Tech-savvy students at Binghamton University may have a new way to earn some coin.
David Cohen, a professor at Pace University School of Law, gave a short lecture Tuesday explaining the basics, risks and benefits behind Bitcoin, the online currency.
Bitcoin is a decentralized virtual currency, or a DVC, meaning it is not controlled by any government entity and that its value is stored entirely on people’s computers in digital “wallets.”
Developed in 2009 by the recently identified Satoshi Nakamoto, Bitcoin has been praised for its anonymous qualities and ability to function without banks. However, Cohen noted that Bitcoin isn’t foolproof.
“The risks and costs of bitcoins are not negligible,” Cohen said. “The anonymity falls apart once you reach the intermediate party.”
Cohen’s main objection to Bitcoin was that its anonymity only works within the Bitcoin system itself. No one can track when someone pays another Bitcoin user directly in bitcoins for a good or service. However, if someone cashes in his or her bitcoins for U.S. dollars or Euros, he or she is very vulnerable to being tracked, taxed or hacked, creating incentive to keep the currency online only. The current exchange rate is $633.90/bitcoin, and it has been as high as $1200/bitcoin.
“The Bitcoin exchanges are the weak links in this process,” Cohen said. “There is no licensing process. There’s a risk for theft and loss. You’re going to give them your personal information, passport, driver’s license. It’s dangerous dealing in an unregulated area.”
Cohen said he does see significant benefits to Bitcoin, like a reduction in transaction costs that results from the elimination of intermediaries like banks in financial transactions. The role of banks is replaced with algorithms that are processed across a peer-to-peer network, costing users little to no money.
“Bitcoin reduces transaction costs that otherwise hurt many people, including immigrants who are trying to send money back home,” Cohen said. “In Kenya, there is a virtual currency in use organized by their telecom provider. A substantial piece of their transactions are in this currency.”
According the Cohen, the World Bank is considering if it is feasible to encourage the use of bitcoins by immigrants in order to significantly reduce the cost of sending money to their families back home. Sending money through companies like Western Union could cost another 10 percent of the amount to send. Cohen says that this reduction of transaction fees is making Bitcoin unpopular for banks and politicians who benefit from the traditional currency system.
“Banks are actively lobbying to make these digital virtual currencies illegal,” Cohen said. “The banks will lose a tremendous amount of money in transaction fees. They are the big losers with Bitcoin.”
Cohen sees the future of Bitcoin as fairly bright, though he offers no predictions. He did speculate that other currencies will attempt to replace Bitcoin’s dominance even though Bitcoin benefits from the first-mover advantage.
Many students in the crowd came into the presentation with a lot of knowledge on the subject. Some already owned bitcoins.
“It’s good to have a presentation like this because a lot of people don’t know anything about Bitcoin even with all the recent media coverage,” said Jason Oravec, a junior majoring in management. “We have invested a good amount of money into Bitcoin mining, and if we cashed out now, we would more than break even.”
Cohen clarified during his presentation that the points he has made do not only address Bitcoin, but all digital currencies including Litecoin, Dogecoin or whatever new cryptocurrency gains traction in the future.
The event was organized jointly by the economics department, the Harpur Dean’s Office and the pre-law department. The organizers said they were pleased with the turnout of about 50 people at the event.