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Columbia Business Monthly


Aug 02, 2018 02:36PM ● By Emily Stevenson
By Anne Creed

You've likely heard about bitcoin, the earliest cryptocurrency. You might even own some.

Perhaps you're even considering capitalizing a startup using cryptocurrency, or you already have.

Whatever your level of interest, cryptocurrency isn't going away.

Because cryptocurrency is anonymous and transactions are untraceable, it has associations with illegal activities. But it also promises to streamline financial transactions, fund great ideas, and give opportunities to individuals.

What is Cryptocurrency?
Cryptocurrency is digital money that's encrypted. It's been around for only seven years and already there are approximately 1,400 different digital currencies, with more being developed. Cryptocurrencies are made up of "coins," which are also called "tokens." They get their value from what people think they are worth. And that valuation changes daily.

Brad Rustin, a partner of Nelson Mullins Riley & Scarborough who practices in Greenville, explains digital currency this way: "If you think about tokens, they can do different things. A token can represent stock, ownership, or an investment. It can represent a password. Or it can be used to transfer wealth."

At present, there are limits on where you can spend your cryptocurrency and most transactions are very small. Colin Jones, Ph.D., a professor of finance at the Darla Moore School of Business, says that will change. "Right now, you can't buy everything you need. Not many retailers are accepting bitcoin. But in five years that may be different—that all depends on the regulators and the environment we set up for it," Jones says.

Cryptocurrency has some benefits for the average person. "It gives you peer-to-peer (transfer of currency)," Jones says. "It goes with you anywhere that you have a phone or computer. You don't have to store it, and you don't have any fees."

Cryptocurrency transactions are conducted on blockchains, which have enormous potential beyond financial transactions.

The ‘Uberization’ of Finance
If you live in a country with an unstable government, cryptocurrency offers something you can't get anywhere else.

Robert Viglione, co-founder of ZenCash and an adjunct at USC's Darla Moore School of Business, worked with the U.S. Special Forces in Afghanistan, where he served in an intelligence role.

"I got started doing seminars in Afghanistan and discovered that the people there really liked the idea of a currency not tied to a political system. That led to my Ph.D. research,” Viglione says. “I looked at how bitcoin was traded in unstable economies and saw, for example, that people in Argentina are willing to pay 30 percent more for bitcoin than people in stable countries."

Viglione's passion led him to co-found ZenCash, the only cryptocurrency founded out of the Southeast.

"I came into the industry for philosophical reasons. I'm helping 'Uberize' finance," Viglione says.

Cryptocurrency Value
"Bitcoin's value is what people are willing to pay for it," says Rustin. "There's nothing backing it. If bitcoin falls out of favor, then bitcoin has no value. It's not like stock, where if the company does well, the value goes up."

Another example is the currency, ether, which was issued at $1.50 and was valued at $1,400 at its height. "You get crazy fluctuations," Rustin says. At the time of writing this article, ether was valued at $411.

Funding Startups
Cryptocurrencies are increasingly used to fund startups. In exchange for coins that they purchase, investors can receive access to something the startup is developing, such as technology.

"For a business, doing a coin offering as a way to raise money is quick and fairly straightforward," Rustin says. "It's a simple way for people to invest in your business, and it's fast if you understand the legal requirements associated with it."

The startup can use the money for legitimate purposes. Or they can use it to buy personal aircraft and whatever they want. "That's your risk," Rustin says. "And that is why you see people shifting to registered coin offerings."

Nelson Mullins believes that cryptocurrencies will become more common for funding businesses. Rustin says, "We have an entire team focused on coins and tokens. We view this as an overall change in how finance will be conducted."

Cryptocurrency as an Investment
Some people are buying cryptocurrencies with the plan to flip them quickly. Others are buying them as long-range investments.

"You don't want to cash out everything and put it in bitcoin," Jones says. "But there is an investment aspect of it. From a diversification perspective, bitcoin can be attractive because it's not correlated to stocks, bonds, American dollars, or real estate.

"But it's not a get rich quick scheme or a way to make big bucks quickly," Jones says. "Crypto has been down since the new year, but has leveled off and been stable. There have been a series of small bubbles and crashes, but it is generally moving upward, which sounds like the early stock market."

How to Buy
There are many ways to buy cryptocurrencies. The one most people are familiar with is Coinbase. Here, you use dollars to buy bitcoin, litecoin, ethereum (ether), and bitcoin cash. You then use your purchased coins to go on other exchanges, if that is your intention, and buy other currencies.

Rustin says, "Coinbase is a reputable currency exchange. They are regulated and you have to provide identification. They are licensed the same way that Western Union is licensed, and they are reporting [to the government] so you won't be anonymous. They have the ability to watch for people sending money for terrorism, etc."

To Learn More
To find out more, you can follow websites devoted to cryptocurrencies and join information groups. You can also go to conferences. Rustin recommends FinTech South, which occurs in May every year. This conference focuses only on financial technologies. This year, it sold out in 48 hours, with 1,300 people from 450 companies at this event.

Rustin says, "It's one of the best things you can attend to learn about cryptocurrencies and the cutting edge of financial technology." He and his partners present regularly, and Nelson Mullins is a sponsor of the event.

Cryptocurrency Offers South Carolina a Tremendous Opportunity

Jones, Rustin, and Viglione agree that developments in cryptocurrency offer South Carolina an unmatched economic opportunity. Rustin notes that Georgia made forward-thinking changes in its financial laws 30 years ago that led to Atlanta becoming a financial powerhouse. South Carolina could do the same now to attract cryptocurrency and blockchain businesses.

Because these technologies are new, it's hard for businesses to see how the existing laws will be applied. A few changes and clarifications could make a big difference. "Companies are locating in states where laws are favorable," says Rustin. New York and California are already passing laws to position themselves for the economic growth that comes with this new development in currency and technology. "South Carolina has a real opportunity. The laws don't have to be weak. They just have to be clear."

Jones agrees. "We need a legal component to make it realistic for companies to set up in South Carolina."

Wyoming is already making news around the world for its bold moves, which interprets to mean that Wyoming is positioning itself to become the nation's cryptocurrency capital. Led by Republican Gov. Matt Mead, in March, the state made laws friendlier to blockchain and digital currency companies. Since that time, Wyoming has seen an influx of registrations.

South Carolina has an advantage over most other states in attracting these businesses. "We have the educational component," says Jones. USC offers courses in digital currencies and blockchains. "There are not many colleges that are offering these courses. It's not very often that we've been a mover in something that is potentially dynamic as this is. Education is a critical component of this economic ecosystem."