Category: Finance

Cryptocurrencies – The Future of Money?

In 2009, when the Bitcoin whitepaper came out, the idea was clear: there was a need to create a decentralized currency system that would free the ‘masses’ from the firm grip of central banks and other financial institutions.

Bitcoin was born, becoming the currency of the people, effectively making fiat the currency of governments. Almost a decade later, Bitcoin has surged in global popularity and has given birth to over 1,500 other alternative blockchain-based coins.

The digitization of money is inevitable, and ironically, governments (who have been the biggest threat to Bitcoin and other cryptos) are now looking into issuing their own cryptocurrencies

National Cryptocurrencies

If the first decade of cryptocurrency has been about adoption and regulation, then the trend of the coming decade promises to be about national cryptocurrencies.

Like other cryptos, national cryptocurrencies are based on the distributable ledger technology (blockchain), but they are issued and backed by national governments.

The only issue with national currencies is decentralisation because naturally, governments are reluctant to lose control of the monetary system.

But while national cryptocurrencies defeat one of the major appeals of blockchain technology, they also pave the way for a more efficient monetary environment.

Venezuela and Cryptocurrencies

In appreciation of the great advantages and potential of the blockchain technology, some central banks are on the verge of releasing their national cryptocurrencies, while many others have set definitive deadlines for their projects.

Venezuela though was the first to take action, releasing the Petro Crypto in February 2018. The Petro cryptocurrency was introduced to minimise the impact of US sanctions on the country as well as to enhance access to international funding and supplement the free-falling Venezuelan bolivar currency.

The Petro was designed to be backed by Venezuela’s abundant reserves of natural resources, such as oil, gas, diamonds, and gold.

The Petro received a national backing in May 2018 when the country’s President announced that a youth bank would be established which will be exclusively funded using the national cryptocurrency.

Iran and Cryptocurrencies

Another country that has been inspired by Venezuela is Iran, which coincidentally, also faces sanctions from the US that threaten to cripple its resource-dependent economy.

The Central Bank of Iran announced two months ago that it was finalising plans to launch its own cryptocurrency backed by Iranian rials.

The US sanctions will mean that Iran is cut from international payment systems, but the cryptocurrency, which utilises the blockchain technology, will help the country facilitate the transfer of funds throughout the world.

Other countries that are in advanced stages of launching their own cryptocurrencies include Japan, Sweden, Russia, Israel, Tunisia, Senegal and Estonia.

The Future of Cryptocurrencies

Clearly, national cryptocurrencies will be a predominant trend in the near future. But this comes with some pros and cons. In terms of currency distribution, cryptocurrency is safe and easier to distribute than traditional cash.

National cryptocurrencies will also allow for the faster settlement of payments and potentially, even much cheaper transactional costs. Still, a blockchain based digital currency carries with it some disadvantages.

To launch a national cryptocurrency would require significant investment, which may not be a justifiable use of taxpayer money. Another disadvantage would be slow payment authorisation, something that is continually being innovated upon in the crypto world; but there would not be such time freedom with a national cryptocurrency that will be used widely. The inefficient use of electricity for small payments is also another factor to consider.

Final Word

Ultimately, central banks are mandated to ensure financial stability by the efficient use of their monetary policy. National cryptocurrencies only make it easier for central banks to achieve this because monetary policy will directly be transmitted to firms and households.

As blockchain technology continues to improve, it only means that national cryptocurrencies will continue to solve the current constraints of the conventional monetary system. Also, check out our post on how cryptocurrency works in general.

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What digital finance means for emerging economies

Financial services are the lifeblood of an economy, enabling households and businesses alike to save, invest, and protect themselves against risk. Yet in many emerging economies today, the majority of individuals and small businesses lack access to basic savings and credit products, which hinders economic growth and perpetuates poverty. Two billion people in the developing world lack access to a bank, and 200 million small businesses cannot get the credit they need to grow, a gap estimated at $2.2 trillion.

The solution can be summed up in two words: digital finance, the idea that individuals and companies can have access to payments, savings, and credit products without ever stepping into a bank branch. This is possible through digitization, which can essentially turn a smartphone into a wallet, a checkbook, a bank branch, and an accounting ledger, all in one.

Financial inclusion could help boost economies, especially in parts of the world that need it most. Now is the time to make this a priority. The ubiquity of the mobile phone, even in remote areas in emerging markets, makes it possible to bring financial services to people who have never even considered opening a bank account. Already, mobile networks reach nearly 90% of people in emerging economies and 80% of adults have a mobile phone subscription.

Digital dramatically lowers the cost of providing financial services. Digital accounts can be 90% cheaper than conventional ones for banks and other providers to maintain, costing as little as $10 annually per customer. This makes it profitable to provide accounts for lower-income people. The long-held goal of financial inclusion — for individuals and for micro and small businesses — can now become a reality.

Our research shows that digital finance could enable 1.6 billion people in developing countries to access financial accounts, loans, and other financial necessities (and lower the cost and increase the convenience for the 2.4 billion who already have bank accounts). Many new customers would be among the poorest 40% of people in the world; more than half would be women. The balances that these new customers accumulate can then be loaned out, providing up to $2.1 trillion in new loans for individuals and micro, small and mid-sized businesses.

What’s more, we estimate that improving access to financial services could add $3.7 trillion to the GDP of emerging economies by 2025, or 6% — equal to 1.5 times the current GDP of all of Africa. The additional GDP could create up to 95 million new jobs. The lowest-income countries stand to gain the most, adding as much as 10% to 12% to their GDP.

There are several building blocks that need to be in place for digital finance to take off. One is the right infrastructure, which includes widespread phone ownership and network coverage at an affordable price; a robust digital payments system; and widely used ID systems preferably with digital authentication. What’s also needed is the right business environment where a range of providers can compete on a level playing field and innovative new digital finance products and services. This requires regulations that strike a balance between prudence to avoid undue risk, and innovation.

Businesses of all sizes stand to gain in big ways. Businesses could save 25 billion hours of labor by switching from cash to digital payments. Some 90% of transactions in the developing world are in cash, but having to protect piles of currency deters owners from expanding, since they cannot be in two places at once. Firms that accept or pay with mobile payments gain ready access to sales records, allowing for better inventory management. In addition, digital payments create a data trail that enables lenders to assess the creditworthiness of even micro-enterprises.

Financial service providers have a big opportunity as well. They could cut costs by up to $400 billion annually by evolving from bricks and mortar to digital strategies. And because they can expand their customer base at relatively low cost, they could collect more than $4 trillion in new deposits—money that can be converted into loans. Savings that are currently stored under mattresses can be put to work, adding more activity and liquidity to the economy.

Governments benefit, too. Digital payments could improve their finances by reducing opportunities for corruption, targeting spending more precisely, and improving tax collection. We estimate that they stand to gain $110 billion per year by digitizing payments. Many government services, such as education and healthcare, stand to gain. For example, parents in the Côte d’Ivoire used to pay school fees in cash, but robbery and bribery were common. So beginning in 2011, the country began introducing mobile money payments. By 2014, nearly all school fees were paid digitally, mainly by phone. Parents and students no longer had to worry about being robbed—and more money made it into school budgets. Mobile money providers got new transactions, plus fees from the government. The education ministry saved money and gathered more and better student information.

While financial inclusion is far from inevitable, all the trends are moving in the right direction. The wireless infrastructure is mostly in place. The idea suits our times.

This article originally ran in Fortune.

In emerging economies, using a smart phone to provide access to financial services, could help boost the economy, write James Manyika, and Rodger Voorhies in Fortune.

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5 Reasons Why You Should Invest In Bitcoin

There are many conceptions around bitcoin investment. People think that it might not be the best for them to invest their money in bitcoin. Some people are skeptical about bitcoin because both the experts and hackers have made it difficult to start investing in bitcoin. Experts have different opinions about the future of bitcoin, and scammers make people worried about losing their investment. However, there is nothing to worry about investing in bitcoin as it is one of the best ways to make huge profits as of today. Learn about legit reasons that make it very attractive to invest in bitcoin. 

Adoption of Bitcoin for practical applications

Just like the adaptation of the internet, bitcoin is also being adopted by our society. More and more businesses are ready to use bitcoin as their primary currency. Bitcoin is integrating into our society with the passage of every single day. The story of bitcoin has just started. Conventional fiat currencies are becoming obsolete as they can’t be the ultimate solution to the modern-world problems. One has to wait for days to receive an international transaction.

In most cases, the use of fiat currencies brings more taxes and more worries. However, with the rise of bitcoin, all of these problems will eventually alleviate. Bitcoin is the future of money as it brings the most useful solutions that everyone needs. 

Learning about investing is free

In conventional investments, one has to spend years learning the basics of investment. You can’t buy some clothes and start selling them to others in a single day. In the same way, a beginner can’t get into the stock market and try their luck. Time is the ultimate money, and to learn about conventional investment, one has to spend a lot of time. This requirement of a lifetime to learn a traditional investment makes it very expensive..

Using great platforms make it very easy for new investors to learn and understand the hidden bitcoin secrets. It takes considerably less time compared to other investments to learn bitcoin investment and make profits. 

Prices will keep on growing

Seeing the benefits of bitcoin investment, more and more people are ready to invest in bitcoin. This is a very beneficial aspect of bitcoin for bitcoin investors. As the demand and value of bitcoin increases with more people than ever using bitcoin as the primary currency, the price of bitcoin will eventually increase. With the passage of every single day, businesses understand that bitcoin is the ultimate solution to their everyday problems of handling money. This trend of the usage of bitcoin will eventually attract both small and large businesses to choose bitcoin. The more people love bitcoin, the higher its price in the market. Keeping this aspect in view, it is a matter of time that bitcoin will increase the profits of manifolds for all the bitcoin investors.

Bitcoin’s authority

As you may already know, there are dozens of cryptocurrencies other than bitcoin. Many other cryptocurrencies are using new marketing tactics and present significant benefits to its users. However, bitcoin is on the top because Bitcoin is one the backbone of almost all other cryptocurrencies. Being the first player in the market, bitcoin has the ultimate advantage over other cryptocurrencies trying to make their way to the top. Bitcoin has proven to be a secure and reliable company, while others are still struggling to win people’s trust.

Governments support bitcoin

Keep in mind that a single government or a company does not own bitcoin. In contrast, bitcoin is a public currency, one of the best reasons for its popularity. However, to use bitcoin, it must be approved by the government. Though no single government has control over bitcoin, almost all governments worldwide have allowed people to deal in bitcoin. This means that bitcoin is legally verified to be used in transactions and storing your assets. Bitcoin has won the trust of governments worldwide because of its high-security features and honesty. Despite all its success, bitcoin has never been involved in ripping off its users and spreading false information to attract the masses. Everything is green on the legal aspect of bitcoin usage. Bitcoin will ultimately become the world’s most powerful currency.

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What Is Bitcoin, and How Does It Work?

We translate Bitcoin into plain English. So even if you have no technical background, you’ll be able to understand everything. you’ll know more about Bitcoin and how it works than ninety nine percent of the population. 

Before we talk about Bitcoin, I want to take a moment and talk about money, what is money exactly? At its core, money represents value. If I do some work for you, you give me money in exchange for the value I gave you, I can then use that money to get something of value from someone else in the future. Throughout history, value has taken many forms and people have used a lot of different materials to represent money, salt, wheat shells and of course gold have all been used as a medium of exchange.

However, in order for something to represent value, people have to trust that it is indeed valuable and will stay valuable long enough for them to redeem that value in the future. Up until one hundred years ago or so, we always trusted in something to represent money. However, something happened along the way, and we’ve changed our trust model from trusting something to trusting in someone. Let me explain. Over time, people found it too cumbersome to walk around the world carrying bars of gold or other forms of money.

So paper money was invented. Here’s how it worked. A bank or government would offer to take possession of your bar of gold, let’s say, worth a thousand dollars. And in return, that bank would give you receipt certificates, which we call bills amounting to a thousand dollars. Not only were these pieces of paper much easier to carry, but you could spend a dollar on a cup of coffee and not have to cut your gold bar into a thousand pieces.

And if you wanted your gold back, you simply took a thousand dollars in bills back to the bank to redeem them for the actual form of money. In this case, that gold bar whenever you needed. And so paper began its use as money, as an instrument of practicality and convenience. However, as time progressed and due to macroeconomic changes, this bond between the paper receipt and the gold it stands for was broken. Now, to explain the path that led us away from the gold standard is extremely complex.

But suffice to say that governments told their people that the government itself would be liable for the value of that paper money. Basically, we all said, let’s just forget about gold and trade paper instead. So people continued to trade with receipts that are backed by nothing but the government’s promise. And why did that continue to work? Well, because of trust, even though there is no actual commodity backing paper money, people trusted the government and that’s how fiat money was created.

Fiat is a Latin word that means by decree, meaning the dollars or euros or any other currency for that matter, have value because the government orders it to. It’s what’s known as legal tender coins or banknotes that must be accepted if offered as payment. So the value of today’s money actually comes from a legal status given to it by a central authority, in this case the government. And so the trust model has changed from trusting some thing to trusting someone.

In this case, the government. Fiat money has two main drawbacks. One, it is centralized. You have a central authority that controls and issues it, in this case, the government or central bank. And two, it is not limited by quantity. The government or central bank can print as much as they want whenever needed and inflate the money supply on the market. The problem with printing money is that because you’re flooding the market with more money, the value of each dollar drops.

So your own money is worth less. When you see prices rising throughout the years. It’s not necessarily that prices are rising as much as that the purchasing power of your money is dropping. You need more dollars to buy something that used to cost less. Once Fiat money was in place. The move to digital money was pretty simple.

We already have a central authority that issues money, so why not make money, mostly digital, and that that authority keep track of who owns what.

Today we mainly use credit cards, wire transfers, PayPal and other forms of digital money. The amount of physical money in the world is almost negligible and it’s getting smaller with each year that passes. So with money today is digital. How does that even work? I mean, if I have a file that represents a dollar, what’s to stop me from copying it a million times and having a million dollars? This is called the double spend problem. The solution that banks use today is a centralized solution.

They keep a ledger on their computer, which keeps track of who owns what.

Everyone has an account and this ledger keeps a tally for each account. We all trust the bank and the bank trust their computer. And so the solution is centralized on this ledger, in this computer. You may not know this, but there were many attempts to create alternative forms of digital currencies. However, none were successful in solving the double spend problem without a central authority. Whenever you give any one control over the money supply, you’re giving them enormous power.

And this creates three major issues. The first issue is corruption, power corrupts and absolute power. Corrupts absolutely when banks have a mandate to create money or value, they basically control the flow of value in the world, which gives them almost unlimited power. A small example of how power corrupts can be seen in the Wells Fargo scandal, where employees secretly created millions of unauthorised bank and credit card accounts in order to inflate the bank’s revenue stream without their customers knowing about it for years.

The second issue of a centralized system is mismanagement if the central authorities interest isn’t aligned with the people it controls. There may be a case of mismanagement of the money, for example, printing a lot of money in order to save a certain bank or institution from collapsing as what happened in 2008. The problem with printing too much money is that it causes inflation and basically erodes the value of the citizens money. One extreme example for this is Venezuela, where the government has printed so much money and the value of it has dropped so much that people are no longer counting money but are doing it instead.

The last issue is control. You are basically giving away all control of your money to the government or bank. At any point in time. The government can decide to freeze your account and deny you access to your funds, even if you use only cold, hard cash. The government can cancel the legal status of your currency, as was done in India a few years back. This was the state of things until two thousand nine. Creating an alternative to the current monetary system seemed like a lost cause.

But then everything changed. In October of two thousand eight, a document was published online by a guy calling himself Satoshi Nakamoto. The document, also called a white paper, suggested a way of creating a system for a decentralized currency called Bitcoin. This system claimed to create digital money that solves the double spend problem without the need for a central authority. At its core, Bitcoin is a transparent ledger without a central authority. But what is this confusing phrase even really mean?

Well, let’s compare Bitcoin to the bank, since most money today is already digital. The bank basically manages its own ledger of balances and transactions. However, the banks ledger is not transparent and it’s stored on the bank’s main computer. You can’t sneak a peek into the bank’s ledger, and only the bank has complete control over it. Bitcoin, on the other hand, is a transparent ledger. At any point in time, I can sneak a peek into the ledger and see all of the transactions and balances that are taking place.

The only thing you can’t figure out is who owns these balances and who is behind each transaction. This means Bitcoin is pseudo anonymous. Everything is open, transparent and trackable, but you still can’t tell who’s sending what to whom. Let’s explain this with an example. You can see on your screen certain rows from Bitcoins ledger. We can see that a certain Bitcoin address sent ten thousand bitcoins to another Bitcoin address in May of 2010. This specific transaction is the first purchase that was ever made with Bitcoin, and it was used to buy two pizzas by a guy named Lazlo Lazlo published a post back in 2010 asking for someone to sell him two pizzas in exchange for ten thousand bitcoins.

Well, someone did. And now the price of these two pieces is worth well over one hundred million dollars today. Bitcoin is also decentralized. There’s no one computer that holds the ledger with Bitcoin. Every computer that participates in the system is also keeping a copy of the ledger, also known as the block chain. So if you want to take down the system or hack the ledger, you’ll have to take down thousands of computers which are keeping a copy and constantly updating it.

Like most money today, Bitcoin is also digital. This means there’s nothing physical that you can touch in Bitcoin. There are no actual coins, there are only rows of transactions and balances. When you “own” Bitcoin it means that you own the right to access a specific Bitcoin address record in the ledger and send funds from it to a different address. So what does all of this mean? Why is Bitcoin such big news? Well for the first time since digital money came into existence we now have an alternative to the current system.

Bitcoin is a form of money that no government or bank can control. Think about the time before the internet, how centralized the Flow of information was. Basically if you wanted information you could get it from a few major players like the New York Times, The Washington post and other like them. Today, Thanks to the internet, information is decentralized and you can communicate and consume knowledge from around the world with the click of button. Bitcoin is the Internet of money and it’s offering a decentralized solution to money. Bitcoin has several advantages over the current system. First, it gives you complete control over your money. With Bitcoin, you and you alone can Access your funds. No goverment or bank can decide to freeze your account or confiscate your holdings. Bitcoin is cheaper to use than traditional wire transfer of money orders. Also, unlike fiat currencies, Bitcoin was designed to be digital by nature, this means you can ad additional layers of programming on top f it and turn i tinto “smart money” but more on that in later videos. Finally, Bitcoin opens up digital commerce to 2.5 billion people around the world who don’t have access to the current banking system. These people are unbanked or underbanked because of where thet leave and the reality that they have been born into. However, today, with a mobile pone and a click of a button they can start trading using Bitcoin, no permission needed. Today there are several merchants online and offline that accept Bitcoin. You can order a flight or book a hotel with Bitcoin if you like. There are even Bitcoin debit cards that allow you top ay at almost any store with your Bitcoin balance. However the road toward acceptance by the majority of the public is still a long one.

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