“ Bitcoin mania has students flocking to crypto classes at Stanford and other top computer science schools,” says the headline of an online report from CNBC. The article goes on to describe a surge in interest in cryptography classes, spurred by the rapid rise of interest in, and popularity of, cryptocurrencies like Bitcoin, and the growing influence of blockchain technology. A professor offering the course told CNBC that more than 1 million people have signed up for an online cryptography class he teaches through the website Coursera
Many are likening this surge of interest in all things Bitcoin to manias of past times, like the famous Tulip mania in Holland in the mid-1600s. The skyrocketing prices of the most popular cryptocurrencies like Bitcoin and Ether make it easy to assume there is an investment frenzy underway, as amateur and professional investors alike, scurry to get in before the next price record gets broken.
In the seventeenth century, tulips were new to Holland. They were spectacularly beautiful, and they arrived at a time when there was great wealth in the country, thanks to massive inheritances that came out of a high level of plague-related deaths. The skyrocketing prices came as futures traders sold to wealthy amateurs, and yes, indeed, the market eventually bottomed out and the entire craze petered away.
Tulips are only one of many manias to help part investors from their cash. Beanie Babies and Cabbage Patch Kids had a similar hold on peoples’ sanity as the popularity of these toys turned them into quick investment vehicles rather than kids’ playthings.
There are two possible manias that the CNBC story highlights: the first is the fascination with cryptocurrency in general, and the second is universities, suddenly offering courses in related knowledge, such as cryptography, or programming in Ethereum.
The Bitcoin Mania Theory
With regard to cryptocurrency mania, the argument hinges greatly on the fact that Bitcoin mania, Ether and others seem to have no actual value, since they are not tangible. It seems people are investing and providing value based entirely on faith: a financial version of a mutual admiration society: “So long as we all believe in Bitcoin, then bitcoins will have value.”
But it is very possible to argue the presence of value, first in the fact that bitcoins can be exchanged for goods and services, albeit to a limited number of vendors, and second, that they can be easily converted back to cash, making them just as viable an instrument of commerce as any other types of shares. The cryptocurrency market physically exists. People are not buying into an idea of a future design; it exists in the here and now.
What the detractors should be focusing on is the volatility aspect. It is very difficult to place a value on a currency that has the potential to lose or gain significantly in a matter of hours. This is what makes Bitcoin impractical as a currency at present, and it is this fact that makes it appear as shaky as investing in tulips 400 years ago, or even buying real estate in overheated urban markets today.
But Bitcoin is not a one-off. It is in many ways the mascot for an entirely new way of conducting business using the distributed ledger technology of blockchain. Even if Bitcoin failed completely, its death would not draw parallels with tulips. At worst, it might rival the custom coach builders of the early 20th century who built cars for the wealthy long before Henry Ford standardized the assembly process. The demise of the coach builder did not herald the demise of the automobile industry or the transportation industry. Savvy investors need to keep their wits about them, but they should also see the difference between pie in the sky, and the birth of an entirely new industry.
The “Universities Teaching Modern Ideas” Bitcoin Mania Theory
The second mania that the CNBC story contends with is the sudden surge in interest in cryptography. The article states, “The trend is not just limited to these two universities: the University of California at Berkeley launched a class last year called the Cryptocurrency Decal, and in 2015 the Massachusetts Institute of Technology's Media Lab established the Digital Currency Initiative.
The question then becomes, are these schools unscrupulously cashing in on a trend, or are they addressing their mandate of teaching the skills that are already marketable, and will be more so in the future?
Given that the courses are on cryptography and digital currency, as opposed to, say “how to invest in Bitcoin,” it appears they are doing what their customer base – students of all ages – is demanding: knowledge in the language of the next generation of commerce.
If, in the 1990s, a university offered a course entitled “How to Manufacture Knock-Off Beanie Babies,” it could be easy to accuse the school of profiting from a mania. However, if, during that same period, they offered or expanded classes in “Investing,” and “Economics” and “Marketing,” based on the Beanie Babies trend, this would be education on a wider and far more applicable plane.
Cryptography: The Harry Potter of Data
An uptick in students registering to learn the science of cryptography has more in common with Harry Potter than tulips or Beanie Babies. J.K. Rowling’s books were widely disparaged by people who saw the content as evil, or the story as silly. But the series got children reading on an unprecedented scale. And they all can still read.
So, it is with Cryptocurrency 101. The currencies might flame out. But understanding the mechanics behind them is simply a good investment in the future, especially when you consider the rest of the world is doing the same.