When Richard Lyons studied business and microeconomics in the 1980s, cryptocurrency and blockchain didn’t exist. Credit cards with magnetic strips had been invented a couple of decades earlier in 1960, and with that innovation came a series of regulations and a steady change in consumer behavior. Now we take Apple Pay for granted, but all of these new payment technologies still involved making transactions in fiat currencies.
Cryptocurrency is changing that, and regulators are taking notice. Some cryptocurrencies are pegged to the U.S. dollar — so-called stablecoins — as insulation against market volatility (it doesn’t also go as planned, though). And central banks around the world are also considering developing their own digital currencies.
Before becoming UC Berkeley’s first Chief Innovation and Entrepreneurship Officer in 2020, Lyons was the dean of Berkeley Haas and researched cryptocurrency and stablecoins. He now oversees the university’s innovation ecosystem.
I spoke with Lyons recently about cryptocurrency, if NFTs are useful, what he thinks are the best use-cases for digital currencies and whether UC Berkeley could theoretically accept alternative forms of payment for tuition in the future.
A stablecoin is a crypto coin, currency whose value is pegged to an asset in the non-crypto world. Usually the dollar. A coin whose price is pegged 1:1 usually to the dollar. Pegged doesn’t mean it always trades at the tether but there’s a process that keeps it close to the dollar.
Not much. My nephew is a crypto asset manager, so he’s taught me a lot. I own a little bit of Ethereum and we did mint an NFT priced in Ethereum at Berkeley. Otherwise, just a small amount in my nephew’s hedge fund.
It was a year and a half or so ago. Beeple’s NFT had already been minted but we were the first university (to make an NFT). The concept was that we wanted to connect it to a Nobel Prize. When you come up with an invention at a university, they usually want to patent it. There’s an invention disclosure form and it goes to our patent office. The NFT was a digital representation of pages from that disclosure form. It was related to Jim Allison’s research on cancer that won a Nobel Prize. There’s no rights to the IP. It’s a digital project that represents it.
This phrase that’s useful to me is “utility tokens.” Does this NFT benefit me? What if we created a series of NFTs? They can all be the same thing and represent the same thing like a class (at UC Berkeley), and then you could invest the proceeds back to the class and the NFT owners get a community and utility from it. The design of NFTs is getting very sophisticated around how we create substance around them.
What does a baseball card get you? If this has some resale value, great. There are some things worth zero to you and me and yet they have this high price.
Janet Yellen is saying that crypto is such a big part of the economy, it needs regulation designed for it. This is where smart people disagree. Some say regulations will slow down innovation. Look at the velocity of tether. Look at the transaction volume. People are trading bitcoin for tether, not dollars. A big market cap makes it look risky but its velocity is so high, if you disrupt it, it can create systemic risk.
Transparency is a good word. Saying we want you to publish your collateral audit sheet. Force them to show the market. It’d be a light touch regulation.
What are the best uses of blockchain? Thinking about stablecoins and other cryptocurrency, people often answer this question by saying, “we don’t need a crypto currency to do that.”
International payments. If you want to send money to Mexico, it’s expensive. International payments are high-cost transactions. XRP’s initial design was to make international payments costlessly. There’s friction in the economy. Not everyone would agree it’s a good thing but there are capital controls. A lot of people would like to invest in international assets, and people should be allowed to invest their assets where they want to. Crypto assets allow people to evade detection but some say people should have that liberty.
I’m a currency expert. Ten years ago, if someone asked me if we need a new currency, I’d say no. Currency can be exchanged, it holds value, it’s a unit of accounting. The dollar’s really good at all three of those things. But I under-appreciated the value of anonymity. For some people, it’s about illegal activity. Some people don’t want to be monitored. Look at the surveillance economy in China where putting money in a bank makes me surveilled. It’s like NFTs. It’s worth something to a lot of people.
Yes, if we’re talking about something big that happened, law enforcement has the ability to investigate it.
Illegal activity of many kinds. There is clearly a lot of illegal and unethical behavior that is enabled by the advent of cryptocurrencies. Drug and weapons smuggling. Human trafficking. Child pornography. Many others. Many of these are as much enabled by the advent of the internet. But the ability to fund transactions mostly outside the eyes of authorities greatly stimulated feasible transactions in these areas.
Yes, that can happen any number of ways. One would be via a central bank digital currency. Another would be via decentralized crypto that conforms to traditional anti-money laundering and know your customer regulations. Neither of these will be sufficiently developed in my view for Berkeley to accept crypto for tuition in the next couple years. But over five years, maybe. Over 10, probably.
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