CBA Newsletter February 2021

SinceBitcoin’sdebutin2009,ithasbeenabuzzwordinthefinanceindustry,extendingitspopularitythrough relationwithanothertrendybuzzwordFinTech.Somemayalsothinkofblockchaintechnology,whichdigsinto thetechnicalstuffssuchashashverification,decentralisationetc.Itwasadistanttopic,ifnotmythological,until ElonMusk,therichestpersonintheworld,invested$1.5billioninthecoinandannouncedacceptanceofBitcoin forTesla.TheCurrentBusinessAffairsNewsletter(FebruaryIssue)ofTheBusinessStudents'Union,HKUSTSU istakingyouthroughthemysteriousdigitalmineofcoins. W hatisacryptocurrency? Currencyofthefuture Acombinationof“crypto-“and“currency”explainsits Thedecentralisedfeaturesofcryptocurrenciesbringa natureofadigitalcurrency.Whencryptocurrencies lotofcomparativeadvantagesoverrealcurrencies. areexchangedinatransaction,blockchainisinvolved The coins are not easily affected by any local toverifyandrecordthetransaction.Therecordsare economiesandgeopolitics,whereasrealcurrencies maintained by everyone, namely decentralised, mayinflateduetoinstabilityofacountry,ordeflate insteadofbeinglockedupinasafeoraprivateserver due to government’sfinancialpolicies.Itisalso ofanybank. securedbytheblockchainsystem inwhichpeopleall overtheworldcanverifyyourassets,notdominated Bitcoinisnottheonlycryptocurrency;asamatterof by a single banking corporation.These may be fact,therearemorethan4500cryptocurrenciesasof appealingintheeyeofmultinationalbusinessesand February 2021.Ifyou think cryptocurrencies are traders.Itissaidtobepossibleforcryptocurrencies volatileandworthless,stablecoinsarepeggedwith likeBitcoin to replacerealcurrenciesiftheycan otherinvestmentsandredeemableinrealcurrencies, perform allfunctionsofrealcurrencies,whilewe servingasapromisingchoiceforyou.Inanutshell, shouldalsotakeintoaccounttheirdistinctconcerns. cryptocurrency is still on the bandwagon, transformingintoagreatervariety. Sources:CambridgeBitcoinElectricityConsumptionIndex,cbeci.org/cbeci/comparisons NourielRoubini.“bitcoinisnotahedgeagainsttailrisk.”FinancialTimes,10February2021,www.ft.com/content/9be5ad05-b17a-4449-807b-5dbcb5ef8170

Anothersideofthecoin that,theamountofelectricityusedannuallybythe Bitcoinnetworkcouldsatisfytheenergyneedsofthe Cryptocurrenciesingenerallackpromisingvalues.Other UniversityofCambridgefor689years.Itisobvious mediaofexchangesuchasgoldandexpensivemetals thatenergycrisisstandsinthewayofpopularization haveindustrialusesandahighmarketdemand,while ofBitcoinandothercryptocurrencies. cryptocurrenciesdonot.Asmentionedabove,theyare notpeggedwithanyeconomies,thusthecurrentpricesof Whatifwebecomeaminerinsteadofapassivebuyer? cryptocurrenciesaremerelybuiltuponexpectationsof The fact is that,there are oligopolistic miners buyersandsellers.Itisasdangerousassellingapieceof controllingmostoftheBitcoinminingandwehave blankpaperonwhichyoucanmarkthepricefreely. hardlyanychancetowin overthem.Theminers mainlyfrom China,RussiaandBelarusinvestalot Some researchers even criticise cryptocurrencies as andpossessunmatchedcomputationalpower,hence financialscams.Thereexistsonetypeofcryptocurrency abletoeliminatelaymenwithsimplecomputers.This thathasnovalueorunclearpurpose,namely“shitcoins”, countsasaloopholeinsideadecentralisedsystem among thousands ofthe coins.It is accused that thatallowscentralisedcoinmining. “shitcoins”arebeingmanipulated forprofitsastheir valuesskyrocketfromnothing.Weshouldbemindfulthat Allthatglittersisnotgold.Thinktwicebeforeyou the accusation mightalso apply on other valuable investinBitcoinoranycryptocurrencies,evenifthey cryptocurrencies,evenBitcoin.“Bitcoin’spriceishighly seem tobecostless.Thecurrencyofthefutureora volatile,andclaimsofmisbehaviour,includingpumpand Ponzischeme,itisuptoyourbelieve.Attheendofthe dump,spoofing,wash trading and front-running by day,weshouldlistentowhatNourielsays:“Tesla’s exchanges,are widespread,” says NourielRouini,a ElonMuskandMicroStrategy’sMichaelSaylormay professorofeconomicsattheSternSchoolofBusiness, bebettingthehouseonbitcoin.Thatdoesn’tmean NYU.Cryptocurrencyisaninvestmenttool,butdoesit youshould.” qualifyasasuitablereplacementforrealcurrencies? YourFeedback…… Algorithmsgivetheminingnatureofthedigitalcoinsand require much computational power, consuming a YourfeedbackwillhelpalottoimproveourCBA magnificent amount of energy, which causes Newsletter,ifyouhaveanyenquiriesorsuggestions, environmentaldisputes.Accordingtoaresearchfrom please do nothesitate to contactThe Executive UniversityofCambridge,Bitcoinconsumesaround116 Committee of the Union through email by TWh(terawatt-hours),whichaccountsfor0.56% ofthe [email protected],orbymailto Mailbox #15,LG5 totalworldelectricityconsumption.IfwetreatBitcoinas StudentAmenities,TheHongKongUniversityof acountry,itsrankwouldbe31ontheannualelectricity ScienceandTechnology,ClearWaterBay,Kowloon, consumptionchart,higherthanNetherlandsandmany HK. Europeancountries.Itisevenmoreastonishingtoknow