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Cryp­tocur­rencies allow uni­versal banking for anyone with an internet con­nection and enough com­puting power. Pixabay | Courtesy

A cur­rency designed to ease internet payment could rev­o­lu­tionize the way people nego­tiate, from legal con­tracts to crowd­funding.

Hillsdale College Eco­nomics Pro­fessor Michael Clark teaches about when it is rational to pursue high-risk, high-reward invest­ments, such as cryp­tocur­rencies, a $700 billion market as of Jan. 3 according to Business Insider.

Clark said that a cryp­tocur­rency is a digital cur­rency that uses cryp­tog­raphy, a code-breaking system, to verify cur­rency trans­ac­tions.

Unlike many invest­ments, bitcoin only requires a phone and an internet con­nection to buy cryp­tocur­rencies.

“Bitcoin to me is this ultimate high-risk, high-reward that everyone can get access to,” Clark said. “A lot of times high-risk, high-reward things are startups, and hedge fund man­agers have access to these, but you don’t and I don’t. With bitcoin, you can just buy $20 worth of it.”

Clark encouraged others to invest “only as much money as you are very com­fortable getting $0 back; not just no return, but ending at $0.”

Clark said initial invest­ments in cryp­tocur­rencies were lucrative, but that no one knows bitcoin’s future tra­jectory. Bitcoin’s price is volatile, jumping 40 percent in 40 hours before set­tling at $14,000 on Dec. 6. It shot to $19,000 the next day and then fell.

“I would be very hes­itant to say, ‘Everyone, go invest in bitcoin,’” Clark said. “Yes, it’s crazier now, but it’s also worth more. A 25 percent jump used to be from $10 to $12.50. Now it’s from $10,000 to $12,500.”

Clark said the biggest attraction to cryp­tocur­rency is its use of a decen­tralized ledger tech­nology called blockchain, which causes infor­mation to exist omnipresently on every com­puter running bitcoin software.

“When we use our credit card at Home Depot, Home Depot has all of our credit card infor­mation,” Clark said. “So if someone can break into Home Depot, they’ve got your credit card infor­mation.”

To pay in cryp­tocoin, however, users anony­mously send coins to a private online wallet or a QR code through an app or wallet.

The trans­action is ver­ified by miners. Anyone with an internet con­nection and enough com­puting power can be a miner.

They use com­puters to solve complex math equa­tions and are paid in bitcoin: part newly created tokens and part trans­action fee charged to the sender.

Senior Steven Custer said bitcoin is the most popular cryp­tocur­rency, but that Ethereum, the second largest cryp­tocur­rency, and others are used for pur­poses other than trans­ac­tions.

“I still think the best analogy is of an oper­ating system: if you had Windows oper­ating system and it had its own internal cur­rency and used Microsoft dollars to build pro­grams built off Windows,” Custer said. “That’s kind of like what Ethereum is like.”

Bitcoin was designed to ease internet payment, but other cryp­tocur­rencies, such as Ethereum, lead the “smart con­tract” world because its pro­gram­mable nature allows them to self-execute con­tracts and stip­ulate trans­ac­tions con­tingent on certain require­ments, such as mul­tiple owners’ sig­na­tures.

But with great security comes great risk: Losing the private key is like losing a credit card or Per­sonal Iden­ti­fi­cation Number. In fact, bitcoin was modeled to be a digital gold, according to Steve Patterson’s book “What’s the Big Deal about Bitcoin.”

Cryp­tocur­rencies allow uni­versal banking for anyone with an internet con­nection and enough com­puting power. Cryp­tocur­rencies have been used to pay remit­tances, such as when people from other coun­tries immi­grate to the U.S., but finan­cially sup­ports their family abroad.

Only Western Union and wire ser­vices offer these ser­vices for a per­centage cut of the trans­action. They also charge cur­rency exchange fees and inter­na­tional trans­action costs, and the transfer process can take up to six business days. Bitcoin, however, charges only 1/100ths cut of the trans­action and can send coin in up to two hours, no matter the dis­tance nor the financial market sta­bility.

Bitcoin trans­action fees rise when network demand exceeds capacity.

Gov­ernment-run cur­rency systems such as Venezuela often adjust the money supply in response to changes in demand for money to sta­bilize the price level. Venezuela’s central bank on Monday announced a 99.6 percent deval­u­ation of the official foreign exchange rate.

Bitcoin has no such cen­tralized feature, so short-term price fluc­tu­a­tions are often more apparent than cen­tralized cur­rencies.

“To me, it’s a sense of hope,” Clark said. “And it has been for third-world coun­tries already. It’s been a way for them to create wealth in a society where it’s been impos­sible to create wealth.”

Clark said many people accuse cryp­tocur­rencies of aiding illicit activity such as Ross Ulbricht’s infamous Silk Road or the Youbit hack in December 2017 in which the hackers ran­somed the company’s files and demanded bitcoin to decrypt Youbit’s doc­u­ments.

These illicit trans­ac­tions, however, are a small per­centage of cryp­tocur­rency trans­ac­tions and aren’t much dif­ferent from the anonymity of paper cash trans­ac­tions, Clark said.

He said many people don’t trust bitcoin because it’s a digital cur­rency, yet the U.S dollar is also a digital cur­rency. When the Federal Reserve expands the money supply, they often add zeros to bank accounts instead of printing dollars.

Even amid con­cerns about safety, cryp­tocur­rencies have other pos­sible future uses, Pat­terson said. St. Louis’ Federal Reserve research sug­gests potential appli­ca­tions include e-voting systems, identity man­agement, and fundraising.

Blockchain has dis­rupted security stan­dards ranging from digital tokens rep­re­senting tan­gible assets to Cryp­toKitties, a game cen­tered around owning and breeding digital kittens, which cannot be hacked because indi­vidual miners monitor and securely store data files that autonomously change its hash volume, its unique digital fin­ger­print if a hack is attempted.

Solar coin allows users to receive solar coins in return for donating energy, some of which is donated toward the mining system.

CureCoin, which is con­nected to Stanford University’s cancer research center, has donated $31,553 in con­verted CureCoin to char­ities since its inception.

CureCoin miners donate com­puter pro­cessing power used to research and analyze data used to lit­erally cure cancer.

Clark said he cared more about future uses of the blockchain than bitcoin’s current price.

“I hope for the long run,” Clark said. “I’m hoping for when my kids start having kids that it somehow helps, not only people in the United States but perhaps the world larger.”