Bitcoin needs a compelling use case. So far Bitcoin looks like a solution looking for a problem.

The big problem is lack of aligned motivation between merchants and consumers. Merchants want lower fees – of course – but consumers don’t care what the merchants want.

Local Currencies align these interests. Both merchants and consumers want money to stay in the community.  Here is a list of Local Currencies in America.  One of the longest running is in Brixton in the UK and I have seen examples all over the world.

While the funky bank notes of the Brixton Pound, with pictures of local hero David Bowie are fun, it would be a lot easier to set up a local currency digitally using all the ecosystem of Bitcoin. I am sure one could add some fun local branding to the Bitcoin logo.

The aligned motivation is key. In a globalized and corporatized world, the relationship between consumer and merchant becomes dehumanized and remote. I do not care if MegaCorpX has to pay Visa. It does not change the price for me and I don’t owe MegaCorpX any favors. It is totally different if I run a pizza place and I am visiting a coffee shop run by a friend. Then I do care.

The other point is that local currencies are not threatening to regulators. They stay local and when they convert they convert back to the national Fiat currency. You can see this in California, where Governor Jerry Brown signed a law repealing a section of the state’s corporation code that prohibited the issuance of currencies other than the dollar. This will enable farmers markets in California to start accepting local currencies – which may be based on Bitcoin.

When regulators study this, they may find the WIR in Switzerland as the original local currency with a long history since the 1930s. We have covered the WIR before on Daily Fintech. Thanks to WIR, Switzerland is officially a multi-currency country even if almost everybody uses the Swiss Franc today. To have Bitcoin recognized as an official parallel currency is a big deal.

Local currencies based on Bitcoin may make it easier to reach that tipping point when a merchant feels they are unusual for NOT accepting Bitcoin (as opposed to today when it becomes subject of a press release when they accept Bitcoin because it is so unusual). Look at Bitcoin Boulevard in the Hague. This is a local currency based on a global currency.

This is how Bitcoin can take off in a small place like Isle of Man. It is also significant that California is competing with New York to be a location for Bitcoin ventures. This makes it easier for a local currency in Santa Barbara than in Ithaca. Regulatory competition is a good thing. When regulators understand the value creation around Bitcoin and the benefit to the voting population, everything changes quickly.

The WIR story is echoed by more recent local currency initiatives. They are conceived during hard times and driven by populist needs and desires. It is no coincidence that we see it in economically challenged places such as Brixton, Oakland and Ithaca. It happened during the U.S.’s Great Depression in the 1930s when lots of local currencies were started. It is happening today in Greece via Tems (Greek for Local Alternative Units) and I have seen it in many other countries. The desire to see money stay local and benefit your friends and neighbors is a powerful human emotion.

To date, Bitcoin has been all brain and no heart; local currencies change that. Local currencies are about the heart as well as being quite practical.

Of course, when this hits the geeky epicenter of the technology revolution, expect it to become a bit more brainy. This is what Chong Kee of a local currency system in Silicon Valley called Bay Bucks has to say:

“In our financial system, money comes into existence in the form of debt. The problem is that when you borrow money, banks create the principle, but not the interest you need to pay it back, so not everyone will be able to pay up in full. There’s just not enough money around. Foreclosure and bankruptcy are certainties.

“You need more people to borrow more money next year so that the extra money that is created can pay off all the debt from the previous year. You need to run ever faster to stay in the same place. That’s why everyone talks about GDP growth—that’s the growth imperative. It makes us destroy our natural resources, overfish the oceans, mine every last mountaintop, and act in other self-destructive ways, because if we don’t do these things, foreclosures will go through the roof. Bay Bucks is a zero-interest currency, so growth is not an imperative.”

Bitcoin got started by thinking global but may become mainstream by acting local.