EconExtra is a series of posts that go beyond the textbook, relating current events and recent developments in economics to content standards, and providing resource suggestions to help you incorporate the current events into your lessons. This post could be tied into any discussion of what constitutes money.

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In its relatively short lifespan, cryptocurrency has already seen several dramatic booms and busts. Why does the crash last week feel a bit different? For starters, it was a “stablecoin” that was wiped out as value of assets of all classes were tumbling. This has just ratcheted up the calls for more regulation of the market, particularly for stable coins.

(CNBC does a great job of explaining stable coins, explaining what happened with Terra and Luna, and which countries are looking at regulation and why.)

Of course this latest slide in crypto pricing has also brought many of the crypto critics a lot more attention. They question the purpose of cryptocurrency. Why should something with only speculative (versus intrinsic) value exist, especially one that uses so much power to create and maintain? The celebrities that were touting crypto as recently as the Super Bowl have gone quiet, and industry leaders are anything but united in their views.

Among the numerous articles appearing this week, there are two that have a common premise: that cryptocurrency is a solution looking for a (legitimate) problem to solve.

The first is from Vox. This article gives a good overview of the evolution of crypto and related elements of the industry without getting too technical.

"Crypto is a solution in search of a problem, or rather, problems. And at the moment, it’s hard not to wonder whether it is, instead, creating more problems than it’s worth"

The second is an interview of a vocal critic from UC Berkeley, computer science Professor Nicholas Weaver, that appeared in Current Affairs. He argues that cryptocurrency is useless and destructive, and should “die in a fire.”  (There is also a link in the article to his actual class lecture on this subject.)

His interviewer tries to summarize his views as follows:

"….Is it accurate to summarize what you were saying before as, essentially: There is no problem that cryptocurrency solves, and to the extent that it is functional, it does things worse than we can already do them with existing electronic payment systems. To the extent it has advantages, the advantage is doing crimes. And every other claim made for the superiority of cryptocurrency as currency falls apart if you scrutinize it."

Assignment Ideas

A) Introduce the topic with the headline event: the crash of the stablecoin Terra. Have students read the CNBC article and discuss the following questions:

1) What happened with Terra resembled a bank run. Can you explain this?

2) Is a cryptocurrency really a “stablecoin” if it is not backed by reserves?

3) Why did this event bring more focused attention to potential regulation of stablecoins?

B) This can set the stage for a broader discussion of the purpose of cryptocurrencies in general and arguments brought up by critics. Both of the other articles are fairly long.  There is no need to use both, but discussion questions for both articles have been included.

Warning: The Current Affairs article gets very political, can be strongly worded, and bounces around topically as it is an interview. The valuable components are the numerous examples of the problems purportedly solved by cryptocurrencies that already have an available solution that is cheaper and more efficient. Please read this article carefully before assigning it to determine if your students are mature enough to read through the hyperbole and focus on Weaver’s basic arguments. The Vox article generally makes the same points in a more dispassionate way.

Vox.

1) What are some of the criticisms of crypto summarized in the first part of this article?

2) One section of this article is headed with this statement:

"The strongest case for crypto is that it's money outside the hands of banks and government."

1. What subsets of people in society do proponents suggest this could help?
2. Who is actually helped by this feature? Is it accessible to those proponents claim it could help?
3. Where crypto provides a benefit (hedge against inflation, hiding funds from a tyrannical government), how widely is it actually used?

3) What are the hurdles to owning/using crypto?

4) Name one or two problems crypto supposedly fixes that actually have a non-crypto solution.

Current Affairs

1) What are Weaver’s key criticisms of cryptocurrency?

2) What issues arise from trying to use cryptocurrencies for payment/as currency?

3) Can you describe the inefficiencies Weaver discusses?

4) Name one or two problems crypto supposedly fixes that actually have a non-crypto solution, and how they work. (M-Pesa is a good one)

5) After reading this article, what arguments (if any) could you make for the existence of cryptocurrencies?

About the Author

Beth Tallman

Beth Tallman entered the working world armed with an MBA in finance and thoroughly enjoyed her first career working in manufacturing and telecommunications, including a stint overseas. She took advantage of an involuntary separation to try teaching high school math, something she had always dreamed of doing. When fate stepped in once again, Beth jumped on the opportunity to combine her passion for numbers, money, and education to develop curriculum and teach personal finance at Oberlin College. Beth now spends her time writing on personal finance and financial education, conducts student workshops, and develops finance curricula and educational content. She is also the Treasurer of Ohio Jump$tart Coalition for Personal Financial Literacy.