The Next Disruption?
As blockchain and cryptocurrencies gain traction, WSB prepares students for what might lie ahead
The words “bitcoin,” “cryptocurrency,” and “blockchain” represent everything from an exciting technology to a mysterious future, and a new class this fall at the Wisconsin School of Business is giving students the tools to understand what they could mean for business and beyond.
The School is piloting a course on cryptocurrencies and blockchain technology, responding to industry demand and student interest.
The one-credit class is housed at WSB but open to undergraduate and graduate students from any field of study. There are 50 in the class this fall, some with experience in the technology and some just learning about it for the first time.
“These students come to the course with a range of knowledge on this technology, and their interest in it stems from a diversity of disciplines and potential applications. That’s part of what makes this course so exciting,” says instructor Brad Chandler, director of the Nicholas Center for Corporate Finance and Investment Banking. “Together, we’ll explore this topic that is somewhat hard to understand. If we do that well, we’ll have done something pretty special.”
Blockchain is a decentralized set of digital records that are linked using cryptography and can record two-party transactions. Cryptocurrencies are digital assets that use blockchain technology, and bitcoin is the first and most well-known of the more than 2,000 digital assets in existence. Transactions don’t go through a central financial authority such as a bank or credit card company, essentially removing the middle man. Instead, it’s akin to digitally handing someone cash, a receipt, or a bill that is verified, time-stamped, and cannot be changed. That verified block is added with others to the blockchain to complete the transaction. Data is encrypted so personal and financial information remain secure.
“You now have software that has implicit trust built in,” says Woody Levin (BBA ’00), a five-time entrepreneur who launched a cryptocurrency hedge fund in February. “That’s what will build opportunity.”
Blockchain technology and its applications could ease some financial transactions (particularly international ones), boost food safety by verifying each step in the supply chain, and create efficiencies by directly moving “smart contracts” between two parties. It’s possible, though not guaranteed, that it could disrupt business and technology the way the internet did in the 1990s. The financial infrastructure that we know today could be significantly reshaped as a result of this technology and its ability to eliminate the middle man.
— Mark Li (BBA ’94)
Audit Partner, Assurance, BPM LLP
Giving students a peek at the future
Bitcoin has made news due to its boom and its bust, but the importance of learning about the topic isn’t to get rich in a new-fangled way, Chandler says. It’s so students can understand an emerging technology and see how it could shape their future. Chandler has an interest in financial innovation and wanted to help move WSB curriculum forward.
“When I got here I thought about what our students needed to know to be better prepared for their careers,” says Chandler, who worked on Wall Street as a managing director at Morgan Stanley prior to joining WSB in 2017. Blockchain and cryptocurrency offer potential opportunities for UW–Madison students seeking careers in finance, risk and insurance, supply chain, and other areas of business as well as computer science, engineering, and economics.
But blockchain and cryptocurrency are very much a part of the present, not just the future, for alumni already working with the technology.
Mark Li (BBA ’94) is a audit partner in the assurance practice at BPM LLP, a full-service accounting and consulting firm in the San Francisco Bay Area. He leads the BPM blockchain and cryptocurrency practice with a team of more than 25 professionals who work with a range of clients, such as those who own a company using blockchain technology or an investment fund or manager investing in digital assets.
“We saw the opportunities in blockchain technology that can change how we do things today,” Li says. “We want to be part of that movement.”
Joan Schmit, professor of risk and insurance and American Family Insurance Distinguished Chair in Risk Management, says blockchain and its applications are already a topic of discussion in her field of study.
In insurance, Schmit says, blockchain has potential to ensure the accuracy of agreements among the many parties that are involved in a single transaction. In risk management, she says, blockchain can assist in keeping track of the full ecosystem of a product and help find the source of a problem.
“When there is E. coli discovered in lettuce, do we destroy all lettuces of that variety, or do we home in on the specific source of the lettuce with the E. coli?” Schmit says. “The second is much better than the first.”
Alumni involved in new class
Oliver Wiener (B.A. ’00) is a New York-based managing director at BTIG, a global financial services firm. He works in helping the firm develop a digital asset strategy, and has also been keeping in touch with Chandler about the class and its curriculum. He became interested in blockchain and bitcoin in 2014, and it’s been part of his work at the firm since 2017.
“We’ve been spending a lot of time having conversations asking, ‘What are digital assets? How do you value them? Why should they be part of an institutional portfolio?’” Wiener says. “We want to create an environment where people feel engaged and comfortable in the space.”
Levin became interested even earlier, having bought his first bitcoin in 2012.
“I bought it at $5 and sold it at $15, and I thought I was a genius,” Levin says.
Levin says one of the biggest misconceptions about the technology has been that it is going to go away, but major firms’ entries into the space show that has not been the case.
“Everyone is trying to figure it out,” he says. “One of the things I don’t ascribe to is trying to take the Old World silos and buckets and fit this new technology into those buckets. When the internet came along we believed it had to look and feel like what we had before and that was the absolute wrong way to assess and value the validity of the new technologies.”
That’s the underlying theme of the class, Chandler says. He’s not suggesting students gobble up bitcoin or seek “the next big thing” within the technology; he wants them to understand how it works, how it can be applied, and how to recognize opportunity.
“I want to be pro-innovation but not any particular project,” Chandler says. “Right now the technology looks kind of ugly and crude, but that’s what the internet looked like in 1992. It looked like something strange and not very useful.”
Campus activity with blockchain and cryptocurrency began before the class was launched. Students in a variety of academic disciplines founded an organization called Badger Blockchain in Spring 2017. The group has hosted informational events and speakers and has provided resources to people who want to learn more. Chandler is the group’s advisor.
Emma Ebert (MBA ’19) signed up for the class after attending campus events on the topic. At first she was interested in the investment aspects of digital assets, but as she learned more she became intrigued by blockchain technology.
“When I’d go to talks, I’d think to myself, ‘I want to remember this in 50 years,’” she said. “I want to remember first learning something that might be important later on. That’s why I want to learn it right now. I don’t want to not know.”
Levin says the class and other university-related resources can position WSB and its students well for the future.
“We need young individuals who are curious about the technology and are curious about the new things that can be created with it,” Levin says. “If they leave the class with a healthy curiosity and a belief that there’s something there they can build upon, that’s a win.”
Blockchain and Cryptocurrency Basics
Q: Are blockchain, cryptocurrency, and bitcoin the same thing?
No. A blockchain is a digital ledger of transactions organized into “blocks” that form a chronological chain and are linked through cryptography. Cryptocurrency is a digital asset that works on blockchain technology. Bitcoin is a kind of cryptocurrency and was the first application of blockchain technology.
Q: What are the advantages of a cryptocurrency?
Among the most notable advantages are access for anyone with an internet connection and that no third party is required to execute the transaction, potentially lowering fees and creating better security.
Q: What are the drawbacks?
Drawbacks include price volatility, low adoption from mainstream users (likely due to a lack of familiarity with the technology), energy consumption requirements of certain (but not all) cryptocurrencies like bitcoin, and the inability to recover digital assets if a user forgets or loses their private key (akin to their email password).
Q: Who uses the technology now?
More than 100,000 businesses accept bitcoin, including familiar brands such as Overstock, Microsoft, and DISH Network. IBM and Amazon work with companies wanting to build blockchain solutions. The United Nations agency in charge of food aid uses a blockchain-based technology to help Syrian refugees in Jordan shop for food at a supermarket. Walmart plans to use blockchain technology to track the supply of leafy greens to improve food safety.
Q: What are other blockchain uses?
The heart of a blockchain is data storage; it can be used to streamline contracts, verify identity, track records, and help prevent fraud.