Connect with us

Economics

Is Cryptocurrency really the future?

Think of cryptocurrency as digital money or tokens that can be used as payment for (usually) online transactions. Much like the stock market, cryptocurrency has become an increasingly popular asset to invest in

Published

on

What is Cryptocurrency?

Think of cryptocurrency as digital money or tokens that can be used as payment for (usually) online transactions. Much like the stock market, cryptocurrency has become an increasingly popular asset to invest in. 

Although more than 5,000 types of cryptocurrency exist, new forms are continuously being created. Examples of cryptocurrency include Ethereum, Tether, and perhaps most notably of all, Bitcoin. In recent months, companies, like Tesla, have affirmed usage of the cryptocurrency and while writing this, a single Bitcoin is valued at $63,588 USD.

How does it function? 

Unlike currencies issued by countries, cryptocurrency is intangible, unregulated, encrypted and decentralized. 

Most cryptocurrency exists exclusively online, however, some cryptocurrencies have tangible properties such as those associated with credit cards. One appealing aspect of cryptocurrency is that it is not regulated by a central authority. This is directly opposite fiat currency, which is regulated by the central authority, usually government, that issues it. Transactions are encrypted to provide safety and security. As the entire system is unregulated and decentralized, the responsibility falls on users to update the public ledger also known as a blockchain. Transactions are recorded in blocks and those blocks are linked in a chain, hence, the term blockchain.

Transactions are verified by one of two methods, proof of work or proof of stake, before they are added to the blockchain. Proof of work requires a computer to solve a mathematical problem whereas proof of stake limits “the number of transactions each person can verify…by the amount of cryptocurrency they’re willing to ‘stake,’ or temporarily lock up in a communal safe, for the chance to participate in the process”. While proof of work is a more energy consuming process, users stand to lose more in the proof of stake process. 

Why are users interested in verifying transactions? Well, this is how new cryptocurrency is created and it is awarded to the first person to verify the transaction. As the current value of a single Bitcoin exceeds $60,000 USD, transaction verification seems like a lucrative proposition. 

The price of cryptocurrency changes based on supply and demand. In the case of Bitcoin, only 21 million Bitcoin can exist and approximately 18 million have already been mined. 

Advantages of Cryptocurrency

Cryptocurrency is more transparent than traditional banking systems as users can, at any point, view the blockchain with the complete list of transactions. Moreover, individuals using cryptocurrency are exempt from several fees that traditional banks require.

In addition to transparency, cryptocurrency is highly accessible as users can access their currency 24-7 using a smartphone. Unlike a traditional bank, users no longer need to deal with an intermediary to make financial decisions thereby, providing users with a greater sense of autonomy. Accessing and using cryptocurrency is relatively easy and has made it so that users can make financial decisions in real time. 

Cryptocurrencies, like Bitcoin, are configured to preserve anonymity, as much as possible, as a user’s personal information is not linked with their transactions. Anonymity can be useful for users looking to protect their privacy. However, there is evidence that cryptocurrency has been used on the black market and dark web

Disadvantages of Cryptocurrency

Perhaps the single greatest disadvantage of cryptocurrency is its volatility. This is underscored by the fact that in 2018, the price of Bitcoin fell by 60%. Bitcoin stands to drop by 20-30% at any given moment. Many investors are predicting that there is a looming Bitcoin crash, and they say this time, if Bitcoin crashes, it is going to take the rest of the cryptocurrency market with it. Cryptocurrency is marred with volatility and investors should only invest that which they can afford to lose.

Related to volatility is that cryptocurrency valuation fluctuates. For example, users may find themselves in situations where they purchase an item for one Bitcoin, however, the value of the Bitcoin has changed by the time the user wishes to return it. How much Bitcoin should be returned to the user? 

The safety and security of cryptocurrency is minimal at best and non-existent at worst. According to the Federal Trade Commission, if the company from which cryptocurrency was purchased enters bankruptcy, the government does not have the authority to help users. If a user is scammed there is nothing that can be done to reverse the transaction. Taking advantage of these aspects of cryptocurrency, some individuals engage in cryptojacking, where scammers can use your device as a processor to mine cryptocurrency—for their own benefit.

As cryptocurrency is not widely accepted, it can only be used like fiat currency in a handful of spaces. In order to track transactions, governments may prevent the use of cryptocurrency in certain domains.

Cryptocurrencies using the proof of work method to verify transactions have now faced the added consequence of mining. Each computer attempting to verify the transaction is called a miner and as it is a race to solve the mathematical equation, complex computers are now needed to achieve this task. The amount of electricity needed to mine Bitcoin is more than what it used by entire countries like Ireland. As the world is in dire need to reduce greenhouse emissions, is mining for cryptocurrency compatible with our goals?

While cryptocurrency has many benefits, the associated risk should make any investor wary. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Economics

US Economy suffers due to impact of Covid- 19

Published

on

The United States Department of Labor released employment figures on Friday 3rd September 2021, highlighting the lacklustre 235,000 job growth. These figures leave citizens wondering how well the economy will recover from the Covid-19 pandemic. August’s number contrasts starkly with July’s creation of 1.05 million jobs. The unemployment level was recorded at 5.2% in August 2021, a drop from 5.4% in July 2021. As these numbers were recorded two weeks into August hence, they do not account for the impact of Hurricane Ida and Hurricane Henri. Earlier estimates had pegged the growth at close to 700,000.

The US Bureau of Labor Statistics highlighted impressive numbers of jobs in sectors such as professional and business services, transportation and warehousing, private education and manufacturing. 

President Joe Biden expressed his disappointment in the numbers, “Total job creation in the first seven months of my administration is nearly double, double any prior first-year president… While I know some wanted to see a larger number today, and so did I, what we’ve seen this year is a continued growth, month after month in job creation.”

Further, Seema Shah from Principal Global Investors said, “Not only did payrolls rise by less than a third of what was expected, the [labour market] participation rate was unchanged suggesting that labour supply is still struggling to recover as Covid confidence takes another hit…The Fed has hung its hat on the assumption that people are starting to return to work, and unfortunately today’s number will be a disappointment to them.” Her statement reflects the fact that many US citizens are still at home, despite there being a demand for jobs.

The chief global strategist at HSBC Asset management, Joe Little said, “Record levels of job openings means that the demand for labour remains high…As we head into the autumn, labour shortages will be eased by the expiry of additional unemployment insurance payments plus improved access to childcare when schools return.”

Although the number of unemployed has dropped slightly, it is still vastly higher than the February 2020 number of 5.7 million people, with the current number at 8.4 million people. Economic recovery is stalled in part due to the ongoing Covid-19 pandemic affecting travel, tourism and hospitality. 

The staggering numbers released will most likely have, and are having, a profound impact on the US’ economy. Inflation rates have risen and supply chains have been affected. How long will millions of Americans continue to be affected by the devastating impact of the pandemic and what is the government’s plan to aid their citizens?

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading

Economics

Can Global Tax Loopholes Be Closed Equitably? – On the Radar

We discuss the G7 nations reaching a deal on global tax reform, discoveries of unmarked residential school graves discovered in Canada over the past few weeks and the ‘unprecedented’ heatwave in Western Canada.

Published

on

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading

Economics

Lebanon’s crashing economy leaves many desperate for basic needs

Published

on

The ongoing struggles in Lebanon have resulted in a huge chunk of the population struggling to make ends meet. With about half of the population currently living below the poverty line, families are finding it difficult to cover the essentials to survive. Lack of access to food, medicine, shelter, and money from the banks is a serious problem across the country. 

The collapsing economy, alongside the nation’s failing political system, has left the Lebanese people feeling frustrated at how the government has been handling the back-to-back crises the country has faced over a number of years. 

Financially, the value of the Lebanese Pound (LBP) has been plummeting since March 2020, accelerated by the pandemic and political unrest. Then, one Great British Pound (GBP) was equal to around 1,700 LBP, whereas today it is north of 2,050 LBP. This has resulted in stagnant wages being unable to cover even the most basic of living costs for lots of people. 

In August of 2020, the Lebanese government was forced into resigning after numerous anti-government protests across the county, which were sparked by the explosion which centred at the port in Beirut. The incident killed at least 200 people, left about 5,000 people injured, millions were made homeless, and it pushed the entire country into even further economic turmoil.

Discontent with the Lebanese government was already running rampant by that point, due to concerns over deeply rooted corruption. For years, citizens have struggled to get the government to cater to the most basic of needs; they face daily power cuts, limited public healthcare and lack of safe drinking water. All the while, there is a huge economic disparity, with the rich truly shadowing the general population in terms of standard of living. 

These factors have all pushed a struggling nation even further into debt, financial ruin, and political uncertainty. 

Global leaders have spent decades staging various forms of intervention across the Middle East, with President Emmanuel Macron being the latest to announce an aid event to be hosted for Lebanon next year on 4th August, the first anniversary of the Beirut disaster. 

Even with international aid, Lebanon will still need both stable internal leadership, and time, to get through these troubles.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading

Economics

The Australia-China trade spat

Published

on

For many years, Australia has been feeding China’s meteoric rise into becoming an economic strongman supplying commodities like iron ore and other exports such as  seafood, timber, alcohol, and coal. Yet, the geopolitics of the pandemic has forced Australia to square up to a “more assertive” China with the latter only recently revealing that its trade sanctions against Australia were in retaliation for Australia going against China’s narrative and its view of the world. To put it simply, China is using Australia as an example to the rest of the world – if a country crosses China’s path, then prepare to feel China’s wrath via economic sanctions and political desertion.

China’s approach to upending Australia’s export-heavy economy has largely proved to be somewhat of a blessing in disguise, with Australian exporters finding success in other markets beyond China. Some commentators have said these bans have diversified the markets of Australian exports, which is good given how the bans exposed Australian exporters’ addiction towards the Chinese market. Roland Rajah, an economist at the Lowy Institute noted that “Australian coal in India has been gaining market share” and that the coal trade was 9.5b AUD higher than before the ban (in annualized terms). However, sectors such as beef and alcohol seem to be struggling, and while the latter has found record sales in Britain, it still did not beat the amount the Chinese market was buying.

China achieves political desertion by instructing its allies to alienate the country in question by abandoning all diplomatic, economic and military channels. It has achieved great success in alienating Taiwan for instance, from many countries especially developing ones. In return for denouncing Taiwan and adhering to China’s view that it is a rebel territory yet to be unified with China, the country receives diplomatic, economic and military aid and partnerships. To date, only about 15 countries have diplomatic relations with Taiwan, showing how closed-door lobbying and dirt cheap Chinese credit is valued far more than Taiwan’s right to independence. Probably the most striking factor is that the United Nations does not recognise Taiwan either, leaving it abandoned on the world stage.

While concrete evidence of Australia being deserted by China is yet to exist, Australian allies have stepped up their rhetoric in their commitment to stand by Australia’s side. This is something the Trump administration was vocal about with former Secretary of State Mike Pompeo declaring that “we stand with Australia” and their decision to call for an independent inquiry into the pandemic’s origins. It should be noted this was a bipartisan response from Washington D.C with this letter signed by 27 members of Congress from both parties reaffirming its support for Australia and condemning China’s economic manipulation. 

In economic terms, the first material impact occurred when Beijing threatened – and followed through – to ban Australian barley from being imported should Australia pursue a motion for an independent inquiry into the pandemic’s origins. In 2018 alone, that market was worth AUD 1.5b. In return, Australia got the support of more than 120 member countries at the 2020 World Health Assembly and that became the catalyst for where the trade relationship rests today. 

The scope of the import bans from barley alone was extended to beef, wine, coal, cotton, timber and lobsters while China warned its local population against studying or touring in Australia. To illustrate the stakes this trade relationship holds, the Australian Department of Foreign Affairs and Trade (DFAT) estimates that in the 2018-19 year, the two-way trade between the two countries was worth AUD 235b, or 27% of all Australian trade making it the most valuable trading relationship. So, it does not help if diplomatic relations sour, as the economic repercussions follow suit. 

China’s furore did not stop there. In what was widely perceived to be a deliberate public relations stunt, the Chinese embassy in Australia released a list of 14 grievances against Australia. Items in the list included blocking Huawei from the 5G rollout, calling for an investigation into Covid-19’s origins, speaking out about the South China Sea, accusing China of human rights abuses in Xinjiang, among others. The embassy said that should Australia apologise for its anti-Chinese rhetoric, then the relationship will get back on even ground. A Chinese foreign ministry spokesperson said Australia “slandered and accused China of engaging in intervention and infiltration activities in Australia” revealing how seriously the Chinese embassy took these grievances.

Officially that list has been labelled a “massive own goal by China” by the then Secretary of DFAT, Frances Adamson. As of the time of writing, China continues to be an economic headache for Australian exporters and whether Australia can weather the storm depends on its success in pivoting to other markets. China also has a stake here as it cements its image like a dragon whose wrath better not be incurred, lest the economic tirade directed at Australia be directed at a country less stable in governance and vulnerable and reliant on foreign aid and investment. 

Only time will tell whether Australia sticking to its values is worth the money.

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading

Economics

Has the UK government borrowed too much money?

During the pandemic, the UK government has spent billions of pounds to help the public. Where has the government found this money, and how will we pay back our large debt?

Published

on

The state of the current UK economy

The UK was issued its first debt in 1694, during the reign of William III. Since then, the UK has borrowed a lot of money due to wars and other national events. Borrowing money is easy, but paying it back is often more of a challenge. The UK government was planning to borrow £160bn even before the Covid-19 outbreak, of which nearly £100bn would have been just to pay back previous debt. 

Looking at the current debt, statistics from the ONS indicate that where the debt has increased over the last decade, the debt as a percentage of the GDP has not increased as much. This suggests that either the UK is paying back the debt, or the GDP (‘Gross Domestic Produce’) i.e. the total value of goods and services produced by a country) is growing at a faster rate. This is arguably a positive thing because, despite large debt, our economy remains strong enough to handle our debt levels. 

Government borrowing this April was at £31.7bn – the second-highest borrowing in April since records began in 1993. This is £15.6bn less than in April 2020.

Why is the UK government borrowing money?

Many countries need to borrow money, as they are spending more than their income (government income is mainly from the taxes which we pay). Though government can increase taxes to match spending, this will politically damage a government as the public do not like high taxes. We can see this in Columbia, where mass protests were triggered by proposed tax reforms that were subsequently very quickly withdrawn. Higher taxes would also mean less consumer spending, and so the economic growth of the country would decrease. Thus, borrowing money instead is a better option. 

When the Conservatives won the 2019 General Election, they promised not to increase income tax, corporate tax, and Value Added Tax. To maintain this promise, Sunak is freezing the tax threshold. This is the amount of income someone needs to have to pay tax. So as the amount of wages rises a little each year, if the threshold stays the same, the government can receive more tax, without raising the tax. 

How does the UK government borrow money?

The UK government mainly uses bonds to borrow money. A government bond is a promise between the public and the government, where the public buys government bonds at a fixed rate of interest. These bonds are also bought by different financial institutions, as well as by the Bank of England, to stimulate the economy (quantitative easing), but they can also be bought by private savers. This method of investment is very reliable, as there is a very small chance of not being paid back by the government.

Debt interest

Government spending on debt interest was lower in 2020/21 than in 2019/20. This can be attributed to two factors: lower inflation (the interest paid on around 20% of government debt is linked to inflation) and the Bank of England holding around 30% of government debt. The effective interest rate paid by the government on the debt held by the Bank of England is the UK’s official interest rate (known as the bank rate), which has been at a record low during the pandemic.

Why has the UK government borrowed so much?

The UK government has provided a lot of financial support to individuals, as well as businesses e.g., through the furlough scheme. During the pandemic, as there were less people in work, not only did the UK government receive less tax (corporate and income tax), but it also had to provide more unemployment benefits. The deficit grew. 

The government supported the public in two main ways:

Subsidies

In 2020, the UK government spent over £140 billion in subsidies. Out of this, £64bn was spent on the Coronavirus Job Retention Scheme (the furlough scheme), and £20bn was spent on the self-employed.

Goods and services

The UK government’s day-to-day spending (current spending) on goods and services increased to a total of £506bn. This includes the costs of Test and Trace, as well as the vaccines. 
Reuters Graphic

The graph on the above shows the debt of the UK compared to other nations. The UK is fourth in the list, below France, Spain and Greece, respectively. This shows that we have accumulated a lot of debt. However, as analysis by Bloomberg Economics shows, debt from G-7 countries rose from 85% of GDP in 2005 to 140% in January 2021. The cost of servicing that debt, on the other hand, has fallen, from close to 2% of GDP to 1.5%. Projections out to 2030 show that for many countries, costs are expected to stay manageable. Thus, though it will take us a long time to pay back our debt, we will be able to pay it back. We must also recognise that extra spending because of the pandemic has been necessary to push the economy through this difficult period; one which has affected economies globally. 

What is the impact of this debt?

The UK economy, though heavily in debt and with high levels of unemployment, should see a “bounce-back” in the economy, though it will not be a boom, as seen in post-war nations. It is not clear yet whether the 7.25% prediction for the increase of GDP will prove accurate. Post-Brexit Britain has seen an increase in Europeans leaving the UK. Therefore, there are greater employment opportunities for the younger generations but, even so, they may not fill up all the gaps that Brexit may have caused in the jobs market. Large government investment is already needed to mitigate the climate crisis and this may compromise the strength of this “bounce-back”. 

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading

Economics

Is Cryptocurrency a Viable Replacement? – In Focus

How does Cryptocurrency differ from standard or Fiat Currency and what’s next for these distributed networks?

Published

on

All views expressed in this editorial are solely that of the author, and are not expressed on behalf of The Analyst, its affiliates, or staff.

Continue Reading

Recent Comments

Articles