Do you understand cryptoeconomics?

While there’s a temptation to think cryptoeconomics literacy is the same thing as financial literacy in general, higher levels of financial literacy may not always result in better decisions regarding cryptocurrency investments, the UC researchers found. Some main reasons for the lack of correlation is the decentralized nature of cryptocurrencies, with fewer laws and regulations for cryptocurrencies compared to the traditional financial sector and a misunderstanding of who controls digital assets in the cryptocurrency space.

More than 90% of cryptocurrency owners keep it as an investment, the UC researchers found, while less than 20% use it as a form of payment.

Cryptocurrencies exhibit a low correlation with some traditional asset classes, such as stocks, thus making them an attractive option for portfolio diversification for investors.

For non-owners of cryptocurrency, a lack of knowledge is their top reason for not owning cryptocurrencies.

Jones said it’s important for individuals to familiarize themselves with cryptocurrencies as they’re likely going to gain more mainstream usage. Brokerage firms such as Fidelity now allow their customers to purchase cryptocurrency, and PayPal launched its own stablecoin, a type of cryptocurrency tied to the value of the U.S. dollar, in August.

“As you start to see it as an option, it’s important to familiarize yourself with what it is, how it acts as an asset, does it supplement your investment portfolio, do you replace some of the current assets in your portfolio,” Jones said. 

To better educate people about cryptocurrency, the researchers said more programs are needed. Seventeen states require high school students to complete financial literacy courses, and Jones thinks incorporating cryptocurrency education into that curriculum would be helpful.

“A lot of people come into crypto because they want to be rich, they want to make money, and we want to make sure that they understand what they are dealing with,” Luu said.

Education programs could help prevent losses that cryptocurrency owners have suffered in recent years, similar to how traditional financial literacy programs have helped in the wider financial sector.

“We’re hoping by developing this scale, it’s going to allow for the creation of this curriculum. We can put it in high schools, and we can measure if it’s effective in increasing these students’ understanding,” Jones said.

Colleges already are developing cryptoeconomics curriculum. UC offers a professional certificate in blockchain fundamentals. Jones is teaching a cryptoeconomics class this fall, and UC’s colleges of Law and Engineering also offer courses in blockchain, a digital ledger where cryptocurrencies transactions are recorded.

“At UC, we’re pretty ahead of the game by offering the classes that we do and the certificate, but there’s still a long way to go,” Jones said.

For people who don’t study cryptoeconomics in college, Jones said, financial services companies that sell cryptocurrencies offer educational resources for their customers.

“Platforms want educated users,” Jones said. “They want their customers to make better decisions because if they make better decisions, they’re more likely to stick with the platform.”

The survey created by the UC researchers is available for any institution to use for free to measure the cryptoeconomics knowledge of their clients or population base. They’ve had some conversations with organizations about using it.

They also plan to translate their survey into multiple languages so it could be used globally.

Featured image at top: Cryptocurrency coins. Photo/Kanchanara on Unsplash