Last Friday it was worth about $7 I think, so the total value of the 31 coins would be about $220. At that amount of money it would be likely that most people would claim their coins and maybe start using them.
But what happened over the weekend is unbelievable. The coin’s price exploded, and from $7 on Friday it is now worth over $66 per coin! (Update: while writing this post the price went up to $80 per coin!!!) That means that each person in Iceland will suddenly get over $2000 at the current market value. What might happen now, is that most people will sell the coins the moment they receive them and so the price will plummet. And of course traditional media will pick up the story saying that a Bitcoin experiment showed that people do not want to use Bitcoin.
Or something else might happen: maybe, just maybe, the hackers who created Auroracoin are just some very smart guys who created a hype to get rich quickly. The total value of the coins that they created last month is now worth over $700 million. Today over $17 million was traded, so they have a huge incentive to just forget about the whole experiment and slowly start selling their coins. They could earn a few million dollars per day over the next 22 days (until the coin should be launched on March 25). Not bad for a few weeks of work.
I am not saying that this will happen, but after the Mt. Gox disaster last week nothing surprises me anymore. It turns out that the name of the person that created the coin does not exist in reality. That does not mean that this is a scam, because Satoshi Nakamoto, Bitcoin’s creator is also a pseudonym. Coincidentally Sathoshi holds about 1 million Bitcoins which as today’s market prices is alos worth about $700 million!
Let’s just say there is a big incentive for the creators not to distribute the coins and make themselves rich beyond belief. If they decided to do so, probably nobody would even be able to sue them. The perfect financial crime!
We will find out on March 25 whether the so-called Iceland airdrop will really take place. I personally think it will happen (I still believe that most people are intrinsically good), but I would not be surprised if the whole idea turns out to be a big scam.