Cryptocurrency has a surprising affinity for cities. On the surface, they seem to be an unlikely pairing—cities are cumbersome, slowly-changing assemblages, firmly grounded in the physical world, while blockchains and their applications are pure abstraction, virtualizing and dematerializing what has been traditionally been rooted in more concrete forms, such as art, money, and communities.
But there are legitimate reasons for Web3 to be interested in cities. Blockchain applications such as DAOs reflect a desire to experiment with novel ways of structuring social arrangements and governance—problems that cities have grappled with throughout history. Cryptocurrency’s disruptive posture, moreover, speaks to a dissatisfaction with how cities are governed. San Francisco, the tech industry’s long-time hub, has come to symbolize many of the failures of contemporary American cities in recent years, with Silicon Valley itself becoming one of the loudest voices of that dissatisfaction.
Cities are also useful metaphors for the digital communities that Web3 seeks to enable and cultivate, embodying the tension between order and messiness that crypto also must balance. The historical evolution of cities has been a process of making physical territory fit for human settlement, just as blockchains have carved out new digital territory. The successes of cities as well as their failures offer examples of system dynamics that Web3 might potentially emulate, or at least learn from.
While cities are useful as metaphors and models, crypto and blockchains also suggest the potential to benefit them more directly, as mechanisms for both improving existing cities and creating new ones. But the history of cities demonstrates the limitations of these efforts as well. Understanding those limitations can help new projects avoid repeating prior mistakes.
In late 2021, Vitalik Buterin wrote a blog post titled “Crypto Cities,” in which he articulates various facets of this potential relationship. “One interesting trend of the last year has been the growth of interest in local government,” he writes, “and in the idea of local governments that have wider variance and do more experimentation.” Buterin lists a variety of recent and ongoing experiments with cities and how they are run—projects involving crypto as well as others that don’t, ranging from Miami’s active courting of tech companies to Reno’s vision for “blockchainifying” the city.
Buterin suggests that crypto offers the opportunity to build upon such existing efforts, summarizing many of tech’s recurring critiques of local and national governments today: inefficiency, slowness, poor responsiveness to citizens’ needs, lack of transparency, and excessive centralization (a particular rhetorical fixation of Web3). He also expresses skepticism about power-consolidating ideas at the national level that attempt to address these shortcomings. “For every idea that can be reasonably described as freedom-expanding or democratic,” Buterin writes, “there are ten that are just different forms of centralized control and walls and universal surveillance.”
Despite their enduring problems, however, cities are also vibrant and dynamic places that encourage many forms of experimentation. This experimental approach can extend to municipal governance and operations themselves—a significant reason for crypto’s interest. Urban applications of blockchain technology have already begun to emerge. One of the most interesting, if fraught, is CityCoins, a crypto-based approach to local taxation that has launched in Miami, New York City, and Austin so far. In a podcast interview, founder Patrick Stanley calls CityCoins “an opt-in tax of opportunity, as opposed to obligation,” in which individuals can bet on a city’s future by buying a token like MiamiCoin. Miners receive these city-specific coins in exchange for a token called STX; the city coins’ stakers receive 70% of the tokens spent mining those coins, while the cities themselves receive the other 30% (CityCoins are also subject to ordinary US taxes just like any other cryptocurrency). The CityCoins website allows users to vote on which cities should adopt the tokens next.
Despite requiring cooperation from a city’s government, CityCoins also represents an effort to circumvent or supplement established processes, as well as a reshuffling of a city’s constituency. In Wired, Adam Willems writes that this localized experiment in municipal taxation may set the tone for the federal government’s approach by simply moving faster. “The ‘we’ of the city may change in the process,” he writes, “no longer defined by geographic borders or bodily location, but by token community and portfolio distribution.” CityCoins also turn taxes into an investment vehicle, Willems notes, one that disproportionately benefits the coins’ early stakers who receive a large cut of the revenue.
To the extent that the CityCoins project gains wide adoption, it will break the traditional connections between taxation and citizenship—there is no requirement, for example, that a city coin’s holders live in that city—and make cities more like publicly traded companies, with large shareholders that exercise disproportionate influence on their governance. Similarly, this approach to municipal finance is likely to make city revenues more volatile, vulnerable to sudden capital flight as token owners reallocate their wealth to cities whose policies they favor. Willems warns that CityCoins wants to tokenize the failures of existing urban governance, “pushing something like San Francisco’s perceived ‘tech exodus’ into hyperspeed.” While the coins will undoubtedly raise funds for cities’ coffers, as they already have in cities like Miami, the tradeoffs are less predictable, and not at all certain to justify the benefits.
As these experiments in blockchain-based municipal administration proliferate, the nature of the experimentation will be consequential. Buterin writes,“Cities have an easier escape valve (than countries): people who are unhappy with what's going on can more easily exit.” Here, Buterin’s essay positions urban citizens as guinea pigs for various crypto proofs of concept, minimizing the potential effects of poorly-conceived experiments and underestimating the barriers to exit that could inhibit residents of a particular city from simply relocating to a new city, as well as the undesirability of making them do so.
Tech and Web3 have emerged as the vanguard of an increasingly nomadic professional class—a group that is now largely untethered from locational constraints, especially following the pandemic’s acceleration of the shift to remote work. The fluidity of CityCoins mirrors this geographic emancipation. But not everyone can easily afford to uproot their lives by moving somewhere new, and many do not want to. For highly mobile knowledge workers, place is increasingly a commodity or a consumer product; for city dwellers who are more stationary, it retains many of its traditional constraints, even if technology has made geography less confining for all. The former group may welcome the kinds of experimentation that they can easily leave behind, neglecting the fact that the latter group will remain stuck with the results.
Buterin’s “crypto cities” concept thus embodies a tradeoff between exit and voice that defines contemporary geography. Economist Albert Hirschman argued in his 1970 book Exit, Voice, and Loyalty that individuals have two choices when organizations or institutions of which they are part begin to decline: They can either attempt to use whatever influence they have to improve those organizations from within (voice), or they can simply leave (exit). In the case of cities, this amounts to a choice between staying and working to improve one’s current city or simply leaving in search of a better option. In Hirschman’s analysis, loyalty to the organization in question determines the individual’s probability of choosing one course or another, with stronger loyalty increasing the appeal of voice relative to exit. Today, with geographical ties weakened and technologically-facilitated mobility heightened, exit increasingly beats voice in decisions about where to live.
“Crypto city” projects fall into two broad categories, corresponding to “voice” and “exit”: One set seeks to improve cities that already exist, while the other seeks methods of creating new cities from scratch. The first approach is frequently a more incremental, less exciting endeavor: “Using blockchains to create more trusted, transparent and verifiable versions of existing processes.” This includes ideas like CityCoins, DAOs that airdrop tokens to a city’s residents, or NFT sales that fund local projects like public art, as well as more transparent systems for procurement and government payments.
Creating cities from scratch, on the other hand, is easily framed as a radical break from the status quo, or an adventurous settlement of uncharted territory—the enterprises that have seeded new cities throughout history. Unlike many of those past examples, however, the desire for new crypto cities is motivated by dissatisfaction with an existing status quo and a desire to simply opt out—exit—more than by a positive pursuit of new opportunity. On the other hand, building new cities minimizes an experiment’s risk of negatively impacting an existing city’s residents, confining most of its effects to voluntary participants.
“New cities of course have the advantage of not having existing residents with existing expectations of how things should be done; but the concept of creating a new city itself is, in modern times, relatively untested. Perhaps the multi-billion-dollar capital pools in the hands of people and projects enthusiastic to try new things could get us over the hump. But even then, existing cities will likely continue to be the place where most people live for the foreseeable future, and existing cities can use these ideas too.”
In other words, brand new crypto cities could presumably try things that sluggish, hidebound existing cities can’t (or won’t), but if the ideas are good enough, those established cities might eventually adopt them after all. One early example is CityDAO, which claims it will “do for the physical world” what Bitcoin and Ethereum did for computing. CityDAO plans to govern a plot of land that it has purchased in Wyoming, selling NFTs that correspond to individual parcels of that land and can be owned by individuals or the DAO itself. Its governance scheme seeks to limit votes to one per person rather than allocating them based on coin ownership, attempting to avoid the inequalities and misaligned incentives that can result from such uneven distribution (as the discussion of the CityCoins project highlights).
This is undoubtedly utopian—yet another quality that unites crypto and cities, which have both presented fertile ground for utopian projects seemingly as long as they have existed. With digital space growing more crowded, in similar fashion to the physical space that cities occupy, the desire to escape to an imagined place where everything is better has grown correspondingly. Web3’s rhetorical opposition to Web2 reflects this desire: A popular 2017 blog post by André Staltz argued that two corporate giants, Google and Facebook, had amassed direct influence over 70% of internet traffic. Hirschman’s exit-voice dichotomy thus offers a clear path to anyone seeking a digital alternative. Carving out new territory is necessary, as most users cannot influence Google or Facebook in any meaningful way. Exit thus triumphs over voice, and Web3 has emerged to offer alternative territory for defectors, creating successive layers of abstraction that seek to circumvent Web2 ownership.
Again, this dynamic has strong parallels to the kinds of human settlement patterns that cities embody. History is littered with failed utopian projects, most of which have been situated in physical communities. In Jenny Odell’s 2019 book How to Do Nothing, she recounts the history of such attempts at communal escape from mainstream society, which surged in the United States during the 1960s. “Probably the biggest problem that the communes faced, though, was the idea of starting from scratch,” she writes. “In many ways, ‘going back to the beginning’ meant rehashing timeworn struggles over governance and the rights of the individual, albeit in capsule form…they needed to negotiate a new balance between the individual and group.” In other words, those communes often reproduced the same kinds of problems they had tried to escape. Crypto may indeed finally solve these problems, but history suggests that it is more likely to discard existing cities’ complex, carefully-adapted systems and then fail to replace them with satisfactory alternatives—a large-scale example of dismantling Chesterton’s Fence.
Exit, however, can also be pragmatic rather than idealistic. Not only has the desire to leave claustrophobic social and institutional conditions fueled physical migration and the quest for new territory, but technology has concurrently expanded the range of territory that is accessible or habitable. The evolution of transportation technology extended that territory inland from waterways (via railroads) and then outward from dense population centers (via cars), while elevators facilitated vertical urban development and air conditioning expanded the population that could live in desert climates.
Today, crypto is attempting something analogous, a blend of idealism and pragmatism that amounts to a technology-driven departure from the constraints of established infrastructure. This resonance may explain Web3’s interest in cities, perhaps even more than its ability to solve any specific problems, with blockchains functioning as the railroads or even automobiles of digital space, opening up new swaths of land that were never valuable until the technology made them accessible and useful—with all the good and bad consequences that accompany such a transformation.
In choosing between exit and voice, exit seems more and more popular in contemporary society, as it grows more feasible relative to the alternative. In a world that feels increasingly crowded, where so many desirable spaces have been settled, urbanized, and even gentrified, and where so much digital space is following suit, perhaps the kind of escape via abstraction that crypto makes possible is the only remaining option—a Manifest Destiny for cyberspace, tunneling inward rather than expanding outward.
This assumes that one has already decided to exit, though. The “voice” option is due for reexamination, and the desire to improve the cities and institutions we have already built—rather than just leaving them behind or attempting to ignore them—is due for a revival. Buterin’s blog post acknowledges the validity of both options, describing ways that blockchain technology could solve the mundane problems of municipal administration. Projects like CityCoins are attempting this, despite their flaws, and more refinement of these efforts will be necessary. Buterin’s optimism may be overstated, but at least he acknowledges that improving existing cities, although less exciting, is as worthwhile as building new ones.