1st Annual Business Fraternity
Cryptocurrency: The Digital Coin
19 January 2018
Debates about cryptocurrency have become a global phenomenon, but the basis of the topic is still not understood by most people or companies. Even still, virtual currency has caught the attention of a very large population, and the debate cannot go unnoticed.
Satoshi Nakamoto never intended to invent a type of currency. Instead, his goal was to build a system that could achieve total consensus on transactions without a central authority present. In this network, transactions are made, and peers within the network can either verify or deny each transaction’s validity. Once the transaction is confirmed, that amount of currency is part of the system’s records, also called a block-chain, whereas in the banking we know now a central server keeps record of transactions and balances.
At the Fisher College of Business, members from four business fraternities took the time to debate and expand on the understanding of what cryptocurrency is and answer the question: “Should banks view cryptocurrency as an opportunity?”
John LaVange, Delta Sigma Pi
John Schmidt, Pi Sigma Epsilon
Jon Alles, Phi Chi Theta
Jeremy Stern, Alpha Kappa Psi
Kathy Rogers, EVP and former CFO of US Bank
Jad Mubaslat, Founder of BitQuick
Mike Magino, CTO at HubTran and former VP at JP Morgan Chase
Team A, John LaVange and John Schmidt, and Team B, Jon Alles and Jeremy Stern, both had five minutes to present their arguments, two minutes to ask questions, five minutes of rebuttal, and five minutes of summary. The judges then had time for their own questions before deciding on a winning team and winning debater.
Starting off the debate, Team A made three arguments in favor of cryptocurrency. Their first argument was that the market size for cryptocurrency is so large that it cannot be ignored by banks. As of today, banks use currency to facilitate transactions because it is an asset that banks and companies recognize. Cryptocurrency, specifically Bitcoin, is also being backed by dollars in the banks and companies that currently recognize it as legitimate currency. Because many large international banks have begun using cryptocurrency, banks that are currently not in the cryptocurrency market will have to play catch up to appear competitive. They argued next that the ability and influence that banks have can strengthen international relations and quell concerns that people may have about cryptocurrency’s security. Almost all banks deal with foreign loans, credits, and transfers, therefore making them influential players in the global business sector. If banks start using cryptocurrency in their international accounts, they will have a significant effect in the decision-making process of other banks on whether to legitimize cryptocurrency. As more banks implement cryptocurrency, market volatility can be reduced and the demand for cryptocurrency and banks can increase. Team A’s final argument pointed towards the derivative market and its application to block-chain, the medium used to complete cryptocurrency transactions. Banks now use derivative markets, such as options and futures contracts, as a way of securing your money at a point in time. Clients are interested in cryptocurrency but don’t want to hold it because of the risk. Applying the use of options and futures contracts correctly to cryptocurrency and block-chain technology can save banks billions of dollars and limit worries that people have about volatility in the market. It is for these reasons Team A feels that cryptocurrency should be seen as an opportunity for banks.
After two minutes allotted for questions by Team B, they made their arguments in opposition of cryptocurrency. Their first argument was that the market has a lack of stability. Comparing the standard deviations of different cryptocurrencies, Bitcoin at 82.23 and Ethereum at 120, to that of banks, S&P 500 at 6.7 and pure gold at 9.7, cryptocurrency is much more variable and volatile. These standard deviations show that cryptocurrencies lack the stability and predictability to be safe enough to invest in. Their second argument focused on the factors effecting the market. Markets are strictly controlled by market demand with no other basis to affect them. When looking at current market demand for cryptocurrency, it is much smaller than the demand for traditional banking systems and is therefore not in the scope of risk within banks. The nature of online trading platforms that cryptocurrencies exist on also makes them more susceptible to hacking, there have been several instances where hacking resulted in losses of up to $500 million in cryptocurrency. Team B’s final point argued that there is a lack of regulation in cryptocurrency and therefore no checks and balances in place. The reaction of the market to the economy allows stabilization. However, cryptocurrency can’t be regulated in accordance to the economy because of the magnitude and irregularity of its market. Additionally, new coins must go through an extensive vetting process before they are first offered in the market, also known as an initial coin offer or ICO. Because there are about 90 different kinds of cryptocurrency, to complete the vetting process for every kind would be implausible. It is for these reasons Team B feels that cryptocurrency should not be seen as an opportunity for banks.
As pioneers of the first annual business fraternity global debate, all participants came well-prepared and represented their fraternities with professionalism and charisma. Whether the attendees had already invested in bitcoin or not, it is without a doubt that they all left the debate with more knowledge about finance and the cryptocurrency market than they came in with. Revolutionizing the way we interact with money, cryptocurrency is taking the financial market by storm and capturing audiences across the world. While cryptocurrency is still a highly controversial topic, it is nevertheless here to stay.
By Destiny Lee
Destiny is a third year operations and logistics major at the Fisher College of Business and is interested in operations management in the hospitality industry. As a Morrill Scholar, Destiny is passionate about helping and listening to others. Being from California, she loves all kinds of Ohio weather and can be found on The Oval when it's snowing.