I have been teaching an MBA course on cryptocurrency and blockchain since 2018. Offering this course was an adventure for me and it has been incredibly rewarding. I like learning and with cryptocurrency and blockchain, the pursuit of knowledge is never ending. On this page, I will share some of my teaching material (with updates), fun facts/articles/cases, and media coverage. Feedback is welcome and feel free to reach out.
Fun fact: Do you know bitcoin is tightly linked to accounting? The bitcoin version of blockchain works just like a general ledger that records debits and credits.
Fun fact: Do you know that it is true that a person named Laszlo Hanyecz bought two large pizzas with 10,000 BTC in May 2010? In fact, it was an open offer. In total, Laszlo bought eight pizzas for 40,000 BTC until he ran out of them.
Why crypto? The Cypherpunk Revolution came to prominence in the 90s via the Cypherpunk Mailing list. The two views that flourished on the list were libertarianism and cryptography. Growing increasingly skeptical of central banks, Cypherpunks eagerly pursued a currency that is free from government intervention and truly native to cyberspace. The search for such a currency was fruitless for nearly two decades before the advent of bitcoin, which saved Cypherpunks' philosophies and helped revive the dying-off movement.
PayPal and Crypto: PayPal rolled out its crypto trading services in November 2020. Four months later, PayPal launched "Checkout with Crypto" services, allowing U.S. customers to use cryptocurrencies to pay for goods and services at millions of online merchants where PayPal is accepted. Many don't know that PayPal has had a long history with crypto. In fact, PayPal's original vision was to create "the new world currency" just like Bitcoin, and it had a T-shirt printed in 1999 with this mission statement. Although the mission hit a pause after PayPal got acquired by Ebay, it helps explain the company's continuous efforts to wade into the crypto space and to enhance crypto utility. For example, PayPal partnered with Coinbase, BitPay, and GoCoin so it was actually possible for online vendors in the US and Canada to accept bitcoin payments through PayPal as early as in 2014. Here is an interview that I did with the local CBS news to discuss PayPal's crypto services.
Crypto regulation: Hawkish or Dovish? Recently, a quote by the SEC chairman Gary Gensler keeps making headlines in which he reportedly described the crypto market as “the Wild West that rife with fraud, scams and abuse and threatens national security.” Less is known is that Gary Gensler also stated in a recent speech that “innovation [behind cryptocurrencies] is real” and that he sees cryptocurrencies as “a catalyst for change in the fields of finance and money.” My personal view is that regulations are necessary steps to the stability and acceptance of cryptocurrencies by mainstream consumers and investors. The fact that regulators are eyeing crypto taxes (an estimated total of $28 billion over the next decade) to fund the infrastructure plan is boosting investor confidence that a blanket ban is not in sight. There are three important policy debates here: should we treat cryptocurrencies as securities? How should tax authorities collect tax from crypto transactions? How should we define the scope of crypto brokers? Here is an interview that I did with Finance & Commerce where I discussed crypto regulatory outlooks.
This is an intro level course developed jointly by me and my long-term friend and coauthor Allen Huang at HKUST. It is tailored for business students who are interested to learn about bitcoin and blockchain. The course first explains the history of cryptocurrencies and basics of blockchain. This part is essential to establishing a foundation to understand cryptocurrencies and blockchain. The second part of the course focuses on enterprise applications of blockchain. Finally, it discusses crypto investments, practical details, and potential valuation models.
It's fair to say that cryptocurrencies like BTC have received enormous attention lately and are being considered a new asset class by individual and institutional investors alike. Should you invest in crypto assets? Be sure to understand their risks and volatility. Here is a piece of local CBS news that discusses BTC investment risks.
Why crypto? Unlike physical items, digital products are easy to replicate. In the crypto world, this is called the "double-spending problem." For example, how can we ensure that a naughty Darth Vader is not secretly making copies of his digital currency and giving a copy to each of his stormtroopers? And remember, in the digital word envisioned by Cypherpunks, we cannot rely on banks or any other central clearing agencies. The answer is "cryptography," the science of secure communication techniques that allows information transfer to take place between only the sender and intended recipients.
What the Heck are NFTs? NFTs, which stand for "non-fungible tokens," are tokenized digital work. NFTs represent ownership of one-of-a-kind digital items. You can think of NFTs as digital collectibles, or crypto alternatives to antiques or baseball cards. NFTs were created to authenticate ownership of creative digital work because transactions of NFTs and their resulting ownership are recorded on blockchain (mostly Ethereum). Remember the "double-spending problem" we talked above? To be sure, although NFTs act as digital certificates of ownership, they cannot actually prevent reproduction and piracy, just like you can always get a reprint of the Mona Lisa painting, only easier in the digital world. As an example, Chris Torres sold a one-of-a-kind version of the Nyan Cat (also known as the Pop Tart Cat), an animated flying cat leaving a rainbow trail behind, through NFT for nearly $600,000 in February 2021. Would you pay this much to become the certified owner of this digital art knowing that you can watch it anytime on YouTube for free? A student of mine said he would pay to make it go away:) Here is an interview that I did with Star Tribunes to discuss NFTs.
What the Heck is DeFi? You can think of DeFi, or Decentralized Finance, as a system that offers financial products and services on a public decentralized blockchain (mostly Ethereum) using smart contracts. Let’s start with blockchain: In simple terms, a blockchain is a multi-party, data-sharing platform. In more technical terms, a blockchain is a distributed ledger of provably-signed, sequentially-linked and cryptographically secured transactions that’s replicated across a network of computers, with updates determined by a software-driven consensus. Smart contracts are computer programs with terms of the agreements directly written into lines of codes. The most common use cases of DeFi are borrowing and supplying digital assets (to earn interest).
Fun fact: Do you know that Walmart has been testing IBM's Food Trust blockchain since its introduction in 2017? The retailer required all suppliers of its leafy greens to join the blockchain by January 2019 and its farm suppliers, logistic companies, and other business partners to join by September 2019. The bottom line is that almost every industry is exploring what blockchain could mean for them. Blockchain is not sci-fi any more.
Regulations on cryptocurrencies are either absent or in flux, which present investment risks. One thing is clear though: you have to pay tax on any profits that you gain from mining/staking/forking and all crypto transactions (although there is some push to make mining tax free). Here is a star tribune article that discusses some of these political efforts.
Why crypto? "Crypto" comes from the ancient Greek word κρυπτός or kryptos, meaning 'hidden' or 'secret.' Bitcoin and the blockchain that it builds on utilize two cryptographic primitives: hash function and public-key cryptography. Hash function takes a digital input of arbitrary size and transforms it into an output of fixed size. Try a hash function here. Public-key cryptography is an encryption technology. It involves three steps: (1) generating a pair of public key and private key (2) signing a hashed message with the sender's private key, and (3) verifying the signed message with the sender's public key. Try a digital signature here.
Crypto Accounting: Corporate interests in crypto assets are on the rise. MicroStrategy and Tesla are two well-known examples of public companies purchasing billions of dollars worth of BTC. Besides making direct investments in cryptocurrencies, companies may gain exposure to crypto assets as a result of mining, investing through Grayscale-series crypto trusts, accepting crypto payments, or providing crypto trading services. Different types of crypto investments carry different implications for corporate financial reporting and disclosure. Currently, there is no authoritative rule under the US GAAP that directly addresses crypto accounting so most companies carry their crypto assets at cost and perform periodic impairment tests following interpretive guidance issued by the big four accounting firms. However, exceptions do apply where a company may report crypto assets at fair value or even treat them similarly as inventory.
Here is a WSJ article in which I discussed how Tesla's crypto holdings may have affected its reported earnings for 2021Q2.
Webinar on Crypto Accounting for the CFA Society New York
Crypto: A New Institutional Asset Class? The difference in the crypto investment landscape between 2017 and now is the involvement of institutional investors (and to some extent also the involvement of regulators). Here is a list of news that made headlines in August 2021: BlackRock has invested a total of ~$382M in bitcoin miners Marathon Digital Holdings and Riot Blockchain; Wells Fargo launches Passive Bitcoin Fund for Wealthy Clients; JPMorgan registers its passive bitcoin fund with U.S. regulators Thursday; DeFi Grows in Institutional and Regulatory Importance and SEC’s Gary Gensler Says DeFi Apps Can Be Regulated. Interests in cryptos from credible investors and legacy financial institutions will help stabilize cryptocurrency prices and the market mature.