Panel Questions Security of Cryptocurrency

Drew Kaplan ’20, Opinion Editor

 

Three Dickinson College graduates claim that despite their lack of security, cryptocurrencies are more like investments than actual currencies.

Despite their recent rise in popularity, cryptocurrencies have been central to a number of “newsmaking themes” particularly surrounding their “integrity, availability and confidentiality,” according to Nastia Khlopina ’18.

Danielle Scholz ’05, one of the panelists, explained that many cryptocurrencies, including, but not limited to Bitcoin, Ethererum and Litecoin, work based on the verification of mathematical equations, with a block chain serving as a public ledger. “Block chain is a ledger, and cryptocurrency exists on top of the block chain,” said Scholz.

Mark Veronda ’08, another panelist, explained that “if you make a transaction, you announce it to the whole network” in the form of a math equation. Then, to verify the transaction, a complex math equation is performed. “When you find that number, you announce it to the rest of the block chain.” He also said that if the wider block chain community rejects the number announced, the transaction is considered invalid.

Stephen Bonacci ’19, who moderated the discussion claimed “One of the biggest concerns around cryptocurrency is security.”

Colin Farrell ’15, the third panelist, explained that there are inherent security risks involved with cryptocurrencies, in part due to issues with coding. “They forgot to close the backdoor,” said Farrell, “there’s absolutely security risks. Is it fixable? Absolutely.” He predicted that the security of cryptocurrencies will improve as more people become users of the technology.

Scholz explained that part of the issue stems from the system’s decentralization. “There’s no backing to it, you’re investing in an idea,” and because “it’s not tied to a government,” they are liable to fluctuations in relative value which limit their usability as an everyday currency. “It’s not a usable currency. I look at it as a long-term investment,” she added.

Farrell said, “There’s a level of self-security that you need.” He then compared not securing one’s coins to waving money around on High Street. However, he explained that there is currently some security in the system, as “you have to be registered with the SEC [Securities and Exchange Commission]. Although the currency is not regulated, the people are.” He also explained that part of the rise in the popularity of cryptocurrencies has caused some to see them not as a currency, but as an investment similar to gold. “Each customer wants to utilize it differently” he said, “It depends on the consumer market”

Veronda added “It’s a store of wealth … nobody has found a really good use of bitcoin.”

Farrell also claimed that another reason for the popularity of cryptocurrencies is that they are new. “The Old Guard had poo pooed the idea of cryptocurrencies,” he said, which opened the door for smaller companies and individuals to fill the market gap. However, he explained that many coins do fail, and that it is difficult to determine which will succeed. “It’s a serious gamble for people who want to make a quick buck,” he explained. Farrell furthered that when a new coin goes public with its Initial Coin Offering (ICO), “it’d be like a low-grade bond…There’s a lot of blind faith. The creator is not here to rip our faces off in a get rich quick scheme [in reference to Bitcoin]. Yes, you’re taking a bet,” he said.

In future, Scholz predicted that cryptocurrencies will “become more like stocks. I don’t see how it will replace the dollar or the euro.”

“I’m a skeptic, I’m a dinosaur. This is catching on because it’s a distrust of government, which includes the Federal Reserve of the United States,” said Associate Professor of International Business and Management Michael Fratantuono.

Some students found the panel to be very informative. “It was definitely something I didn’t have a lot of background in and didn’t know a lot about, so I think it really helped me understand what cryptocurrency is and how it works,” said Elizabeth Smith ’18. “I really thought it was interesting that a lot of people don’t necessarily think of it as a currency, but more as an asset that you’d invest in.”

Some students were skeptical of the new currency after the discussion. “I thought it was a really interesting talk overall,” said Connor Elliot ’20. “It was definitely an enlightening experience to hear about the benefits and risks of it. I definitely need to do more research.”

Bonacci shared this skepticism: “I think it’s important [to ask] questions that surround technology and cryptocurrency right now,” he said. “Its disruptive technology. We have to understand what [is] going on around us.”

The panel was held in Althouse 106 on Friday, April 6.