Episode 507: Cryptocurrencies 101 for Higher Education

As cryptocurrencies continue to rise as a payment method, applications of crypto have yet to be realized in many industries, including higher education. Some early adopters have started accepting cryptocurrencies for donations, and a few have even begun to take crypto for tuition payments. But the question remains, how practical are cryptocurrencies as a form of payment in higher education?

With this comes many questions about how cryptocurrencies work and if there is a place for them in higher education. Gloria Rismondo, Senior Director of Product Strategy at Global Payments, joins in the conversation on this week’s episode of FOCUS to answer these questions and impart wisdom for campuses looking to crypto for the future.

The basics of cryptocurrency
Although this intangible currency has been around for a while, it can still be a difficult subject to fully grasp. Cryptocurrency is a digital currency that is a representation or store of value, with no physical attributes, only a digital record of value stored online. There are three basic types: decentralized, stablecoins (USDT, USDC, DAI), and central bank digital currency (CBDC).

Decentralized crypto is the most popular, with the original crypto Bitcoin and the popular Ether being part of this category. This type is not issued or managed by any one group, and value is only based on what someone is willing to pay for it. The downside with decentralized crypto is that value can be volatile, which can cause highs and lows in value.

Stablecoins are issued by a private entity and their value is tied to something else of value, such as a fiat currency or an algorithm to avoid unexpected swings in value. Some stablecoins have a collateral reverse of fiat, or money backed by a country’s government rather than a physical commodity, for the value of any coins issued. While this added stability can decrease risk for some investors, stablecoin is only as secure as the entity that issues it and the collateral that supports it.

CBDC is issued by different countries similarly to how they issue fiat currency, just in a digital format. The risk factor of this crypto is tied to the risk of the issuing government’s fiat currency. A few countries have fully launched a CBDC, and many others are either in piloting, development, or research phases.

How crypto works
Being a completely digital currency, crypto requires a hefty amount of technology to ensure proper processes and authenticity. Cryptocurrency value is stored on a blockchain, which Rismondo describes as essentially being an online, public, distributed ledger. Anyone can view the record of transactions and no single entity owns it or has the ability to add or make changes to the blockchain. A block of transactions cannot be added to the ledger unless multiple independent entities in the network process the transaction and validate its authenticity, which makes the change permanent. Blockchains solve record keeping issues while creating a secure public audit trail for cryptocurrency payments.

Acquiring cryptocurrency can be done by either buying or mining, with most people choosing to buy due to mining’s heavy tech and power reliance. Purchasers buy crypto by exchanging fiat currency, or through a credit card or bank withdrawal. The buyer also pays a fee, called a gas fee, for the cost of running and supporting the blockchain.

Once purchased, cryptocurrency is stored on the blockchain and accessible with a private key. This is a unique password that can be over 200 digits long or in a hexadecimal code. The private key is the only way to claim cryptocurrency and can be stored on secure devices or in custodial wallets like Venmo, CashApp, or Coinbase for ease of use.

What is needed for institutions to accept cryptocurrency?
As colleges and universities begin to explore whether accepting crypto is right for their organization, Rismondo shares her advice to aid the process. The first is to think of all the considerations tied to crypto.

1. Cryptocurrencies are treated as an investment in the US, so if the currency goes up in value, institutions will have to pay taxes on profit.
   
2. Consider the volatility of crypto and how fluxes in value could affect streams of revenue.
   
3. There are fees attached to buying and cashing out, which can have lengthy authentication and transaction times.
   
4. Thousands of cryptocurrencies exist that can be difficult to exchange for another.
   
5. The management of transactions requires a lot of technology and maintenance to keep things running efficiently.
   

Rismondo also recommends campuses understand their audience’s attitude towards crypto and how many people would use it, what they would use it on, and how many even have cryptocurrency.

Where to start
Institutions that decide accepting cryptocurrency is the right fit for their mission need to establish a starting point. Crypto is not frequently used for smaller purchases, ebbs in value can make it unpredictable and fees can make it cost-prohibitive. On the other hand, things like tuition, season tickets, cross border transactions, and other large purchases are more ideal candidates for crypto payments. Donations are a new frontier for cryptocurrency, and a potential fundraising method for university foundations to explore.

“I could really see donations being a more popular scenario in crypto. It’s more popularly viewed as an investment today. So, this could be very similar to someone donating their investment portfolio in stocks or bonds to the university,” Rismondo said.

Long-term strategy for maintaining cryptocurrency will depend on institutional needs, and Rismondo suggests that campuses look at payments as investments. Payments can be held in a crypto wallet and managed, or immediately converted into fiat currency immediately through provider companies.

Get the most out of crypto
To make cryptocurrency payments successful campus integrations, Rismondo gives some final advice. Institutions should contact their payment processor to find out if they already have a partnership with a crypto service provider. This is the easiest and lowest risk way to accept cryptocurrency. Educate departments on all things crypto and determine a policy in line with institution risk tolerance guidelines. These practices will take some of the uncertainty out of crypto transactions.

Paying attention to new regulations is also integral in getting the most out of an institution becoming crypto-friendly. While the US views it as an investment, the EU just approved the markets in crypto assets regulation, which requires stablecoin to be pinned to the euro with one for one collateral reserve. This also prohibits algorithmic cryptos, but nothing regarding decentralized currency has been covered yet. Working with the right providers and understanding the risks involved with cryptocurrency are the best paths forward for colleges and universities as they explore the world of cryptocurrencies.