Why cryptocurrency never took off on campus
BY Staff Reporter
A note to the reader: Cryptocurrency is only a generic term and Bitcoin is a specific type of cryptocurrency. The terms are not interchangeable.
Cryptocurrency used to be all the rave when Bitcoin was first introduced in 2009. Several thousand forms of cryptocurrency have been created since then, but Bitcoin was the first of this type of product. The creator of Bitcoin is an anonymous individual known only by the handle Satoshi Nakamoto.
There are many candidates for Nakamoto’s real identity, including Dorian Prentice Satoshi Nakamoto, a Japanese man living in California, and a Hungarian-American computer scientist named Nick Szabo.
Nathaniel Popper, a reporter for The New York Times, did his own independent research about the identity of Nakamoto. He theorized that Nakamoto is Szabo, who has frequently denied it.
Due to Nakamoto’s secrecy and a lack of physical meetings, it is unclear whether he is a real person or simply a group of computer scientists.
Cryptocurrency does not have a noticeable presence on campus. There is not much in the curriculum and are no clubs dedicated to it. This in turn creates a lack of understanding about the topic. However, many economics and finance professors are knowledgeable about the topic. These professors can educate their students and give them a basic understanding of cryptocurrency.
“Cryptocurrency is a digital asset designed to serve as a medium of exchange,” Jens Schubert, an assistant professor of economics at the university, said.
A medium of exchange is an economic concept that is meant to state the uses for money, such as that money can be exchanged for goods and services.
All banknotes issued by the Federal Reserve have the same phrase printed somewhere on them, reading “This note is legal tender for all debts, public and private.”
According to federal law, the bill must be accepted. Bitcoin, however, is not recognized as legal tender by the United States government. The Stamp Payments Act of 1862 states that no one can issue a check, note or token worth less than $1. Since Bitcoin is often purchased in fractional increments, it may technically be illegal. So far, the government has yet to act on this.
“If I owe you $10 and I give you a $10 bill, you have to accept it,” Schubert said. “You can’t ask for payment in Bitcoin.”
In order to create Bitcoin, the data has to be mined, or created, through a complex series of algorithms and mathematical formulas. Mining is essentially examining data to generate new information.
Schubert said that Bitcoin became popular for two reasons. First, it is an alternative asset, one that is not related to stocks, bonds and cash. Second, it came at a perfect time.
In 2012-13, a financial crisis struck the Mediterranean island country of Cyprus. Due to a series of financial had to freeze many of the citizens’ savings accounts.
The citizens were angered and this became a wake-up call on the international stage. Other individuals overseas became worried about suffering a similar situation to the Cypriots, in that their government may be able to control private wealth. Cryptocurrency provides an alternative asset that allows its users to still have savings stored in a server where it is free from government intervention.
Schubert explained that cryptocurrency will probably not become the wave of the future that Nakamoto designed it to be. It was supposed to be a medium of exchange, an intermediary to facilitate a sale, but it turned into a form of investment. Schubert said there would be several problems with implementing a full switch from paper banknotes to cryptocurrency.
“The main problem is that it’s decentralized,” he said.
Bitcoin is a digital currency without a centralized administrator. All the countries on Earth have some kind of centralized currency, such as the United States Dollar and the Euro. Both of these currencies are stable and controlled by the government. On the other hand, anybody can create their own cryptocurrency without restrictions.
This in turn makes the currency volatile. Bitcoin started off being tied to the United States Dollar, meaning $1 was equal to 1 Bitcoin. However, due to its unstable nature, it peaked at around $15,000 per Bitcoin. The current price is somewhere around $4,000. Users decide the value of Bitcoin by agreeing on how much it should be worth. They can always anticipate changes in the market.
Another issue with all cryptocurrency is the need to handle large quantities of raw data. Cryptocurrency works through an interconnected network of computers, but they take up a lot of traffic on the Internet. Bitcoin requires the use of massive server farms to keep itself running, leading to environmental problems.
Server farms are large areas of land on Earth needed to support all the Internet traffic. These server farms draw high amounts of electricity to run, which can overwhelm the electrical grid, worrying environmentalists.
According to Digiconimist, a blog and news site dedicated to Bitcoin, it takes 506 kilowatt hours to produce 1 Bitcoin. The estimated total consumption per day is over 143 million kilowatt hours. Only a few household appliances are a capable of generating as much power. These include boilers, old plasma televisions and heat pumps. Most kitchen appliances run from between 15-100 kilowatt hours.
Neil Blanchard, a freshman double majoring in financing and accounting, agrees with Schubert’s assessments about the negatives of using cryptocurrency. Blanchard has always been interested in investing and made quite a bit of money from Bitcoin. He said he started investing in Bitcoin during his freshman year of high school, but he has subsequently left the market. He did not disclose how much he spent on Bitcoin, nor how much he made by the end.
“The volatility of Bitcoin is what scares people away,” Blanchard said. “The main thing is to be mindful of the volatility of the market … an average person can definitely try it out, but they just need be careful.”
The volatility of the market was one of the factors for the 2018 cryptocurrency crash. Many lost nearly all the money they invested.
“I was fortunate to have left right before the crash,” Blanchard said.
The crash was not the only example of how risky cryptocurrency can be.
QuadrigaCX used to be one of the largest cryptocurrency exchanges in the world until its own Gerald Cotten, at the age of 30, died from Crohn’s disease.
Cotten ran QuadrigaCX from his personal computer that was encrypted with nobody, except Cotten, knowing the investors’ passwords. Even a professional cryptanalyst could not hack it, costing the company an estimated $190 million worth of cryptocurrency.
Cryptocurrency has been controversial ever since its creation. Due to the unregulated and decentralized nature of the market, users can spend cryptocurrency on illegal goods and services.
“There’s something called the Silk Road that has since been taken down,” Thomas Bridges, another assistant professor of economics at the university, said. “It was a way for people to pay for illegal drugs with Bitcoin and have them mailed very easily.”
The Silk Road was launched in February of 2011, but the FBI and Europol, the law enforcement agency for the European Union, shut it down in 2014. The Silk Road went bankrupt in 2017.
Forbes reported that the FBI said the Silk Road’s CEO, Ross Ulbricht, had a net worth of $28.5 million worth of Bitcoin at the time of his arrest.
Ulbricht is currently serving two life sentences plus 40 years for several crimes including money laundering and conspiracy.
Cryptocurrency is not a topic that is covered by most classes at the university.
Schubert and Bridges both said that covering cryptocurrency is up to the discretion of the professor. Bridges said he devotes one class to cryptocurrency, and Schubert only teaches the topic if a student asks.
Blanchard said that the general public should have some kind of education regarding cryptocurrency. Blanchard also said a cryptocurrency class would function as an interdisciplinary course if one were created.
“I can see it working in both an economics and computer science setting,” Blanchard said.
Schubert said the effect of cryptocurrency on the global and local economy is negligible. He said that the small fraction of transactions that use cryptocurrency make little difference in the economy.
Blanchard said that larger companies, particularly banks, such as JP Morgan Chase have the resources to accept cryptocurrency transactions, but Schubert said he does not know of any companies that currently use it as a valid form of payment.
Blanchard also said that smaller businesses, such as the restaurants and stores on Main Street, have no need for cryptocurrency because they have nothing to do with it.
“I don’t find Bitcoin to be a viable future for the economy,” Schubert said. “It’s been 10 years and it really hasn’t reached the mainstream yet.”