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Faculty Insights

Exploring the Potential and Pitfalls of Cryptocurrency and Blockchain

By Clare Becker

April 16, 2018

David Brancaccio speaks as others listen
Visiting journalist David Brancaccio leads a discussion on financial technologies. Also pictured is WSB’s Brad Chandler, Dereck Barr-Pulliam, and Joan Schmit. PHOTO: PAUL L. NEWBY II

Emerging technologies like blockchain and cryptocurrency are changing many aspects of our lives, including how we do business and enact regulations. Wisconsin School of Business faculty weighed in on this new frontier during a panel moderated by David Brancaccio, host and senior editor of Marketplace Morning Report and WSB’s visiting business writer in residence.
Panel members included Dereck Barr-Pulliam, assistant professor of accounting and information systems; Brad Chandler, director of the Nicholas Center for Corporate Finance and Investment Banking; Jake Dean, director of the Grainger Center for Supply Chain Management; Oliver Levine, associate professor of finance; and Joan Schmit, professor of risk and insurance.
Below are some highlights from that conversation:
Dean: I’m interested in blockchain from a supply chain perspective. In supply chain, we spend huge amounts of money orchestrating actions that move goods between parties, and if blockchain could make these actions more transparent, that’s a huge win. It’d be great to have a common language like this because we spend significant time and resources auditing documents to prove who sold to whom, at what time, and for what price. The traceability benefits that blockchain could provide would be enormously valuable.
Schmit: Following up on Jake’s comments, blockchain has major implications in the risk area. If the food chain results in dangerous goods reaching the consumer, such as food tainted with botulism, being able to identify where that particular batch of food came from is an incredibly powerful piece of information. Instead of shutting down all of the sources, you could shut down the one that’s the issue source.
Dereck Barr-Pulliam and Joan Schmit
Dereck Barr-Pulliam and Joan Schmit lend their expertise to the conversation. PHOTO: PAUL L. NEWBY II

While many people think of cryptocurrency when thinking of blockchain, I think of blockchain more for its potential to make us more efficient by removing some of the costly steps in financial transactions. One example is in microinsurance, which are small value policies for people who don’t have a lot of assets. Normally, those types of policies are not feasible because of expenses. With blockchain, we can address those expenses pretty dramatically. Insurance has expense ratios of 20 to 25 percent, which people in finance find remarkably high and inefficient. By lowering expenses, we can make insurance more affordable and available, and can really improve the economy for all of society in my view.
A key positive of blockchain is the extent to which human error can be diminished. Many large losses result from human error. Blockchain is a method to reduce the potential of human mistake affecting large numbers of transactions, given the protections of each cell relative to the others. The chain “blocks” each cell’s information from the others.
Barr-Pulliam: A lot of my comments are colored by the fact that I’m an accountant and I was also an auditor. What I find in some of my own research and from my experience is that it can be hard to advise our clients about some new form of technology like blockchain because it is hard for us to understand, but we still have to do it. So, one thing that I consistently say is that you need to learn what the technology is.
I think the biggest thing is really understanding the mechanics of the technology itself. And that’s probably the hardest thing for people to understand because it looks shiny and new. But if you don’t really understand what’s under the hood, that’s when people really get into trouble.
Oliver Levine and Jake Dean
Oliver Levine and Jake Dean weigh in on emerging financial technologies. PHOTO: PAUL L. NEWBY II

Levine: I look at this more from the perspective of an economist rather than from the technology side of this issue. Most of what I’ve been following is on the cryptocurrency side, and it’s been eye-opening for me, because as an economist, we look at this from a monetary theory perspective. Does this serve the role of other currencies specifically? What does it look like? It looks like what we call a fiat currency, a currency that’s not backed by anything. And does it have the properties that would enable that to be a functional currency in the economy?
My view is that it does have that potential, but it also has the problems that a government currency sometimes has, which is credibility. When you look at bitcoin specifically, it looks kind of like a mess. It’s sort of the first iteration of a potentially useful technology that’s just not efficient, and it’s not going to be viable long-term.
Chandler: We are launching a course this fall on cryptocurrency. There’s a grassroots movement on campus, I’d say, from students who are saying that they need to learn about these technologies. As someone who’s in finance and has students who are going to be graduating and pursuing careers in finance, it’s imperative to me that they have a working understanding of these new technologies. Otherwise, they are not going to be positioned as well as they could be in the marketplace.
Brad Chandler discusses with David Brancaccio
Brad Chandler discusses the implications of cryptocurrency with David Brancaccio. PHOTO: PAUL L. NEWBY II

I think technology will continue to drive significant changes in finance and this is exactly the type of subject we should be studying with our students. We are watching innovation happen—there are thousands of projects that have launched or will be launching in the next few years. Some of these will emerge as new breakthroughs that we will take for granted down the road. I don’t know which projects will be successful, but it is great to see this level of experimentation.
Learn more about WSB’s cryptocurrencies course.