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Everyone in Iceland Just Got a $380 Cryptocurrency Handout: Now What?

So far, one percent of the digital coins have been claimed, and counting.
Image: Wikimedia/Bjørn Giesenbauer

At midnight in Iceland, 8pm here in New York, every Icelandic citizen was given roughly $380 worth of free digital money. That's a total of $125 million dollars worth of Auroracoin "airdropped" onto the population of the Nordic country.

Not literally, of course. To claim their handout, Icelandic citizens had to go to the Auroracoin website anytime after the virtual currency went live at midnight, log in with their Facebook information and match that with their national ID number to verify their identity.

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Just before the currency went live, Auroracoin's Twitter account tweeted that 443 users were on the site waiting for the drop, adding, "Hope it will cope with the traffic."

It didn't. The site crashed at midnight on the dot, and stayed down for at least an hour.

http://t.co/RpRdFMX1lg is down due to heavy traffic. Icelanders are claiming at https://t.co/fAlBqxKp7X.

— auroracoin (@auroracoinIS) March 25, 2014

The much-anticipated Auroracoin airdrop made 31.8 AUR available for each citizen of the country to claim, the first step in an experiment to launch a cryptocurrency "designed to break the shackles of the fiat currency financial system in Iceland,"  as the altcoin's creator Baldur Friggjar Óðinsson wrote.

With Auroracoin currently trading around $12 (the price has held steady so far since the coin went live), that's the equivalent of about $380 in Icelanders' pockets, which is a decent amount of money to get for nothing. If people redeem their coins.

There's the rub. For all the buzz about Auroracoin—the market cap climbed to $1 billion earlier this month, launching it to the third most popular cryptocurrency in the world—the airdrop itself was somewhat anticlimactic.

The site crash may be a good sign that Icelanders are interested in the experiment, or at least going to make the effort to collect their share of the electronic loot and wait it out. Some already have, according to reports on cryptocurrency forums, and the Auroracoin subreddit and Twitter accounts.

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"I'm actually very surprised but happy that this wasn't a hoax. I guess 'Baldur' is more of an idealist than I ever hoped to imagine," one reddit commenter wrote.

Auroracoin, for its part, is happy with the turnout so far, tweeting a couple hours ago:

The Airdrop is progressing much quicker than I had imagined. 2,600 people have claimed in less than 12 hours.

— auroracoin (@auroracoinIS) March 25, 2014

But there are still a handful of commenters claiming the altcoin is nothing more than a pump and dump scam. Some Icelandic redditors posted screenshots of their transaction confirmation to prove they claimed their coins, and naysayers fired back claiming the images had been photoshopped or staged by the developer.

"GullMoli" from IRC Freenode #Auroracoin has just received his first confirmation for its 38.1 AUR from the #airdrop! pic.twitter.com/kqLfLLEVV9

— iLoveBitcoin.fr (@bitcoinmars) March 25, 2014

As far as the long-term impact of last night's airdrop, that's also ripe for speculation. Some commenters hailed Óðinsson as a revolutionary and said Auroracoin would go down in the history books. Throughout the month, the value of AUR skyrocketed as the idealist notion of a sovereign altcoin that can overcome the limitations of the government and central banks took hold.

But for the experiment to actually be a success, it has to clear the hurdle that all digital coins are facing: getting people to actually adopt them as currency.

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The airdrop solved the first part of this: distribution. But it could be months before Icelanders feel comfortable enough to claim their coins, much less spend them. The Auroracoin website explains that "the Airdrop will be a gift to each and every recipient, for him or her to spend or save." But if folks just stash their coins under the proverbial mattress, that's not going to be enough to jumpstart the crypto-economy.

And frankly, at this point there's little reason to do anything other than just that. Auroracoin's speculative value has been rising, but local merchants aren't accepting AUR for goods and services (yet), which means the only option for using the handout as a currency instead of an investment is to trade it in for a different altcoin, like Bitcoin.

There's also the chance people will claim their coins and then unload them right away, anticipating that the value will drop as the hype of the initial launch wears off and the currency deflates. Already some skeptical commenters have said that's their plan.

Cautious Icelanders may just wait and see what others do. Will local merchants start transacting in AUR? Will authorities regulate the currency, or crack down on it? Already the government response has been tepid. The central bank and financial agencies issued a joint statement last week warning the country about the upcoming airdrop and the risks of the so-called "artificial digital medium of exchange." They wrote:

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Current Icelandic law does not protect consumers against losses they may suffer from using virtual currency; for instance, if a “market” that exchanges or holds virtual currency reneges on its obligations, or if a payment fails or ends up in the hands of the wrong party. The holder of virtual currency does not have a claim on the issuer, as do holders of banknotes and coin, electronic money, deposits, and other balances in payment accounts in the sense of the Act on Payment Services, no. 120/2011. Both the value of virtual currency and unrestricted access to it are entirely without guarantee from one period of time to another.

Fraud and identity theft are also a possibility as the coins are distributed and claimed over the coming months. (The airdrop will take place in three four-month stages according to the site, which has been sporadically available since its initial crash last night.)

"It takes only a few seconds to create a new facebook site, and you can get hundreds of national id's easily. What is (not that i'm going to do it) stopping me to start claiming multiple coins with multiple id's?" one redditor wrote. "Nothing?……let..the anarchy begin then?"

To cover his hide in case of foul play, Óðinsson wrote on the site yesterday, "I can not guarantee a 100% fair outcome of the Airdrop and no claim can be made against me if there are imperfections in the process. However, there is little doubt that the Icelandic ID system creates opportunities to reach a large part of the public through services on the Internet, with a good level of security."

Personally, what I find strange is the lack of information on how exactly to claim and then use your new pot of cryptocurrency, which perhaps suggests the whole thing is more in the interest of developers than the average Icelander. The diehards in the crypto-community will be quick to pick up their coins, and have already started to. But outside of that, many people likely won't know how, or will be put off by the technicalities of the digital transaction—even in tech-savvy Iceland.