Cryptocurrencies: Decentralized, Non-confiscatable Assets Changing the World

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By Alexander Villacampa, Class of 2018

Envision yourself living in an oppressed country. Perhaps there’s a dictator about to come to power and you’re not exactly at the top of the social hierarchy. Even worse, imagine that the likelihood of death for you and your family is rather high because your ethnic group has been specifically chosen for termination. You’ve got money but it’s controlled by a system that operates on permissions and middle men. You can’t get it out. The banks simply won’t let you. You’ve got silver coins and gold jewelry but the border guards who patrol the airports, train stations, and roads will pat you down and remove anything they consider valuable before letting you go. That is, of course, assuming they do let you go. And, if you are fortunate enough to escape with your lives, you may have to flee to a land you’ve never stepped foot in with nothing but the shirt on your back.

Sound far-fetched? It’s not. It’s happened to countless individuals throughout history and it happened to my family. They fled Cuba in terror, praying for their lives, and arrived in the United States without a penny to their names. Now imagine that same exact scenario but instead of coins, cash, or jewelry, your wealth was stored in a decentralized, trustless, digital token that only required you to memorize 12 to 24 words in order to have full control over it. With those words, you could take your wealth anywhere and access it at any time. That is financial liberty to a degree the world had never known until January 2009 when a brilliant cryptologist writing code under the pseudonym of Satoshi Nakamoto first released software for an experiment in digital money called Bitcoin. Until that moment in history, financial liberty seemed something only accessible to the upper echelons of society. Satoshi, introducing his solution to the Byzantine Generals’ problem [dealing with communication, uncertainty, and trust], collapsed this financial hierarchy and returned monetary power to where it belonged: the people.

You probably wanted to know my thoughts concerning Ethereum’s scalability issues, clues as to which coins I think will go 40x, on what methodology I use when selecting projects, my concerns with Lightning Network, the future of decentralized exchanges (DEXs), or possibly my thoughts on the fine digital works of art that are CryptoKitties and Rare Pepes. These are all important issues and they are key to understanding what steps project developers will need to take in order to insure the system is stable and accessible to the masses. What is truly important, however, is to understand why cryptocurrency is an asset class and why individuals would ever give it market value. Once you understand that bitcoin is the non-confiscatable asset, the rest of the journey is a matter of understanding the how instead of the why. The heart of an issue is much more important than the flesh that surrounds it.

Alexander Villacampa is a second-year MBA student at The University of Chicago Booth School of Business. He will be working for MetLife Investments under their Chief Economist, Drew Matus, in the Market Strategies arm of the Global Portfolio Management Unit. His passions are financial history, cryptocurrencies, and political economy. For fun, he likes a good round of Overwatch.