October 2008. The world is in the midst of the biggest financial crisis since the Great Depression. Lehman Brothers, the fourth largest investment bank in the USA, deemed by many to be ‘too big to fail’, has filed for bankruptcy – sending global markets plummeting.
In the United Kingdom, the government has announced a £50 billion investment of taxpayers’ money to bail out a string of major high street banks teetering on the brink of collapse.
It is against this chaotic backdrop that an unknown academic, named Satoshi Nakamoto, published a paper theorising a new type of electronic currency.
Three months later, in January 2009, the first ever bitcoin was released with a historic transaction from Nakamoto to computer programmer Hal Finney. Cryptocurrency and blockchain was born.
A decentralised, unregulated, digital asset designed to secure financial transactions, cryptocurrency has since grown into a global phenomenon recognised and used by millions of people across the world.
With nation states, policy makers and corporations still coming to terms with the potential of this brave new world, researchers at Manchester Metropolitan are at the forefront of examining its effect and developments.
“The genie is out of the bottle when it comes to blockchain and cryptocurrencies,” said Gavin Brown, Senior Lecturer in the University’s Future Economies Research Centre.
“We have always been convinced about the importance of it,” added Dr Richard Whittle, a Future Economies Research Fellow who has recently co-authored a new book, Algorithms, Blockchain & Cryptocurrency: Implications for the Future of the Workplace, with Brown.
Recent months have seen major developments in the emerging popularity of cryptocurrency, with investment bank JP Morgan launching its own JP Coin and Facebook progressing its plans to create its own currency named Libra.
In a move that Brown describes as “disrupting their own business model before disruption happens”, around 5 per cent of the $6 trillion JP Morgan moves each day is now made up of JP Coin. “When you consider how massive this is,” Brown said, “the potential of multi-national corporations using their own coins to complete financial transactions is staggering.
“If cryptocurrency becomes accepted as the new norm, individual companies will already be holding millions of dollars’ worth.”
For their part, Brown and Whittle have been predicting this shift in cryptocurrencies for over a decade. It is for this reason that policy makers in the House of Lords and organisations such as the Bank of England, American Express and Credit Suisse are coming to them for advice and guidance.
“A lot of researchers and institutions now have a blockchain or cryptocurrency focus,” explained Whittle. “But generally this will be in a silo, looking solely at coding within IT, pricing dynamics in mathematics or finance.
“The difference we have at Manchester Metropolitan is our polymath approach, looking at business, sociology, psychology, legal, compliance and everything in between.”
“If you ask what cryptocurrency affects,” added Brown, “the answer is everything.”
With a serious focus on policy in the Future Economies Research Centre, Manchester Metropolitan’s researchers are interacting with policy makers on a daily basis.
The genie is out of the bottle when it comes to blockchain and cryptocurrencies
This, coupled with the ongoing academic research and outputs, is also feeding into the curriculum and preparing students for a career in an increasingly disruptive financial and business sector.
The University works with HMRC to offer its senior civil servants the opportunity to study for an online masters degree in accounting and finance, while Brown has used his expertise to design a bespoke cryptocurrency module offered as part of the MSc Behavioural and Economic Science degree.
“Our teaching is all about how people interact with these new currencies and ways of moving money,” says Brown. “We have an insight that’s gained from our research but also from our experience in dealing with policy makers.”
This expertise and insight into the technology disrupting finance and economics is supported by Manchester Metropolitan’s teaching in FinTech. The University is the only institution in the North of England to offer an MSc in FinTech, bridging the skills gap of an industry looking for new skills and understanding of the ways technology is used to carry out financial transactions and interactions.
The developments in financial technology are not without their critics. In a speech last year Yves Mersch, a member of the executive board at the European Central Bank, likened virtual currencies to the “will-o’-the-wisp, a malignant creature that dwelt in marshes” and lured travellers “to their untimely death and a watery grave”.
President Trump has also added to the criticism in a series of tweets denouncing Facebook’s Libra currency against the strength of the US dollar.
“The reaction from President Trump brings to mind an old saying,” said Brown. “First they ignore you, then they laugh at you, then they fight you, then you win.
“The threat to the economies of these large nation states is very real. You have to remember that each time the amount of cryptocurrencies in circulation across the USA increases, the amount of dollars in circulation decreases.”
One of the major sticking points amongst the political elite, say Brown and Whittle, is the issue of regulation.
“If you think it’s difficult to regulate a company like Facebook now,” explained Whittle, “Imagine trying to regulate them when they can affect the strength of your nation’s currency.”
“In terms of regulation,” added Brown, “you can’t stop this. There is no off switch to blockchain and cryptocurrencies and that is something financial regulators are still coming to terms with.”
Brown believes that a continued push for a global regulatory response to cryptocurrencies will gather momentum as more corporations and nation states move to introduce their own coins to the market.
“If we see a nation state or company move on this in a big way it could potentially see everyone else lose out if it takes off,” explained Brown. “What world leaders want to see is everyone staying in line. If they can ensure that all the central banks and nation states agree to an equilibrium, it will prevent one country and corporation being able to hold a monopoly on such a powerful global commodity.”
Much debate remains about the future of cryptocurrencies, something that Brown and Whittle acknowledge is impossible to predict.
However, the future potential of the technology that lies behind the controversy and volatility may explain why the popularity of investing in cryptocurrency has gone beyond large companies and huge investment banks.
Brown explained: “The average person with a couple of hundred pounds in their bank account has always been exposed. If their country’s economy takes a hit through something beyond their control, it is their money that will be affected.
“However if you suddenly had the option to convert your entire bank balance to something like Facebook’s new coin, which could be diversified across ten different nation currencies, why wouldn’t you?”
“We saw a recent example of this in the Cypriot banking crisis,” added Whittle. “As the banking crisis hit there was a huge jump in the value of Bitcoin. What we are seeing is that as soon as people’s money isn’t safe in a bank, Bitcoin spikes.”
We have an insight that’s gained from our research but also from our experience in dealing with policy makers
As well as the protection it may offer to people’s own wealth, Brown and Whittle see the evolution of digital currencies as a generational development.
“Your idea of money is completely different to the generation before you,” explained Whittle. “While older generations were brought up with cash in a physical form – receiving a weekly pay packet and paying for goods with the notes and coins they earned – the younger generation are happy with an on screen balance being the definition of money.”
“Think about gaming as an example,” added Brown, “online games are popular with the younger generation as they can accrue points and rewards that can be used to buy extra features or access new parts of the game.
“Then think about loyalty cards or air miles – all of these things are not money but they are of use to us and they can be used to get things we want. Cryptocurrency has the potential to operate in exactly the same way.”
It is this potential that Manchester Metropolitan’s research and teaching is set to play a key role in realising. From bridging the skills gap in industry to the ongoing work of the Future Economies Research Centre, the developments of cryptocurrencies are being framed through an analysis of the future policy challenges that communities will face, and how business, policy makers and civil society should respond.
With the future holding exciting and uncertain developments in equal measure, Brown and Whittle feel the true impact of cryptocurrencies is yet to be felt.
“Take a sector such as higher education in the UK,” said Whittle. “One university does not have enough capital, reserves, students or staff to launch its own cryptocurrency.
“However, 300 universities together probably do. If their new currency is backed by something more established such as Facebook’s Libra coin then you realise how something like this can take off.
“Then where does government power and regulation come into this? When do we consider taxation and student loans? As soon as you start the first couple of steps, the end outcome is unimaginable."