The Van Gogh Museum gift shop was buzzing with conversation and filled with kitschy souvenirs. The chaos from the Amsterdam streets trickled in. Caitlin Eckvahl stared down at what she believed would be her most enduring memory of the museum, and the self-portrait van Gogh luggage tag stared back at her.
Eckvahl was patiently waiting to pay for her keepsake when a stranger commented on her luggage tag. She would later learn he was a technological innovator and cryptocurrency investor. Here, over a knockoff Vincent van Gogh relic, Eckvahl began her relationship with cryptocurrency.
Although Eckvahl was only in Amsterdam for two days, she kept in touch with her new friend and absorbed every bit of cryptocurrency knowledge she could. She began researching cryptocurrency, an infinite world of speculation and excitement. Like most first-time investors, Eckvahl knew very little and her research revealed a new realm of both risk and opportunity.
Cryptocurrency is rapidly changing the way the world views investments and transactions. It poses an uncertain market, yet it attracts investors of all ages from around the world. Not only could it replace the role of banks, but its technology could also open a window into many alternate applications. Preston Crumbly, a cryptocurrency investor, believes in the future of the new internet asset community.
“While there may be ups and downs in cryptocurrency, getting in now is kind of like getting into Apple, Microsoft or Amazon 20 years ago,” Crumbly said.
Young investors like Crumbly are integral to this discussion. To Crumbly, a cryptocurrency investment does not follow the same rules as a traditional investment.
“It is an investment in math and computer science, two of the most precise and robust sciences,” Crumbly said.
Eckvahl’s research, like most cryptocurrency research, began with the 2008 financial crisis—the worst economic disaster since the Great Depression. The crash occurred despite preventative efforts from the Federal Reserve and the Department of the Treasury, causing many to question the viability of banks as effective guardians of the global financial system. Banks were crafted to serve as a trusted third party to regulate financial transactions, but their reliability was questioned in the wake of the disaster.
Born from the rubble of the crisis, bitcoin was a solution. The cryptocurrency was introduced in an eight-page paper titled, “Bitcoin—A Peer to Peer Electronic Cash System.” The paper was written by a mysterious individual or group under the name Satoshi Nakamoto, who remains unknown to this day. Though Nakamoto’s technology was not the first of its kind, it was the first cryptocurrency to legitimately threaten the manipulative power of governments and banks. It gave people the freedom of privacy in their transactions.
Like the U.S. dollar, bitcoin can be used to pay for things digitally. However, unlike the U.S. dollar, the distribution of bitcoin is decentralized—that is, no single institution controls the bitcoin network. The supply of bitcoin is limited, releasing unmined coins at a diminishing rate until reaching a maximum of 21 million. According to University of Oregon finance professor Stephen McKeon, this theoretically makes bitcoin inherently resistant to inflation. As of February 2018, nearly 17 million bitcoins have been mined.
Eckvahl bought her first whole bitcoin in December 2016 for about $1,000.
“When I first invested, I was skeptical. But 2017 was a very good year,” Eckvahl said.
Now, Eckvahl is in it for the long-run. It was the first time she had ever invested in anything and she believes her early successes reflect a future of growth.
“I believe it has the potential to hit $100,000 in my lifetime. When and if it does, I will consider selling half,” Eckvahl said. She has yet to sell any of her bitcoin.
According to Eckvahl, cryptocurrency has the potential to be the new universal currency. She has faith in the technology, but recognizes an uncertain future. Eckvahl cautions that cryptocurrency is not an investment for everyone. To have cryptocurrency success, one must research trends and market value and maintain the mindset that in the end, the markets are impossible to predict.
A ledger that everyone trusts but no one controls
The banking system can manipulate figures and adjust exchange rates. Because of this regulative power, banks have been held increasingly responsible for severe financial crises. They take on the role of a bookkeeper, tracking transactions on a ledger that maintains an archive of what customers have deposited and what they owe.
In order to foster an effective currency independent of banks, an alternative technology to maintain the ledger is necessary. Enter the blockchain. Instead of placing the responsibility of the ledger in the hands of a single institution, the blockchain is a public ledger. Anyone can read the ledger, write to it and hold a copy of it. Crumbly explains that on the blockchain, “You are your own bank, you prove your digital ownership.”
It is also difficult to cheat on this public ledger—if everyone is holding a copy of the same ledger, a single individual cannot get away with changing or altering it.
Professor McKeon explained that the blockchain poses some limitations for cryptocurrency transactions. Where a typical visa card can process more than 1,500 transactions per second, bitcoin can only process three to four.
The blockchain also uses a large amount of energy. The algorithms that computers must solve to verify a transaction require high computing abilities. At its height in December 2017, the bitcoin blockchain’s daily energy consumption was greater than that of the entire country of Ecuador. Moreover, bitcoin’s value compared to the U.S. dollar is volatile. It is not uncommon for a coin to rise in value 10 percent in a single day—sometimes even 100 percent— just to lose the same amount the next day. This makes it very difficult to use bitcoin on a day-to-day basis as it is not tied to any consistent physical assets.
What about altcoins?
“I threw some money at it and it worked out,” said Spencer Doubrava, a sophomore and economics major at UO who invested in altcoins.
Like most cryptocurrency success stories, Doubrava’s is one of research. A U.S. Senate hearing in 2013 incurred unprecedented media coverage and a subsequent increase in the value of bitcoin. Bitcoin’s worth in the following months was volatile and Doubrava decided to jump into cryptocurrency.
Unlike Eckvahl, Doubrava set his sights on altcoins. Since bitcoin’s launch, thousands of other cryptocurrencies have emerged. Altcoins are any cryptocurrency that is not bitcoin.
Doubrava first invested in Ethereum— the fiercest rival to bitcoin. J.P. Morgan Chase, Intel and Microsoft allied to create smart contracts, a network that allows users to put code on the blockchain. Because these smart contracts are on the blockchain, they run without any possibility of censor ship, fraud or third party interference. This feature lets Ethereum act as more than just a currency. Developers can use more complex code to build decentralized applications. These apps are less errorprone and more transparent, with greater built-in security.
As of March 2018, there were over 1,500 altcoins. Prominent altcoins include Ripple, Litecoin and Monero. Lesser known altcoins include PotCoin, PutinCoin, Dogecoin and Garlicoin.
Doubrava likened his altcoin investments to gambling. He based his decisions on the faith that the rest of the cryptocurrency world had in particular tokens. Doubrava is weary about the future of bitcoin. He said that the problematic network will not permit it to ever become a mainstream currency. Nevertheless, Doubrava expects to make more money. For those looking to invest, however, he warns of the bad actors in the cryptocurrency world.
Inherent Uncertainty
Stephen Paul’s cryptocurrency story begins two and a half years ago between two earbuds, while listening to podcasts about banking.
“I was interested at that point, but I wasn’t educated enough to start investing,” Paul said.
A business administration major at UO, Paul’s experience in-esting in stocks and conducting analyses to determine a company’s worth laid a foundation for his cryptocurrency research. In the summer of 2017, Paul dove into the world of cryptocurrency. He considered mining and researching altcoins. When he began investing, a single bitcoin was valued around $2,500. Many believed this would be cryptocurrency’s peak, but Paul continued to invest.
Almost a year later, Paul’s success reflects uncertainty. According to Paul, a key to predicting the worth of a cryptocurrency lies in its media presence.
“It’s like gambling to see which one will be on the news,” Paul said. Media prominence incites dialogue. The more attention and demand a coin receives, the higher its value.
From Netflix documentaries to front-page spreads, the more people talk about cryptocurrency, the more people invest. And like the stock market, greater demand causes a higher market value. The cryptocurrency market has demonstrated this simple relationship in an extreme way. The rapid number of investors that joined the community in the last ten years has led to an unprecedented rise in value. Those who invested $1,000 in bitcoin the year it was introduced now find their investment to be worth $3.7 million.
Paul doesn’t treat cryptocurrency the same way he would a long-term investment. “It’s a currency, not a stock and it’s important to remember the difference,” Paul said.
According to Paul, there is a lot of potential in cryptocurrencies. Although he said transaction times and costs will impede bitcoin’s growth, currencies like Litecoin, designed to reduce these impediments, may persist. Paul recognizes the large amount of risk in a cryptocurrency investment. However, he believes that profound research and financial responsibility can result in an effective venture.
Hold on for Dear Life
“Most people don’t know about crypto, but they want to get into it,” said Alexander Bang, a music and psychology major at UO. “I wanted to make something to facilitate the investments.”
Bang was introduced to the world of cryptocurrency by his friend and future business partner, Crumbly. After he invested in Ethereum, Crumbly encouraged Bang to do the same. The two entered a world of opportunity and wanted to help others who may not understand cryptocurrency to join as well.
“From grandmas to lawyers, tons of people have heard of bitcoin and blockchain, but are hesitant because they only see it as a way to get rich quick,” Crumbly said. Their solution was 21K Investment Group, a mutual fund for cryptocurrency that the two roommates launched in December.
Bang and Crumbly’s mutual fund is more of an investment than an exchange. Exchanges are a vital part of the digital currency market. They are institutions that allow customers to exchange cryptocurrencies for assets like dollars or other cryptocurrencies. Like traditional stock exchanges, cryptocurrency exchanges match buyers with sellers.
In 21k Investment Group, investors purchase a coin that is specific to the exchange, and is more like a receipt than a currency. There are three rounds of investing. The coin increases in price every round, becoming more valuable with each wave. Everyone who invested in the first round will have doubled their investment by the second.
Bang and Crumbly said they believe in the future of cryptocurrency.
“There is a saying within cryptocurrency that says to HODL, which means to ‘hold on for dear life.’ We believe strongly in how cryptocurrency can be used in the future and how it can change so many aspects of our life.”
The Future of Cryptocurrency
Just like real gold, cryptocurrency is hiding under the surface, waiting to be brought to light and spent. Also like gold, cryptocurrency has had a turbulent narrative with an uncertain future.
The decentralized nature and anonymity of cryptocurrencies has made them favored vehicles of illegal activities, including money laundering, drug sales, and weapons procurement. Networks that foster cybercrime like the Silk Road flourish on the blockchain, leaving many with a pessimistic view about the future of cryptocurrency. Governmental agencies are getting better at tracking pseudonymous transactions. However, altcoins that allow for complete anonymity, like Monero, persist.
Many believe that the future of cryptocurrency is doomed at the hands of government regulation. As banks and governments realize this invention has potential to draw their control away, they may take steps to gain regulative control. However, there are potential models that could benefit both parties.
“Cryptocurrencies will persist. Each country has their own currency, but cryptocurrency provides a universal aspect to it,” Bang said. Moreover, banks around the world in places like Estonia, China and Sweden are experimenting with their own forms of cryptocurrency.
Crumbly believes that the volatility of cryptocurrency is merely a product of its recent inception. In the short term, it will serve as a complement to the dollar, but banks will eventually have to update their methods of exchange to compete with cryptocurrencies. In the long term, “Crypto is perfectly situated to replace fiat,” Crumbly said.
Bitcoin, the first major cryptocurrency, has been declared dead by the media 259 times, according to BitcoinObituaries.com. It is impossible to know whether bitcoin is merely a bubble or the future of currency. The only verified commander of cryptocurrency value is its investors.
