The Failed Crypto Coin Experiment in Iceland

Hallgrímur Oddsson
Nov 5, 2014 · 4 min read

In late March 2014 a pseudonym character called Baldur Friggjar Odinsson gave every Icelander the chance to claim almost $400 worth of a new crypto currency, totally free of charge. He called it Auroracoin and his goal was nothing less than to “break the shackles of the fiat currency financial system in Iceland”. Today, nearly 8 months later, it is safe to say that this first geographically concentrated cryptocoin experiment has failed. Nonetheless, others, in countries such as Ireland, Spain and Scotland, have followed suit, attempting to localize a virtual currency.

It is still not known who’s behind pseudonym Baldur Friggjar. Maybe Newsweek could help?

Mr. Odinsson set his goals high and connected his new currency directly to the aftermath of the financial crash in Iceland in 2008, when all of the biggest banks went bankrupt and capital controls were established. He wanted Auroracoin to be an alternative to the Icelandic krona, “breaking the shackles” of capital controls.

What goes up must come down. Like a lightning. The picture above is a screenshot taken from this website.

Virtual currency traders must have believed Auroracoin would break ground in Iceland. Days before the announced “Airdrop”, where every Icelander could claim 31,8 AUR of the pre-mined pile (50% of the total Auroracoins), price spiked upwards. For a short time, Auroracoin was the third biggest virtual currency in existence, behind only Bitcoin and Ripple. Icelanders were to share over a hundred millions of dollars worth of virtual currency. Or so it seemed.

The Icelandic nation knows a currency crisis when it sees one. At least it should. Just like in 2008 when the national currency Krona lost almost 80% of its value, AUR began devaluing as soon as everyone started claiming their share. About 10% of the nation’s 330 thousand Social Security Numbers were used to claim Auroracoins. It’s possible that some users claimed AURs with several different SSNs, perhaps from family members, making it unlikely that 33 thousand Icelanders actually claimed Auroracoins. What’s certain is that some random guy (or group) was offering every Icelander something worth $400. Thousands grabbed the opportunity. Heck, I didn’t hesitate in claiming mine!

The devaluation happened quickly. Over the first days it fell over 50%. Auroiracoin has now dropped more than 99.9% from its market valuation on launch day, March 25th. Although it’s still out there, it’s only living dead.

This graph shows the devaluation of Auroracoin over the last 180 days, up to November 5th 2014.

In need of Participants

When Auroracoin was launched it claimed a lot of attention, amongst the public, politicians, the crypto currency society and the media. However, very few Icelandic shops and services accepted payments in AUR. For a geographically based virtual currency to establish itself, it must have a use beyond market speculation. If not, it only serves a purpose for traders or speculators, just like a never-going-to-be-used-by-me barrel of oil or ton of rice at the Chicago Commodity Stock Exchange.

“Crypto? I’d rather have cash, please..” Most store owners seems not ready for virtual currency.

Unfortunately, that was the case for Auroracoin. Price stability, a key factor that would lead shop owners to at least think about accepting a virtual currency, was missing by default. Mr. Odinsson plan was to distribute half of the total amount in three rounds, every four months. That means every time a new round of free coins for Icelanders became available (there have been two out of three up to date), it devalues. The law of supply and demand will not be boycotted. The “airdrops” were equivalent to a central bank printing money. Print too much, the unit will become less valuable, measured against other types of units. For Auroracoin, this was obvious after the first airdrop in March.

Others follow — and fail

As the still-catastrophic world of virtual currencies continues to develop, cryptocoin enthusiasts in Spain, Scotland, Britain and Ireland have all attempted their own local crypto currency: Spaincoin, Scotcoin, Britcoin and Gaelcoin. None of them have seen market cap close to 120 million dollars, like Auroracoin did on the day it was launched. Some are even virtually dead, only few months after creation. Perhaps no one will ever manage to create and distribute the alternative currency they all claim to be, never breaking any “shackles” or helping fellow citizens in any meaningful way. The first one to succeed, if anyone, will be the creator who establish virtual currency usage beyond market speculations.

Note:

I wrote this article in September 2014, mainly as a follow up of a piece I wrote for the Icelandic media site Kjarninn.is. In that article I focused on the idea behind Auroracoin, the newly established all-Icelandic cryptocoin. I interviewed David Lio of CoinHeavy, a cryptocoin enthusiast based in New York City. He got involved with Auroracoin project and told me his side of it all. The article is in Icelandic and can be read here. I hope Google Translate helps.

For various reasons this article, on the now-known failed crypto coin experience, was not published until now, here, on Medium.com. I only made minor changes before it was published, regarding time since the Auroracoin launch and other dating.

The Nordic Web

The Number 1 Resource for Insight and Analysis on Nordic Startups.

    Hallgrímur Oddsson

    Written by

    Icelandic journalist & economist currently living in New York City. Interested in almost everything except pets.

    The Nordic Web

    The Number 1 Resource for Insight and Analysis on Nordic Startups.