As a general rule, ideas that are marketable and offer a real promise of generating profits will attract private investment, and that investment will involve legal tender not cryptocurrency.
Here's hoping that Pike County is an exception to that rule and that its $400,000 loan of public money to a prospective chemical company will be repaid in full, that the company can raise hundreds of millions of dollars through a "tokens" sale and put hundreds of unemployed coal miners back to work.
It's hard to be optimistic, though.
Pike Fiscal Court made the $400,000 loan to RCL Chemical in 2014 and only recently received its first repayment — $50,000 raised through a deal with Y2X Infrastructure, a "blockchain-centric company" using cryptocurrencies, such as Bitcoin, to fund business projects.
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"Very unusual, even unprecedented" is how an expert in cryptocurrencies described the plan to Herald-Leader reporter Will Wright. "I am not aware of any cases in which they have constructed a bricks-and-mortar manufacturing facility in an industry like chemicals," said David Yermack, a business and law professor at New York University, who also said that "the scale of the investment is far beyond the size of most of these funds."
Cryptocurrency is a digital medium of exchange backed by no government or bank and limited in supply. Some companies have raised large sums from people eager to invest in cryptocurrencies although the industry is considered speculative and risky.
RCL Chemical plans to manufacture specialty waxes from a natural gas-to-liquids conversion process that has proven uneconomical for manufacturing liquid fuels. The original plan was to build the $325 million plant in Pike County but, after receiving the loan from Pike County, the company decided to move the project to Floyd County.
Meanwhile, Pike County's government has lost its credit rating because of sloppy financial practices, such as keeping records so shoddy the state auditor couldn't determine the county's financial status and employing a treasurer who failed to deposit more than $1 million in checks. The treasurer recently resigned and was replaced by a veteran county employee. But, obviously, the problems go deeper than one person.
As S&P Global noted as it withdrew Pike County's credit rating, unemployment is high, in large part due to lost coal jobs, and population and revenue are in decline, while the county has failed to produce a comprehensive financial strategy. That's true — and likely even worse — in other mountain coal counties and their neighbors.
It's hard to produce a comprehensive strategy in desperate times and easy to fall for almost any promise to create a lot of jobs. Politicians love those groundbreakings and ribbon cuttings.
But the strategies that can pull Eastern Kentucky from its long depression will be less flashy and involve building a wide base of small businesses rather than landing a few big ones, though manufacturing can be part of the mix.
The city of Pikeville, the pretty county seat, is a good example of a former coal town that is diversifying its economy by building on education and health care assets and also because at least some small businesses are growing despite the hard economic times.
We'll keep hoping that Pike County's $400,000 investment pays off. All the same, other local governments should learn from Pike County's experience. Economies are built, and rebuilt, block by block.