LBCOIN — An historical experiment before its time?
On 23 July of 2020, the Bank of Lithuania launched a groundbreaking initiative by issuing LBCOIN, the world‘s first blockchain-based digital collector coin. Being a commemorative collectible, each digital coin or token features one of 20 signatories of Lithuania’s Act of Independence, with the tokens being divided into 6 categories by the signatories’ areas of activity. This issuance is limited to a total of 24,000 tokens. It should be noted that LBCOIN is not legal tender, but is intended as a limited series collector item.
When buying into this initiative, participants receive 6 randomly selected digital tokens which are issued to a user wallet on the LBCOIN private blockchain. A key aspect of LBCOIN is that participants are able to swap tokens online amongst each other, with the goal of collecting a token from each of the 6 categories. Once this has been achieved, then those 6 tokens may optionally be redeemed for a single physical silver commemorative coin.
The project will be closed within 36 months after the start date, after which no further LBCOIN tokens will be available for purchase. Additionally, after 24 months following the commencement of this project, no conversion of tokens to silver coins will be permitted. However, after 18 months of the start of this program, any six tokens may be redeemed for a silver coin, presumably to accommodate participants who were unwilling or unable to swap their tokens online.
The LBCOIN tokens were initially issued on a private blockchain, where they are due to be burned within 36 months after the date of issuance. Importantly, participants have the option of transferring these tokens to the public NEM blockchain, where they will exist without any time limitations.
The secondary market for LBCOIN tokens is unregulated, but these tokens enjoy a premium listing and are publically traded on the EU-based and fully compliant New Capital Exchange.
What is the aim of such a project?
According to Marius Jurgilas, member of the board of the Bank of Lithuania, “LBCOIN is an important experiment in exploring the potential of central bank digital currencies (CBDC).” In addition, such a high-profile initiative demonstrates the forward-thinking attitude and the leading position taken by the Bank of Lithuania regarding the role to be played by central banks in the future issuance of digital currencies.
However, there are other meaningful observations to be considered, namely the current attitude by the actual participants towards digital tokens. Regarding the LBCOIN “experiment”, both the digital tokens and physical silver coins are collectables. Also, it important to note that when the 6 digital tokens are converted to a silver coin, those tokens are “burned” and are lost forever.
So, the big question is: What do collectors prefer? A real silver asset today, or potential digital “gold”? For sure, these collectors must consider the future value of the asset when making the decision to either maintain their investment in the original digital format, or exchange the tokens for a silver coin.
The cost of partaking in this issue and receiving 6 tokens is €99. If those tokens are exchanged for a single LBCOIN AG 925 silver coin (which weighs 26.36 grams), the actual silver value of such a coin was only approximately €24 at the time that this article was written. This is significantly less than the original entry price of €99 for purchasing the 6 tokens, even though there is some indication of a demand in marketplaces such as eBay, where the silver coins are on offer for upwards of €120. When considering the current valuation of the digital asset verse the physical coin, it should be noted that the LBCOIN tokens are already fetching a significant premium on the New Capital Exchange.
Given the fact that the silver coin basically has to quadruple in value in order to recover the initial investment amount, would it not make more sense to leave the LBCOIN in the digital format and look forward to this asset appreciating in value?
After all, it is clear that some participants will exchange the digital for the physical asset, thereby destroying their digital assets and adding scarcity and value to the remaining tokens. In addition, one would suppose that participants will have recognized the issuance of LBCOIN as an important event in the evolution of digital assets, and would therefore appreciate the rarity and collectability of such a token.
However, it seems that a significant number of LBCOIN participants have already exchanged their 6 digital tokens for a single silver coin. We do not have exact statistics regarding this conversion process, but current indicators are sufficient to open a meaningful discussion regarding this “experiment”. In addition, observing the very limited number of tokens that have been moved from the private to the public blockchain where they will never expire, it may be assumed that most tokens are being left on the original private blockchain for their prospective conversion to silver assets. For those interested in monitoring the hot wallet on the LBCOIN tokens on the public blockchain, we have included the wallet address for your information.
It seems that given the binary choice between collecting either a digital or physical asset, the traditional attitude towards trusting hard physical assets has won the day. This does not specifically indicate that the purchasers of LBCOIN cannot envisage nor appreciate the inevitable upcoming mass adoption in the use of digital assets. Rather, it may be that, at this relatively early stage of the digital transformation, participants do not have sufficient faith in the safety, security and reliability of the components that make up the blockchain and wallet infrastructure to trust their assets to this rapidly evolving architecture.
We look forward to receiving accurate statistics regarding the LBCOIN conversion rates from the Bank of Lithuania, as these results may indicate to the cryptocurrency industry the level of acceptance of digital assets by the community at large. Also, it would be interesting to repeat such an exercise in the near future, to gauge the evolution of the perception by participants towards the use of digital assets.
As an aside, there are still a limited number of LBCOIN sets available, and we encourage participation in this historical initiative.
