Picture by André François McKenzie
Originally published in The Campus on March 2018
The rise of Bitcoin and other cryptocurrencies has turned out to be an international phenomenon that has emboldened a generation of tech savvy investors just as much as it has divided and befuddled economical analysts. Bitcoin is one of many new network-based currencies that relies on a decentralized network of computers to constantly update and oversee the transaction of bitcoin currency. The technology powering the network is known as the blockchain. While the price of one unit of bitcoin (1 BTC) in 2010 was as little as $0.39 USD, the price of 1 BTC has recently been as high as $19,000 USD in December 2017. Naturally, people have begun to invest their money into Bitcoin in order to reap as much riches as they can from it, but many financial and business authorities remain skeptical.
Professor Yochanan Shachmurove, an Economics and Business Professor in the Colin Powell School for Civic and Global Leadership, is a skeptic who believes that investing in Bitcoin is not advisable, despite the current boon in interest.
When Professor Shachmurove was asked about any potential benefits that can come from investing in Bitcoin at this time, none came to mind. “I can just tell the students that …I don’t advocate using any currency that is not backed by government or some responsible entity.” In this case, Professor Shachmurove is referring to the fact that Bitcoin’s decentralized nature means that no central government or agency regulates bitcoin transactions, instead relying on the network of computers that are involved in the blockchain to constantly ensure that no computational or transactional mistakes were made. While the technology behind the blockchain is novel and likely to influence finance in the future, Professor Shachmurove argues that it is this lack of oversight that makes it particularly risky to invest in bitcoin. One of the risks that comes with the current use of blockchain technology is the lack of a way to retrieve your balance if the key to your account is lost. The blockchain’s ability to keep track of every transaction made by every user in the network is reliant on a unique key that every user in the system is given once an account is made. This key, if lost, cannot be reobtained through any means. “If you lose your key, than you lose all of your money. People are bound to forget or lose things…If the private key is lost, the bitcoin network can not recognize any other form of ownership.”
The decentralized nature of Bitcoin illustrates the double-edged nature of cryptocurrencies in its current form- while the computational power behind the blockchain is promising, the lack of an overseeing body makes it likely that the cryptocurrency will not enjoy any of the benefits given to normal monetary systems that are overseen by a central body. One example of the negative financial opportunities given by bitcoin is its potential to be used for illegal activity, since personal information does not need to be given to open an account. According to Professor Shachmurove, “[The Black Market] is another issue…someone doing transactions without reporting it to anyone …the ability of drug dealers and everyone else to use it… this is a problem for the general consumer’s point of view, and the government’s [as well].” It is important to note that Bitcoin’s anonymous nature has caused several federal governments to take action against cryptocurrencies. These include South Korea’s ban on anonymous trading and China’s recent push to limit the ability of people to trade cryptocurrencies.
In spite of the negative reception by economic analysts and governments alike, many people continue to invest in bitcoin, lured by the success stories of people who became millionaires off of joining while the price was low. Is bitcoin a financial bubble that will burst, thus dooming many of those who invested their money into the cryptocurrency? Professor Shachmurove is not sure, but still suggests steering clear from the fervor. “I don’t think it’s a good idea to tell students to invest in it… I proved to be wrong [about Bitcoin’s early success]…Many years ago I thought it wasn’t worth much, but it grew to $17,000…the point is…some people are making a lot of money off this, but other people will suffer.”
This sentiment hasn’t stopped college students from expressing interest in learning about the financial phenomena. Schools like New York University, Cornell, Princeton, and the University of Maryland have already started offering classes for students who are interesting in learning about cryptocurrencies and the future of the blockchain. Many of the students who have signed up for these classes come from a wide variety of educational backgrounds such as computer science, economics, business, and law. Professor Shachmurove has noticed that there is some interest among CCNY students, but not much, stating that “there is some interest but I doubt that its really more than just everyone being exposed to it and saying ”Why didn’t I buy it for a thousand and sell it for seventeen thousand?”
Whether or not Bitcoin fails, the technology behind the blockchain is most likely here to stay. Keeping that in mind, Professor Shachmurove suggests that it is important for students to be able to remain skeptical, even if the technology may one day be used in mainstream business and finance industries. “The technology [behind bitcoin] is interesting, and maybe the government can use it…if the federal bank of the U.S. used technology like this and if it [is] be backed by U.S. laws and the authorities, it could be possible [to use]… I think its our responsibility to be cautious. We don’t know enough about it, and we [should] tell students about the risk, especially in CUNY, where students are not very rich and can’t afford losing [money]…it’s not just gold on the street that we can pick up.”
Comments