Virtual Currencies, An Opportunity For Local Authorities
Could Bitcoin and other virtual currencies offer new opportunities for local authorities to take payments? As virtual currencies are a relatively new concept, you might not expect local government departments to be early adopters of this payment method. However, some are already introducing trials into payment transactions using virtual currencies.
In the Swiss Canton of Zug, Bitcoin is currently being accepted on a trial basis for the payment of fees and taxes. The trial has recently been extended and although user levels are low, the City Council is considering adding this payment option permanently as interest in virtual currencies increases.
Zug is sometimes called Cryptovalley Zug; the area is a focus for FinTech companies in Switzerland with a number of companies specialising in blockchain technology. Therefore you might expect consumers and residents in the region to be early adopters of virtual currencies. However, it’s not just in FinTech hotspots that Bitcoin is being explored. In Hirosaki, Japan, the local government is accepted payments in Bitcoin for a very different reason.
The famous Cherry Blossom Festival draws tourists from around the world and this year visitors can make donations using Bitcoin.
A spokesperson for the Hirosaki Cherry Blossom Festival said:
“We expect Bitcoin donation to be an effective approach to promote Hirosaki’s cherry blossoms and a [Hirosaki] castle especially to people living outside of Japan. When collecting donations from overseas, features of blockchain such as ‘fast payment process,’ ‘low processing fees’ and ‘transparency and security of transaction’ enhances the efficiency of funding.”
While the volume of Bitcoin payments these local authorities receive are very low in comparison to other payment methods, we predict that virtual currencies will become a more dominant force in payments in the future.
Bitcoin, especially, has in recent years cast off its image of a ‘black market’ currency and has seen growing demand from consumers. This increased demand has resulted in Bitcoin’s prices stabilising and rising, and subsequently this has led to more consumers investing in the currency.
The key factors identified by the Hirosaki Cherry Blossom Festival – fast payment process, low fees, transparency and security – are attracting more and more users. Virtual currencies are also accessible to the unbanked, and those that would like to be. In the future, local authorities that need to collect payments from residents and consumers could find that accepting virtual currencies helps to reduce arrears within this demographic. It also could provide a method of making payments to the unbanked, and enabling them to benefit from digital financial services.
In a UK trial last year (2016), the Department of Work and Pensions (DWP) made benefit payments to a small group of claimants, through an app using blockchain. Claimants could then spend their benefits with trial’s partners RWE npower and Barclays.
While concerns were raised about privacy and whether the DWP could use this payment method to control how benefit payments are spent, it does have the potential to support financial inclusion. By offering this payment method to those that are unbanked, this group are able to access digital payments and manage their money more effectively.
Making and taking payments in virtual currencies is an innovative step for local authorities to explore. However, there are other applications for the technology behind Bitcoin.
The Potential For Blockchain In Local Government
The technology underpinning Bitcoin, Blockchain, has more applications in local government than just taking payments. Governments are exploring the potential for using the Distributed Ledger Technology (DLT) to deliver improved services at reduce costs, and tackle fraud.
Distributing grants, tracking student loans and smart contracts with subcontractors, are all being explored: including even blockchain e-identities to allow consumers to vote or access other services, although this won’t be available at the next UK General Election! Blockchain has the potential to bring additional transparency, security and efficiency to local government services, and create new opportunities too.
If you would like to explore cryptocurrencies in more detail with a member of our team, please get in touch. Call +44(0)808 159 3453 or email [email protected]