Cryptocurrencies, between technological myth and intrinsic value

The world of information technology and finance have been converging since the early years of the new Millennium, as observed with the emergence of so-called 'algorithmic trading' (automated financial transactions managed not by human beings, but by computer programs), presents today a new chapter, that of digital currencies, better known as 'cryptocurrencies'.

The phenomenon of digital currencies (e.g. Bitcoin, Litecoin, Ethereum etc.), which differ from 'real' currencies in that they are not controlled by central banks, is booming to the point that two Swiss public administrations (Canton of Zug and the City of Chiasso) are now accepting Bitcoins for the payment of citizens’ income taxes. But this enthusiasm for virtual money is not shared likewise by everyone, as the Chinese government has recently made clear that soon exchanges with digital currencies will not be allowed in non-commercial transactions among private citizens. In between these two opposites, a more analytical approach calls for further consideration of elements of both technological and economic nature. 

Concerning the technological aspects, Prof. Antonio Carzaniga, Dean of USI Faculty of Informatics, explains that, “the myth of anonymity with Bitcoin transactions needs to be debunked. All transactions are noted on a public register called “blockchain” which is accessible to everyone. Transactions are also associated to account numbers (keys) that are anonymous, but in most cases, it is easy to backtrack individuals with a simple analysis of expenditure profiles. All of this can be done outside of official channels. There is therefore a double disadvantage: it is not immediate for institutions to control and settle payments, and at the same time, anonymity cannot be guaranteed”. 

Prof. Carzaniga also underlines “the limited scalability of a blockchain. There are several technologies able to build this bookkeeping tool, but the one behind Bitcoin has limits regarding the speed in which the register can grow globally, therefore it allows only a limited number of payments per day. And also, the idea of a blockchain is to have a distributed decentralized register which is in theory very reliable; yet recent studies show that any ‘miner’ can join forces and arbitrarily manipulate the system”. 

Starting from their financial value, the phenomenon of cryptocurrencies also poses radical economical questions. As explained by Prof. Francesco Franzoni, Director of the USI Institute of Finance, “Bitcoin intrinsic value and of all cryptocurrencies in general, depends on how much it will be used and adopted in the future. Will the public accept Bitcoin as a mean of payment? I believe that there is still a lot of regulatory uncertainty concerning Bitcoin and and the phenomenon of cryptocurrencies. It is safe to say that at some point one should expect some legislative action aimed at limiting or possibly restraining the use of Bitcoin. For this reason, the recent increase of the value of digital currencies might have a strong speculative connotation. The fact remains that we are moving towards a widespread use of blockchain technology for several financial transactions. Therefore some forms of cryptocurrency, under the control of official regulatory authorities, could probably be an active part of our future”, concludes Prof. Franzoni.

This complex professional sector requires experts who can master both the laws of finance and those of programming languages, in a context of an increasingly marked presence of artificial intelligence technologies. To address this need, USI has launched in September 2017 a new advanced training course - The Master in Financial Technology and Computing, which stems from the collaboration between the Faculty of Informatics and the Faculty of Economics, aiming at providing students with solid training in Informatics all the elements required to excel in the modern financial sector. For information: www.mft.usi.ch