Hannah Harshe: Bitcoin needs women

Wednesday, January 3, 2018 - 6:12pm

“We have an opportunity to rebuild the financial system,” Galia Benartzi, technology entrepreneur at cryptocurrency protocol Bancor, said to Fortune in December. “Are we going to do it with all guys again?”

To the average follower of the Bitcoin fad, Benartzi’s comment may appear blindly optimistic. Blockchain is a relatively new technology that allows for digital interactions that don’t require a third party — think a Google Doc that everyone has access to edit in real time, but without a third party like Google to oversee it. Though this may sound fairly simple, there are several tech companies aiming to use blockchain to reinvent media, charity and, of course, money. Bitcoin was the first major form of cryptocurrency built on blockchain technology. If people recognize it as money, it will allow for a financial system with no third parties. That means no banks, no Federal Reserve and likely no taxes.

However, at this point, few people are buying into the hype. It would be somewhat naive to claim that Bitcoin, and cryptocurrency in general, could rebuild the financial system any time soon. It’s even more naive to act as though it’s the feminists’ chance to finally take down the patriarchy. Rather, according to many economists, cryptocurrencies are expected to lose almost all value in a burst similar to that of the dot-com bubble in 2001.

Why? The economic definition of money is a medium of exchange and a store of value. As people invest in cryptocurrency speculatively, its prices are driven artificially high at extremely fast rates. The volatility of cryptocurrency compromises its trustworthiness as a store of value, and therefore gives it very little potential to be implemented as a medium of exchange in everyday life. In order to avoid a cryptocurrency bubble burst, cryptocurrency must be given some sort of intrinsic value, or at least perceived value. Because paper money provides the marketplace with an established system and relatively steady exchange rates, it’s difficult to envision a large-scale switch to cryptocurrency. Therefore, avoiding the burst of the cryptocurrency bubble would entail major innovation: some sort of creative thinking that encourages the average spender to exchange his or her money for cryptocurrency for reasons other than speculation.

Whether or not she intended to do so, Benartzi actually acknowledged the risk of a Bitcoin bubble in her comment. If women and minority groups enter the cryptocurrency industry both by claiming leadership roles in companies that center around cryptocurrency, or simply by investing in cryptocurrency, this could turn cryptocurrency from a fad to a legitimate financial system. In essence, if we “do it with all guys again,” we will not rebuild the financial system, and the bubble will likely pop. But, if we diversify the crypto-world, cryptocurrency has a chance of surviving.

Why might diversity give cryptocurrency the chance to survive? According to Forbes, somewhere between 5 and 7 percent of all cryptocurrency users are women. As one can imagine, as we look at the leadership positions of companies centered around cryptocurrency, the percentage of women decreases even more. Marketplace trends make it clear that industries with relatively homogenous leadership do not fare well when it comes to innovation.

There is no shortage of data supporting this claim. According to McKinsey’s report Diversity Matters, “companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians,” while “bottom quartile companies are lagging rather than merely not leading.” It claims “diversity is a competitive differentiator shifting market share toward more diverse companies.” As Scientific American puts it, “Decades of research by organizational scientists, psychologists, sociologists, economists and demographers show that socially diverse groups (that is, those with a diversity of race, ethnicity, gender and sexual orientation) are more innovative than homogeneous groups.”

If anyone is in desperate and immediate need of innovation, it is the cryptocurrency industry. They need to beat the clock, to find a way to establish cryptocurrency as a legitimate store of value before the bubble bursts. Therefore, the importance of women being involved in blockchain at every level is not some feminist fantasy. Rather, it is critical to the success of cryptocurrency.

In areas where women are involved in cryptocurrency, especially in leadership positions, we have seen unprecedented levels of innovation. According to Fortune, female-led cryptocurrency companies focus on different issues than those led by men. For example, female-led BitPesa and Tala are using blockchain technology to provide basic financial services, like insurance and access to credit, to parts of the world in which these services aren’t easily accessible. In her article for Coindesk, Thessy Mehrain, founder of Women in Blockchain, outlined what she believes should be goals for blockchain use 2018.  These goals included self-regulation of the cryptocurrency and the ability to “enable the core promises of blockchain to empower human rights.” These goals differ significantly from the traditional goals of male leaders in the blockchain community, and are, by definition, innovative.

The increased innovation that comes with more diverse leadership is exactly what cryptocurrency needs to avoid a bubble burst. As it stands, cryptocurrency is viewed, at best, as a decentralized monetary system that’s effective for avoiding taxes or getting paid without a social security number.  At worst, it is viewed as a fun speculative investment that will likely lose all value in the coming years. The innovations we have seen from female-led companies provide an entirely new range of applications for cryptocurrency with a larger user base. This means, with enough creative thinking, it still stands a chance of meeting the definition of money.

Of course, women aren’t magical fairy godmothers who will magically prevent the burst of the Bitcoin bubble. The magical fairy godmother is simply innovation itself. However, marketplace trends have shown time and time again that diversity is one of the biggest indicators of innovation. This means that as cryptocurrency works against the clock to find a way to establish itself as legitimate currency before the bubble bursts, it is highly advisable for executives in the cryptocurrency industry to do everything they can to increase diversity in their companies.

Hannah Harshe can be reached at hharshe@umich.edu.