The just-announced Memorial Stadium naming rights deal — in which the United States branch of FTX Cryptocurrency Derivatives Exchange, or FTX, is supposed to pay a total of $17.5 million over 10 years for the naming rights to Memorial Stadium — represents UC Berkeley possibly setting its reputation on fire for a meager gain. The campus should either overrule the athletic department’s deal or, if that is not possible, reduce its contribution to the athletic department over the next 10 years by an equal amount. At least then a meager benefit comes back to campus in return for what is likely to be a substantial amount of reputational damage done to it by its decision to embrace both FTX in particular and cryptocurrency in general.
To start, cryptocurrencies themselves do not work for normal payments. Their very design means that despite more than a decade of “innovation,” they are still only useful for transactions blocked by the normal financial system, such as buying drugs or paying off million-dollar ransoms.
At the same time, cryptocurrencies such as Bitcoin are extremely inefficient. Bitcoin consumes roughly the same amount of energy as Malaysia, yet can only process less than seven transactions per second worldwide. Ethereum, the second most valuable cryptocurrency, is not much better. Its energy consumption is equivalent to Algeria’s.
Within the cryptocurrency space, FTX doesn’t represent any financial innovation and is instead best described as a legalized “bucket shop,” or a gambling operation for those who want to bet on whether or not a particular price will go up. The underlying cryptocurrencies traded have no intrinsic value, which means that unlike the stock market where dividends flow into the system, there is no actual value in cryptocurrency beyond what some greater fool will pay for it. Any dollar made by someone is lost by someone else — no different than gambling on horse racing. Instead, people are simply trading digital values in what amounts to a natural Ponzi scheme.
The notion of payment in cryptocurrency for the naming rights deal is also innately suspect. If the contract is specified to be paid in U.S. dollars, then one assumes that the campus’s athletic department will convert whatever is received in cryptocurrency into actual money. So why accept payment in cryptocurrency at all?
If the contract specifies receiving payment in cryptocurrency rather than in dollars, then the athletic department is literally gambling on the price of cryptocurrencies. If the athletic department is really looking to gamble, it should instead execute this alumnus’s remarkably successful long-term strategy of “rooting for Cal but betting on Stanford.”
By accepting payment in cryptocurrency, UC Berkeley is implicitly endorsing payment channels more effective for criminal rather than commercial activity, and for whose security depends entirely on the waste of stunning amounts of energy.
And even if one thinks cryptocurrency has value, FTX’s U.S. operation, or FTX US, is a third-tier player at best, completely dwarfed by other cryptocurrency exchanges such as Coinbase and Kraken. The reality is that most of FTX US’ business comes from its “independent” and largely unregulated non-U.S. parent, whose relaxed attitude toward customer verification is quickly colliding with reality as financial regulators now understand the awful realities of cryptocurrency as an enabler for new classes of crime. So, although the naming rights deal is technically with FTX US, it is really with FTX, the larger unregulated entity.
Additionally, the entire “industry” of overseas cryptocurrency exchanges is notoriously corrupt, with blatant market manipulation seen in “Barts” — in which the price of cryptocurrencies bounces up and down like Bart Simpson’s head — just the most obvious example. Do we really want UC Berkeley implicitly endorsing such a company or industry?
Two decades ago, the Houston Astros entered a naming rights deal for their new baseball stadium with Enron Corporation, a company that disrupted the California electricity market and turned out to be one of the biggest accounting frauds of all time. After just two years, it cost the Houston Astros $2.1 million to remove the Enron name from their stadium.
So what is to be done? If UC Berkeley’s Memorial Stadium naming rights deal is not yet 100% approved, then it needs to be canceled immediately. The $17.5 million amount in question is meager considering UC Berkeley’s reputation and the comparatively higher price involved in the naming of other campus buildings. For example, Sutardja Dai Hall was named in honor of a $20 million donation from Sehat Sutardja, Weili Dai and Pantas Sutardja. Especially so when this $17.5 million in cryptocurrency is likely to never be received, the odds are good that FTX will not remain a viable company in five years.
However, if the chancellor has already approved of this fiasco, then the chancellor should admit it and accept responsibility for it. Because the athletic department has already received a $238 million commitment from campus to pay for the stadium’s renovation, this commitment should be reduced by $17.5 million over the next 10 years. It is UC Berkeley, not the football team, who is going to suffer any possible reputational damage from naming a major piece of its campus after FTX and associating itself with the larger cryptocurrency space. At the very least, the campus should obtain what little benefit is gained in selling out its reputation.
Nicholas Weaver is a lecturer in the computer science department and a computer security researcher. He is also a UC Berkeley graduate, having earned a bachelor’s degree in astrophysics/computer science in 1995 and a doctorate in computer science in 2003. Contact the opinion desk at [email protected] or follow us on Twitter @dailycalopinion.