Digital currencies, bitcoin, and blockchain technology continue to prove their staying power in the ever evolving world of technology. Universities now recognize the need to educate their students about these innovative technologies and the potential they have for the future. In 2014, New York University (NYU) became one of the first universities to be dedicated to preparing their students for the evolving job market. Duke University quickly followed NYU’s lead and began offering a course in cryptocurrency in Spring 2015. Today, many colleges around the world offer courses and even degree programs in digital currencies.
If you told Professor David Yermack five years ago that he would be dedicating his research and teaching courses on digital currencies, he would’ve thought you were a “little bit crazy.” Professor Yermack, along with NYU School of Law professor Geoffrey Miller, first offered the joint MBA/JD course The Law and Business of Bitcoin and Other Cryptocurrencies at NYU in the fall semester of 2014. I was eager to speak with Professor Yermack about the course he taught, and why now is the time for schools to teach digital currencies and blockchain technology at the collegiate level.
Chantal Atkinson: How did you first hear about bitcoin?
Professor David Yermack: I got interested in bitcoin for political reasons. It seemed to be something designed to subvert political authority. It’s intriguing to me that there are enough people using it that one could live in this subterranean economy with others who primarily use bitcoin. Once you understand the technology behind it, you realize that this has the potential to change everything in finance. This may be the most important innovation since double-entry bookkeeping was invented 500 years ago. It’s that important. You’re now seeing all the big Wall Street banks and financial exchanges looking very closely at this technology. It is a little bit ironic that it’s being co-opted by the very people it was designed to put out of business. At this point you can’t afford to ignore this: not only do students want to get jobs in this area, but all the markets may change profoundly in the next 10 years. We need to be watching this and thinking about the potentially vast implications of it.
CA: Do you personally use bitcoin?
DY: NO. (chuckles) No, I think you’d be crazy to hold bitcoin or use it as a currency because it’s very volatile, and there are not that many places that take it. If you get big nationwide chains to accept bitcoin, that would make a huge difference. One of the guest speakers we had in the class was Kashmir Hill, a journalist who spent a week living on bitcoin exclusively. Everything had to be paid for by bitcoin – all her meals, travel, etc. She did this for 2 years in a row, and at least by the second year there were more places that accepted bitcoin as a method of payment. She described all these problems that you wouldn’t run into with regular cash. I think that it’s a healthy perspective for anybody who gets the “bitcoin fever” to understand that this is still a niche product. There are some pretty well-known technical bottlenecks: bitcoin is like a highway with too many people trying to use it, you need to widen the highway and they can’t agree on how to do this. In fact, no one even quite understands who they is, who’s in charge. Until there’s a more orderly way to scale this up for growth, it’s destined to be limited to a pretty small pockets of users. Nevertheless, it’s succeeded – people never would’ve expected 8 years ago that this thing would have the profile it does around the world. It’s really the blockchain technology behind bitcoin that is of the greatest interest because the major stock markets and bond markets may well be using this within 3-5 years. Maybe even sooner, we’ll have to see.
CA: Do you feel that bitcoin is mostly a younger person’s technology? Or do you feel like it has the potential to compete with fiat currencies?
DY: There have been surveys about this, that the user base of bitcoin is almost nobody over the age of 30. This is a big problem for all digital currencies because there are older people with higher incomes who just don’t trust the technology of mobile payments. I talk to my parents about this – who are highly educated people with a fair amount of wealth – and they would never conduct their daily commerce by flashing a barcode. The more interesting problem with bitcoin is that the user base is around 96% male. This is something we have discussed in the classroom and there are thoughtful articles written about. I don’t think anything can be successful as currency if you only have males, and not females, using it. Females actually spend more than males, and if you can’t get that clientage then it’s a high mountain to climb to make it as a currency. These are interesting problems that spill over into other corners of the tech industry (which also seems to have very narrow demographics). For any digital currency to make it worldwide it has to appeal to people of all ages, all genders, all income levels, etc. Bitcoin is often touted as the solution to micropayments and remittances but poor people don’t use it, rich people use it [writer’s note: Though this article begs to differ], and wealthy people are not the people who potentially get the greatest benefits from it.
CA: What exactly about bitcoin piqued your interest so that you and Professor Miller decided to teach this course?
DY: I decided to teach this course after I went to an event organized by the city called the Bitcoin Roundtable, which was meant to promote the development of futuristic financial ideas in NYC. They say “New York is the financial capital,” and if bitcoin is the next big thing we need to be sure there’s a community of people in NYC who are knowledgable about it. I listened to a number of the speakers and they were desperate for advice about digital currency compliance. I started thinking that if we educate students in compliance for digital currencies, they would benefit. So we did it purely as an act of entrepreneurship, trying to fill a void in the market where we thought our graduates would be able to find an opportunity.
Academically, this was an interesting topic in it’s own right, and we thought that the student demand would definitely be there. I also said to Professor Miller that if we taught the first course on this, we could be the agenda setters and decide what the rules and important topics were. We had 35 students the first time around, and we’re going to teach it again spring of 2017, as Professor Miller is currently on sabbatical.
Since we first taught the course there’s been such an explosion in student interest, to the point that we’re planning to start a whole specialization in FinTech. Beginning next year, students will be able to get a degree in FinTech from Stern. All these FinTech firms in New York are hiring people, and if we’re not on top of this, we risk becoming irrelevant. We have competition in NYC from Cornell Tech, who’s now offering a Tech MBA program. For us to sit still and not do anything about this would be pretty silly, so Geoff and I are happy to have planted the flag and taught the first course.
CA: How accurate would it be to say that NYU is a university that people look at to be one of the first to offer courses on new technologies such as bitcoin?
DY: I think the university has definitely pursued this reputation. We do have a lot of new academic programs: for example, there’s a Master’s program in Video Game Design at NYU’s Tisch School of the Arts, which I think is probably the only one of it’s kind. At Stern we have a big Entertainment/Media program, among other interdisciplinary programs. The university definitely wants to be known for innovation and for being at the leading edge of important trends in many fields. I think that we’re actually further ahead of virtually every other school.
CA: What kind of feedback did you receive from students after offering this course?
DY: The students loved it! A number of them have gotten jobs in the industry. One of our students is now working at Fidelity Investments, and he’s working with them on bitcoin compliance, which is exactly what we were trying to accomplish when we decided to offer this course. The curriculum is driven by student demand, and ultimately everything we teach, we teach only because students want to enroll in the courses.
CA: I was looking at the syllabus for the class and I saw that a question for discussion was “The world market for currencies – does Bitcoin fit in at all?” How would you have answered this question when you taught the course, now, and for the near future?
DY: That actually was a lecture based closely on the paper that I wrote about 2-3 years ago. I continue to think that bitcoin is a strange form of money: it’s very volatile, you can’t use it anywhere, and the exchange rate behaves in a very strange way. It’s not correlated with any other asset, so it doesn’t behave like the Euro, the Yen, the Pound, etc. It doesn’t look or act like a currency in terms of its day to day price movements. So how does it fit in? I don’t think it fits in at all. I think it’s mostly a speculative asset that you buy not because you’re going to use it as money, but because you think it’s going to appreciate in value. I think in the long run, it’s dubious how valuable this thing may be. I think the real focus should be about blockchains and record keeping. Bitcoin will be remembered as the launching point for a new technology that is probably really, really important, but I don’t think digital currency will ever take the place of fiat currency.
CA: Since you taught that class in fall 2014, how do you feel that the momentum for bitcoin and for FinTech has changed?
DY: I think bitcoin has really plateaued, and it’s due to the technical limitations of the bitcoin software. There may be an opportunity for it to grow further if “they” can agree on how to scale up the size of the blocks and increase the throughput of the network, otherwise bitcoin can’t grow much further beyond the point where it is now. But FinTech itself has just exploded incredibly. You could look at the volume of Google searches, the amount of money invested and new initiatives, and the number of big banks that are now opening FinTech skunkworks or labs. It’s really quite astonishing, it’s a trend that in many ways mirrors the rise of the internet in the 90’s and how all these technology companies came up almost out of nowhere to change many industries: everything from music, to travel agencies, to journalism, etc. were never the same after the world-wide web. It seems that there will be a lot of profound changes in personal and corporate finance due to this extension of the peer-to-peer economy, it can cut out a lot of middlemen and create a lot of value for customers all over the world.
CA: Have you heard of Ethereum? Do you think that Ethereum has the ability to overtake bitcoin?
DY: The currency, for a little bit, was on fire, but it dropped last week by like 50%. It reminds me of bitcoin in its earlier days when the volatility was incredibly high. However, Ethereum is a different kind of platform that doesn’t have the technical bottlenecks that bitcoin does. It’s been thought through and given much more functionality. In the long run I believe that Ethereum is likely to be much more widely used than the bitcoin blockchain, but I wouldn’t bet against somebody else overtaking Ethereum because you tend to see a lot of leap-frog behavior with new technologies. There’s still a huge amount of innovation going on. Though at the moment Ethereum is viewed as the leading edge by people, I wouldn’t bet that this is still true in 12 months. The field is moving very quickly.
CA: So what, in your opinion, are the top use cases for bitcoin and other digital currencies?
DY: Data strongly suggests that it is a speculative investment. I think that companies that accept bitcoin as a payment method do so for marketing purposes because they know the demographic tends to be younger, wealthier people. One of the things Kashmir Hill told us is that many of the businesses she spoke to had advertised accepting bitcoin for months, but never processed one transaction. Bitcoin is a niche currency that appeals to a small clientage of people.
With that being said, I feel there is more possibility with the bitcoin blockchain to be used to convey other assets. There is some speculation that the blockchain will become the universal home to all financial assets, essentially attached in the memo field, and that bitcoin would become a token. For example: if I wanted to sell someone 100 shares of stock in General Electric, we could trade them over the bitcoin blockchain and attach them to maybe 0.0001 bitcoin as a token. I think this is an interesting idea, but you run almost immediately into technology problems. Not only is there a problem with growing the size of the blocks and the network, but the bitcoin mining process requires a lot of electricity. I don’t think there’s enough energy in the world to make bitcoin into a worldwide accepted currency. However, I think the more promising developments are in closed blockchains, where a company uses a private blockchain to trade all kinds of financial assets. Firms like R3 and Digital Asset Holdings in NYC are doing simulations with a lot of the big banks to see if they can move their markets onto private blockchains.
CA: Is there anything else you’d like to comment on about bitcoin, the blockchain or digital currencies?
DY: I would just say that people are discovering the most interesting and unexpected uses for this. I was recently invited to go to the Netherlands to an art conference where they are exploring using a blockchain to house an international registry of museums and fine art – to fix ownership. Concerned about art theft and the black market, these people see the blockchain as the opportunity for having an indelible record of who owns what that is seen by everybody as a shared ledger. I think it’s a neat idea.
Everyone from the U.S. Securities and Exchange Commission, to the World Bank, to people like these art historians see opportunities for the blockchain technology. I foresee using a blockchain to issue passports and birth certificates – universally anything susceptible to fraud that is tracked on a database. Blockchains potentially could solve many problems in society that go beyond finance. I’m really glad that I took the time to learn about this, it was a career changing move that I’m very pleased about. I’m doing all my research on this now, and spending all my time preparing new courses and planning new programs. If you had told me four or five years ago “You’re going to be spending all your time on digital currencies,” I would’ve thought you were a little bit crazy, but I’m really glad to have gotten in on the ground floor of this. It’s a very exciting moment: for me, for the university, and for our students. There are all kinds of possibility.
– Chantal Atkinson