Viktoriya Zotova Of Georgetown University On The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency
It is exciting to be witnessing a revolution at least as big as the one when debit and credit cards became widespread. With cryptocurrency, we should expect to see another leap in efficiency and speed of payments. As big of an improvement as the current electronic payments are over paper money, traditional transfers can still take days and can require hefty fees especially if you are sending money to remote locations. Cryptocurrency could make it possible to transfer anywhere in the world within minutes, if not seconds, with negligible to no fees. It could transform the entire landscape of digital payments.
Over the past few years, the Cryptocurrency industry has been making headlines nearly every week. Many people have gotten very wealthy investing or leading the cryptocurrency industry. At the same time, many people have lost a lot investing in the industry. In addition, more people have been scrutinizing the ecological impact of crypto mining, as well as its potential facilitation of illegal activity. What is being done and what can be done to address these concerns?
In this interview series called “5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency” we are talking to leaders in the cryptocurrency industry, as well as successful investors, who share insights from their experience about how to successfully invest in Cryptocurrency.
As a part of this series, I had the pleasure of interviewing Viktoriya Zotova.
Viktoriya Zotova wears many hats. She is a Visiting Assistant Professor at Georgetown University’s McDonough School of Business and a consultant to the International Monetary Fund. She is also the CFO of the educational startup NewU, and a climate change risk expert.
As a financial sector expert, Viktoriya is fascinated by the incredible rise of cryptocurrency investment and the ever-growing applications of blockchain technology. As executive at NewU — the first college in the US to offer 3-year Bachelor’s degree programs (without Summer or Winter terms!), she helped develop the organization’s cryptocurrency and blockchain strategy.
On the research side, Viktoriya does work on regulations of climate change disclosures, international capital flows, and banking. She has also received federal funding for research on the investments of multinational corporations. She has publications in outlets of the IMF on capital flows and is a co-author of a book chapter on China’s capital market liberalization. Over the years, she has worked with over 100 countries on their regulations of international investments.
Viktoriya received her PhD in Business and Management from the University of Maryland, and her BA in Economics from St. Norbert College. She is also a ALM candidate at Harvard University.
Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit. Can you tell us a little about your backstory and how you grew up?
I was fortunate enough to grow up at a time when business education was starting to enter the curriculum and the multitude of extracurricular activities offered in school. With the help of great mentors, I was involved in a number of projects that ultimately put me on a path to pursuing higher education in economics and business. Individually and as head of a team of classmates, I received national and international awards for responsible business ideas and for running a small business. Moreover, these experiences helped me realize the transformative power of business education at an early age. Nowadays, to give back what I have benefited tremendously from, I volunteer at high schools to teach financial literacy and career preparedness, and I am a strong supporter of economics and business curricula at all levels of education.
Is there a particular book, film, or podcast that made a significant impact on you? Can you share a story or explain why it resonated with you so much?
One book from my college days that I still reference quite often is 50 Great Myths of Popular Psychology. What fascinated me the most about it was not so much the myths themselves as many of them had long been dispelled, but rather the stories of how those myths originated, spread, and lingered in the popular understanding of human behavior and psychology. Similar processes can be observed in the spread of myths– both positive and negative — about cryptocurrency too.
One psychology myth that anyone who has ever walked through the toy section of a store could relate to is the Mozart Effect. The original finding that college students did a better job of paper folding and cutting (a spatial reasoning task) if they had listened to Mozart immediately before the task than if they had listened to relaxation music or to no music at all has been almost completely lost in the popular culture. Instead, the takeaway has somehow morphed into Mozart music making infants more intelligent. This, in turn, has led to a whole industry that makes toys playing “Mozart” — even though it is more often Beethoven’s Für Elise — and even to some state legislatures supporting or mandating classical music be played to infants. I think of this book every time I read about research-based (or purportedly so) recommendations and conclusions. If I consider taking any such advice into account, I always look for the original research first.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
I am most grateful for the support of my family. They have always encouraged me to push my limits, and are there through thick and thin. And a special shoutout to my brother, Emanuel, who is always just a call away to provide tech advice and insights on the most current tech trends. I was also lucky to have great mentors at school and at the IMF, but there are too many to properly mention them all here.
Are you working on any exciting new projects now? How do you think that will help people?
I am working on several research projects that I hope will bring more understanding of how regulations impact business decisions, especially in the areas of climate change disclosures and international investments. It is exciting to dive into data and look for answers that might shape business and regulatory decisions down the road.
A project that has already come to fruition is NewU. It is an innovative new college with a campus in Washington DC. It introduces a cost-effective and future-oriented model to US higher education at a time when reform is urgently needed. It keeps instruction in person and teaches the skills required to thrive in an ever-changing, ever-more-automated, globalized world. It also embraces the technologies of the future, including blockchain. Students can pay for NewU tuition in crypto and they will get their diploma on blockchain. I am very excited to see it grow as it helps more and more students get high-quality education at a fraction of the cost, helping solve the student debt crisis. Many people call it too good to be true, but it is true thanks to the power of innovation, and I am proud to be a part of it.
Ok super. Thank you for all that. Let’s now shift to the main focus of our interview. The cryptocurrency industry seems extremely dynamic right now. What are the 3 things in particular that most excite you about the industry? If you can, please share a story or example for each.
First, it is exciting to be witnessing a revolution at least as big as the one when debit and credit cards became widespread. With cryptocurrency, we should expect to see another leap in efficiency and speed of payments. As big of an improvement as the current electronic payments are over paper money, traditional transfers can still take days and can require hefty fees especially if you are sending money to remote locations. Cryptocurrency could make it possible to transfer anywhere in the world within minutes, if not seconds, with negligible to no fees. It could transform the entire landscape of digital payments.
Second, cryptocurrency has the potential to increase financial access and inclusion for literally billions of people around the world. Currently, an estimated 2 billion people do not have access to banking services. Cryptocurrency does not require the traditional banking infrastructure and could reach those that have so far been left behind.
Third, there is an ever-growing array of applications of blockchain that could contribute to sustainable development. Payments are only one example where this technology can bring more efficiency, transparency, and equity to society. The blockchain technology could provide alternatives to other financial products that have been scarce or nonexistent in many parts of the world, such as insurance and lending products.
What are the 3 things that concern you about the industry? Can you explain? What can be done to address those concerns?
First, there are many misconceptions about cryptocurrency. On one hand, the overly negative sentiment might get in the way of a wider reception of crypto that could bring many benefits to society, and it may also lead to suboptimal regulations. The overly positive sentiment, on the other hand, has the potential to bankrupt people. Either way, much more education is needed for both the public and the policy makers.
Second, as in many other fields, international cooperation on regulations and policies will be crucial for realizing the benefits and mitigating the risks of wider cryptocurrency adoption, especially given the large impact it is expected to have on the cost, efficiency, reliability, and inclusiveness of cross-border transactions. But these initiatives are still in their infancy.
Third, the need for multilateral coordination may be even greater in the case of Central Bank Digital Currencies. The way these currencies are designed will have an impact on a number of risks from capital flow volatility through currency substitution risk to cross-border contagion risk. But the current pace of research and development in this area is very uneven across countries.
What are the “myths” that you would like to dispel about cryptocurrency? Can you explain what you mean?
While there are many people who have made fortunes from cryptocurrency, it is highly unlikely that just anyone who invests a few hundred bucks in crypto would become a millionaire, let alone overnight. By the time the news is out, it is often too late. What I mean is that by the time you read in newspapers, blogs, and social media posts that a given cryptocurrency has been a lucrative investment, it is likely too late for newcomers to make the same astronomical profits as those who started investing when that currency was just beginning. We often hear things like “If you invested $100 in Bitcoin a decade ago, you would be a millionaire today.” But it is important to remember that a decade ago nobody knew that. And today, if you buy $100 or $1000 worth of Bitcoin, for example, the chance to see that kind of return is miniscule, especially if you are looking for a short-term gain. Given the volatility of the market, you could make a few hundred bucks in a few months, or you may lose most of your investment. So, it is important to have the right expectations when it comes to crypto investing, and any investing for that matter.
How do you think cryptocurrency has the potential to help society in the future?
To put it succinctly, it has the potential to provide a way to reach the unbanked and underbanked, and those without access to insurance or micro-financing. So, the possible implications for reducing poverty and inequality are enormous.
Recently, more people have been scrutinizing the ecological impact of crypto mining. From your perspective, can you explain to our readers why the cryptocurrency industry is creating an environmental challenge?
The computers that run the complex validations that are the foundation of blockchain and cryptocurrency require energy. So, the environmental impact depends in part on whether that energy comes from a renewable source or not. The computers and mining equipment that eventually become electronic waste also contribute to the environmental impact.
As for the amount of energy, it depends on the algorithms that are used. For example, Bitcoin and Ethereum use a more energy-intensive Proof-of-Work algorithm. But there is an alternative, Proof-of-Stake, that is used by other coins, which relies on a virtual confirmation algorithm and uses much less energy. In fact, Ethereum is moving to the Proof-of-Stake workflow.
When making comparisons, it is more helpful to assess all major costs and benefits. Comparing the energy consumption of a global network relative to that of a randomly chosen country is not particularly informative. It is important to keep in mind that blockchain is still a young industry that will continue evolving and it is already moving towards being less energy intensive. If it gets to the point where it serves millions of people around the world for their daily transactions, it would be interesting to compare the energy consumption of running such blockchain projects relative to running hundreds of thousands of bank branches around the world, for example.
From your perspective what can be done to address or correct these concerns?
First, bringing awareness to the issue, which has already started to happen.
Second, this awareness should feed into the choice of algorithms when developing new projects. For example, avoiding those that require large amounts of energy.
Lastly, paying attention to when the environmental concerns are genuinely considered as opposed to merely riding the wave of rising global attention to sustainability.
Recently, more people have been scrutinizing cryptocurrency’s impact on illegal activity. From your perspective, can you explain to our readers why cryptocurrency, more than fiat currency, is seen as an attractive choice for criminals?
A couple of features make it attractive for such purposes. First, it is harder to trace. But it is important to note that most of the cryptocurrency projects have public distributed ledgers, so it is not impossible to track, albeit it may not be easy.
Second, it is also not limited geographically, so cross-border payments for or from such activities can be transferred more easily than is the case with traditional currencies.
But crypto also has unique characteristics that make the technology a suitable solution against theft of assets. For example, once you purchase an asset on the blockchain and it’s confirmed, the record cannot be changed retroactively — something that could happen with traditional record keeping systems.
From your perspective what can be done to address or correct these concerns?
Many cryptocurrency exchanges already require users to show proof of identity, and the accounts on these exchanges are often linked to bank accounts that also require proof of identity. Further steps in this direction are needed, so that the sources and destinations of cryptocurrency are more easily identifiable. Rules that are developed through international cooperation are especially welcome as that could prevent circumvention and negative spillovers from regulatory arbitrage across countries.
Ok, fantastic. Here is the main question of our interview. What are “The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency?” (Please share a story or example for each.)
1. Decide if you are a gambler or an investor. If you want to try your luck with cryptocurrency, then following what’s hot on social media or randomly choosing a coin is all you have to do. But if you want to be an investor, then a more strategic, research-based approach should be taken, very much like with traditional investments in stocks and bonds.
2. Learn about the potential application of the crypto projects and what problems they strive to solve. To identify investment opportunities, you need to learn what unique solutions the projects bring to the crypto world. You should dive even deeper and check what, if any, other alternatives are being proposed by other crypto projects. Then, invest in those that are most promising.
3. Decide if you are going to actively manage or just buy and hold. Investing takes time and effort. Even more so if you want to actively manage your portfolio. After all, there is a whole industry of investing professionals who do that for a living. So, if you want to day trade, you should set aside enough time for research. Alternatively, you can also buy a few assets and rebalance your portfolio on a monthly, quarterly, or annual basis. What you should not do is trade solely based on news, tweets, and forum opinions — that is not research and is likely to do more harm than good to your returns by prompting you to buy high when something is really popular and sell low when it falls out of popular favor.
4. Diversify. No matter how promising a project appears and how popular it is at a given point in time, there are always risks involved. So, to spread the risks and increase your chances of earning profits, you should split your resources across multiple assets.
5. Learn from unusual sources. In addition to learning from project descriptions, news, and industry developments, the commentary of other investors could also be helpful. As it is impossible to follow everything that is going on in the field, the experience and knowledge gathering of others who share their thoughts online could provide interesting insights.
What are the most common mistakes you have seen people make when they enter the industry? What can be done to avoid that?
Wrong expectations. First, the expectation of profits could be overly optimistic, even unrealistic. Second, the time and knowledge that it takes to be successful in crypto investing are not that different from traditional investing. They both require in-depth research when choosing what assets and projects to invest in; the principles of diversification and the risk-reward trade-off apply to both as well.
Do you have a particular type of cryptocurrency that you are excited about? We’d love to hear why.
I am excited about all projects that are offering new solutions to old problems. That includes the giants like Bitcoin and Etherеum as well as newer entrants that focus on currency transactions or data storage and sharing to name a few.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. :-)
I believe that basic economics and business education should be a part of every school’s curriculum. That would enable people to make better decisions when it comes to investing; from their pension fund to investing in crypto. The risk-reward principles apply to any investing, and if you are willing to invest in something that promises a huge return, you should realize that the flip side of that is the risk that this reward may not materialize.
We are very blessed that very prominent leaders read this column. Is there a person in the world, or in the US with whom you would like to have a private breakfast or lunch, and why? He or she might just see this if we tag them :-)
Andy Jasse. As the new head of Amazon and previous CEO of its web services arm, I would be thrilled to have a chat about the role of cryptocurrency and blockchain in our society in the coming years.
Thank you so much for these excellent stories and insights. We wish you continued success and good health!
