by Jacob Maichel
Bitcoin can be as confusing as it is fascinating. I thought it may be beneficial to those interested in Bitcoin to write an introduction to the technology to alleviate some confusion you might have.
Although Bitcoin is neither the first nor last crypto-currency it is without a doubt the most well known, while still being shrouded in secrets. Bitcoin was launched a few weeks after the Lehman Brothers collapse in 2008 by Satoshi Nakamoto, but no one is even sure who that is. Banking on Bitcoin, a documentary available on Netflix, expose the possible identities of Nakamoto.
Bitcoin came about during the Great Recession and responds to a call for decentralized banking. Online commerce relies so heavily on a trusted third party acting as a financial intermediary and that is absolved with the use of crypto.
Put simply, Bitcoin is an online accounting system that records the value of assets (coins) in an open ledger. The benefit of using a non-localized ledger is that it cannot be hacked. All transactions are kept on the “Blockchain”, which some think is the most transformative technology Bitcoin brought about. The Blockchain is the ledger itself and every transaction is saved to everyone’s computer on the network instantaneously. To help envision this imagine a spreadsheet that is duplicated on everyone’s computer on the network and is updated regularly. This technology has a number of advantages over traditional ledgers that are held only in one place, inside the company. Satoshi Nakamoto in Bitcoin: A Peer-to-Peer Electronic Cash System (often referred to as The White Paper) describes his ingenious incentive strategy to reward Bitcoin “miners” for continually maintaining the servers and issuing new coins.
New coins are released into the blockchain every 10 minutes to be “mined” with a fixed amount of coins to ever be released. As time goes on coins will be released less frequently until the last coin released around 2140. The fixed amount of coins guarantee that there is no artificial inflation because no more currency can be put into the blockchain.
Bitcoin miners are paramount in the process as they set up computers to solve the complicated math problems required to unlock a coin. These miners are not college kids in dorms they are typically large scale operations, and many companies are setting up just to mine coins. After a certain number of coins are out the incentives for miners changes due to scarcity of new coins. They then transition to being rewarded by collecting processing fees on the Blockchain- which continually updates the ledger. The White Paper breaks this process down very clearly as the creator intended.
So what gives Bitcoin any value? A major reason it is so valuable is the peace of mind that comes along with the technology. The safety and anonymity it gives users is held in very high regard. With Bitcoin’s decentralized approach it ensures that your money is safe from the traditional downfalls of institutionalized banking.
I think cryptocurrency is a logical step in the future, and what it can be adapted to is limitless. Whether or not Bitcoin stays relevant is yet to be seen, but the power of the Blockchain technology is something that should not be overlooked!
Jacob C. Maichel is a Graduate Assistant at the Gwartney Institute and an MBA student at Ottawa University
Showing posts with label money. Show all posts
Showing posts with label money. Show all posts
Thursday, February 7, 2019
Wednesday, January 23, 2019
Banning Benjamins
by Jacob Maichel
As someone who just started using mobile banking at 24 I may be biased, but I think we will remove large bills from circulation in the near future. I was amazed to learn that in 1976 $100 bills made up only 25% of the money in circulation, rising to about 80% today. Though inflation may be able to explain some if this phenomenon, it still is an astonishing statistic. To account for all these $100s every person would have to possess about thirty-six $100s. This is not thirty-six for each working age adult, but also children, seniors, and every single one of the 325,000,000 people in the United States.
Physical cash encourages crimes that would be difficult if not non-existent without it. The two main types of crime cash enables are profit-motivated crime and tax evasion. Profit-motivated crime is crime in which cash allows people to escape detection by authorities. Some examples of these are human trafficking, drug dealing, and illegal gambling.
For profit-motivated crime, criminals need to be able to convert smaller bills they receive illicitly into large bills for easy storage and transportation. Thus, it is interesting to see where the Federal Reserve sends the majority of its large denomination bills. There is practically no demand for them here in the Midwest but border states, in which much of the illegal drug trade operates, hold almost all demand for large bills. Large-denomination bills allow for massive cash transactions. One million dollars in $100 bills can fit in one briefcase and weighs only twenty-two pounds, removing the largest bill would dramatically increase the difficulty to move large quantities of cash.
Sure, other items such as diamonds, can be a way to store criminal assets but they are much less liquid than traditional cash. Cryptocurrency provides a possible alternative but is much more traceable. Perhaps an all-digital economy would help keep transactions honest and deter criminal activity, but there are other options.
There are, of course, merits to the use of physical cash. Keeping smaller denominations is important for a few big reasons. Chiefly it allows consumers to retain some level of anonymity by “staying off the grid”, making untraceable purchases of a few hundred dollars. It also financially includes the homeless, some of which who survive on small donations from the public.
Perhaps we could even replace paper money with coins. Removing large bills and using coins for smaller purchases certainly makes it much more difficult to transport large amounts of money. The coins also last significantly longer then their paper counterparts, helping the government maintain a stable money supply.
Although the transition would have to take place over an extended period of time, a less cash-dependent society may not be as far off as we believe. Singapore’s central bank is pushing commercial banks to do away with any cash and South Korea plans to be cashless by 2020. South Korea has a program already in place that allows people to pay cash and the change is deposited to your bank account. A similar program could help us phase out big bills and deter cash-reliant crimes.
Jacob C. Maichel is a Graduate Assistant at the Gwartney Institute and an MBA student at Ottawa University
As someone who just started using mobile banking at 24 I may be biased, but I think we will remove large bills from circulation in the near future. I was amazed to learn that in 1976 $100 bills made up only 25% of the money in circulation, rising to about 80% today. Though inflation may be able to explain some if this phenomenon, it still is an astonishing statistic. To account for all these $100s every person would have to possess about thirty-six $100s. This is not thirty-six for each working age adult, but also children, seniors, and every single one of the 325,000,000 people in the United States.
Physical cash encourages crimes that would be difficult if not non-existent without it. The two main types of crime cash enables are profit-motivated crime and tax evasion. Profit-motivated crime is crime in which cash allows people to escape detection by authorities. Some examples of these are human trafficking, drug dealing, and illegal gambling.
For profit-motivated crime, criminals need to be able to convert smaller bills they receive illicitly into large bills for easy storage and transportation. Thus, it is interesting to see where the Federal Reserve sends the majority of its large denomination bills. There is practically no demand for them here in the Midwest but border states, in which much of the illegal drug trade operates, hold almost all demand for large bills. Large-denomination bills allow for massive cash transactions. One million dollars in $100 bills can fit in one briefcase and weighs only twenty-two pounds, removing the largest bill would dramatically increase the difficulty to move large quantities of cash.
Sure, other items such as diamonds, can be a way to store criminal assets but they are much less liquid than traditional cash. Cryptocurrency provides a possible alternative but is much more traceable. Perhaps an all-digital economy would help keep transactions honest and deter criminal activity, but there are other options.
There are, of course, merits to the use of physical cash. Keeping smaller denominations is important for a few big reasons. Chiefly it allows consumers to retain some level of anonymity by “staying off the grid”, making untraceable purchases of a few hundred dollars. It also financially includes the homeless, some of which who survive on small donations from the public.
Perhaps we could even replace paper money with coins. Removing large bills and using coins for smaller purchases certainly makes it much more difficult to transport large amounts of money. The coins also last significantly longer then their paper counterparts, helping the government maintain a stable money supply.
Although the transition would have to take place over an extended period of time, a less cash-dependent society may not be as far off as we believe. Singapore’s central bank is pushing commercial banks to do away with any cash and South Korea plans to be cashless by 2020. South Korea has a program already in place that allows people to pay cash and the change is deposited to your bank account. A similar program could help us phase out big bills and deter cash-reliant crimes.
Jacob C. Maichel is a Graduate Assistant at the Gwartney Institute and an MBA student at Ottawa University
The Rise of Digital Trade
by Jacob Maichel
The use of the internet in recent years has grown exponentially. The number of people with internet access has increased from 738 million in 2000 to a staggering 3.2 billion in 2015. The internet has brought with it myriad innovations and conveniences to our lives. This transformation molds every aspect of society, including the redefinition of international trade.
The internet’s ability to transcend borders to connect people has changed how we do business. Digital trade can be thought of as the transfer of goods and services either completely online or via electronically managed physical deliveries. Purely electronic services are companies such as Netflix while electronic middle men such as Amazon connect sellers and buyers across the globe.
Internet traffic increased 500 fold from 2000 to 2015. This has led to an expansion of competition. Digital trade encourages the exchange of ideas and offers collaborative opportunities not seen before.
The rise of the internet has also reduced the cost of exchange, bringing massive financial benefits to everyone in society. The exchange of data has reduced information asymmetries and enables consumers to make find new products they would not have had access to in the past, while also teaching producers how to create better products. Transaction costs have been slashed due to the easy access to the global market. Tracking systems have completely revised global supply chains, helping reduce expenditures on replacing lost items. Particularly exciting for smaller businesses is the fact search costs are minimal now as they can use a trusted middleman such as Amazon to bring their goods to consumers.The U.S. Trade Commission estimates that the internet reduces trade costs by an average of 26%.
Small and Medium enterprises (SMEs) have the greatest chance to benefit from digital trade barring future regulation. Businesses that do not have the capability to have a physical presence in foreign countries can now access new revenue through intermediaries at exceptionally low prices.
In the United States we should celebrate the rise of digital trade. The United States has traditionally been a technological leader, having a comparative advantage in both tech platforms and electronic devices. American companies have also done well to capitalize on the global market as it emerges. For example 40% of Amazon’s shipments and ⅓ of Netflix’s streamers are outside of the country. This healthy involvement contributed to a $158.9 billion digital trade surplus in 2014. We should rejoice in the increasing efficiencies as the internet is not simply a one time leap forward, but a opportunity for permanent long term growth.
Jacob C. Maichel is a Graduate Assistant at the Gwartney Institute and an MBA student at Ottawa University
The use of the internet in recent years has grown exponentially. The number of people with internet access has increased from 738 million in 2000 to a staggering 3.2 billion in 2015. The internet has brought with it myriad innovations and conveniences to our lives. This transformation molds every aspect of society, including the redefinition of international trade.
The internet’s ability to transcend borders to connect people has changed how we do business. Digital trade can be thought of as the transfer of goods and services either completely online or via electronically managed physical deliveries. Purely electronic services are companies such as Netflix while electronic middle men such as Amazon connect sellers and buyers across the globe.
Internet traffic increased 500 fold from 2000 to 2015. This has led to an expansion of competition. Digital trade encourages the exchange of ideas and offers collaborative opportunities not seen before.
The rise of the internet has also reduced the cost of exchange, bringing massive financial benefits to everyone in society. The exchange of data has reduced information asymmetries and enables consumers to make find new products they would not have had access to in the past, while also teaching producers how to create better products. Transaction costs have been slashed due to the easy access to the global market. Tracking systems have completely revised global supply chains, helping reduce expenditures on replacing lost items. Particularly exciting for smaller businesses is the fact search costs are minimal now as they can use a trusted middleman such as Amazon to bring their goods to consumers.The U.S. Trade Commission estimates that the internet reduces trade costs by an average of 26%.
Small and Medium enterprises (SMEs) have the greatest chance to benefit from digital trade barring future regulation. Businesses that do not have the capability to have a physical presence in foreign countries can now access new revenue through intermediaries at exceptionally low prices.
In the United States we should celebrate the rise of digital trade. The United States has traditionally been a technological leader, having a comparative advantage in both tech platforms and electronic devices. American companies have also done well to capitalize on the global market as it emerges. For example 40% of Amazon’s shipments and ⅓ of Netflix’s streamers are outside of the country. This healthy involvement contributed to a $158.9 billion digital trade surplus in 2014. We should rejoice in the increasing efficiencies as the internet is not simply a one time leap forward, but a opportunity for permanent long term growth.
Jacob C. Maichel is a Graduate Assistant at the Gwartney Institute and an MBA student at Ottawa University
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