By Daniel Clothier
Once an obscure new concept, cryptocurrency and blockchain have quickly risen in popularity over the last few years. While these new technologies have captivated the attention of the tech world and policymakers, the American public still lags in its knowledge of these topics.
A 2021 Pew Research Center poll found that only about 24% of Americans reported hearing “a lot” about cryptocurrency. The poll also revealed that only roughly 16% of Americans had invested in, traded or used cryptocurrency. These statistics illustrate the limited level of use and understanding of digital assets and blockchain technologies by general consumers. As legislatures grapple with questions about regulating these assets and technology, it will be as important that the public is knowledgeable about the benefits and risks of blockchain technologies and cryptocurrencies.
Cryptocurrency — Digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or a bank, to uphold or maintain it.
Blockchain — A system in which a record of transactions made in a cryptocurrency are maintained across several computers that are linked in a peer-to-peer network.
Perhaps even more concerning is the lack of understanding that virtual currency investors have about their own investments. Survey data indicates that over one third of cryptocurrency investors know “little to nothing” about cryptocurrency. While they have myriad beneficial uses, cryptocurrencies come with risks that include volatility, cyber-fraud and cyber-theft. Additionally, there are risks associated with virtual currency that go beyond the blockchain. Cryptocurrency is stored in a virtual wallet which is protected by a private key. The greatest risk of virtual currency assets is losing or having the private key stolen. Different types of wallets provide varying degrees of safety. American investors should understand the risks of these assets and how to better secure them prior to investing in them.
The CSG Healthy States National Task Force Fiscal Health Subcommittee has worked over the past two years to explore policies that support resilient state budgets and the fiscal status and operations of states to ensure state governments are financially prepared for unexpected crises in the future. This group recommends states considering blockchain and cryptocurrency could first create a public communications campaign to elevate the financial literacy of the public. Greater financial literacy will promote smart investing and proper financial decisions by the public and reduce risks. A few states have already implemented programs and curriculum materials to address this concern.
Georgia HB681 implements a financial literacy program to be taught to students in 10th or 11th grade. The program, the first of its kind in the U.S., includes cryptocurrency on the curriculum list of required topics and aims to expand basic understanding among high school students.
Connecticut SB3 requires the Board of Regents for Higher Education to create an educational program to assist small businesses with adapting to the aftermath of the COVID-19 pandemic through courses in various subject areas. This includes an education program on virtual currency and blockchain. States that implement similar programs may be able to boost the financial literacy of their states and better inform investors.