Sunday, February 23, 2014

Bitcoin: Money is What Money Does

   Last week, we discussed in class about money and learned the different uses for it. We talked about its characteristics and examples. We also did an activity on different kinds of commodity such as livestock, gold, wheat, tobacco, manual labour, and so on then talked about its advantages and disadvantages.

          Relating to what we had discussed, we are going to talk about bitcoins as a commodity and its uses.

What are bitcoins and Bitcoin?



         
        Bitcoin is a peer-to-peer payment system and digital currency introduced as open source software in 2009 by pseudonymous developer Satoshi Nakamoto.  It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money. Cryptography is the practice and study of techniques for secure communication in the presence of third parties. Conventionally, "Bitcoin" capitalized refers to the technology and network whereas lowercase "bitcoins" refers to the currency itself.

How is it used?


         Bitcoins are created by a process called mining. Users send and receive bitcoins using wallet software on a personal computer, mobile device, or a web application. Bitcoins can be obtained by mining or in exchange for products, services, or other currencies. It is generated by thousands of so-called miners. These are people who, working individually or in groups called "mining pools," use powerful computer components to run software that solves a series of mathematical puzzles. Each time the miner solves the puzzle, they receive bitcoins, which they can trade for currency or otherwise put into circulation.

           So why should they get money for doing this? The argument is that these users essentially become a decentralized version of the Bank of Canada. They invest their own time and resources — like electricity and computing power — and in turn, the bitcoin network is supplied with the processing power needed to maintain a transparent, running tally of all transactions. A similar process applies to all alternative digital currency.

           As of last Feb. 14, a bitcoin is worth $720 Cdn.

This video explains the basics of bitcoin:





Advantages and Disadvantages


        Pros:

  • No Third-Party Seizure
          Since there are multiple redundant copies of the transactions database, no one can seize bitcoins. The most someone can do is force the user, by other means, to send the the bitcoins to someone else. This means that governments can’t freeze someone’s wealth, and thus users of Bitcoins will have complete freedom to do anything they want with their money.
  • No Taxes
          There is no way for a third party to intercept transactions of Bitcoins, and therefore there is no viable way to implement a Bitcoin taxation system. The only way to pay a tax would be, if someone voluntarily sends a percentage of the amount being sent as tax.
  • No Tracking
          Unless users publicize their wallet addresses publicly, no one can trace transactions back to them. No one, other than the wallet owners, will know how many Bitcoins they have. Even if the wallet address was publicized, a new wallet address can be easily generated. This greatly increases privacy when compared to traditional currency systems, where third parties potentially have access to personal financial data.
  • No Transaction Costs
         Sending and receiving Bitcoins requires users to keep the Bitcoin client running and connected to other nodes. Essentially, by using bitcoins users will be contributing to the network, and thus sharing the burden of authorizing transactions. Sharing this work greatly reduces transaction costs, and thus makes transaction costs negligible.
  • No Risk of “Charge-backs”
         Once Bitcoins are sent, the transaction cannot be reversed. Since the ownership address of Bitcoins will be changed to the new owner, once it is changed, it is impossible to revert. Since only the new owner has the associated private key, only he/she can change ownership of the coins. This ensures that there is no risk involved when receiving Bitcoins.
  • Bitcoins Cannot be Stolen
         Bitcoins’ ownership address can only be changed by the owner. No one can steal Bitcoins unless they have physical access to a user’s computer, and they send the bitcoins to their account. Unlike convential currency systems, where only a few authentication details are required to gain access to finances, this system requires physical access, which makes it much harder to steal.
         Cons:
  • It is not widely accepted 
         Bitcoins are still only accepted by a very small group of online merchants. This makes it unfeasible to completely rely on Bitcoins as a currency. There is also a possibility that governments might force merchants to not use Bitcoins to ensure that users’ transactions can be tracked.
  • Wallets Can Be Lost
         If a hard drive crashes, or a virus corrupts data , and the wallet file is corrupted, Bitcoins have essentially been “lost”. There is nothing that can done to recover it. These coins will be forever orphaned in the system. This can bankrupt a wealthy Bitcoin investor within seconds with no way form of recovery. The coins the investor owned will also be permanently orphaned.
  • Bitcoin Valuation Fluctuates
          The value of Bitcoins is constantly fluctuating according to demand. As of June 2nd 2011, one Bitcoins was valued at $9.9 on a popular bitcoin exchange site. It was valued to be less than $1 just 6 months ago. This constant fluctuation will cause Bitcoin accepting sites to continually change prices. It will also cause a lot of confusion if a refund for a product is being made. For example, if a t shirt was initially bought for 1.5 BTC, and returned a week later, should 1.5 BTC be returned, even though the valuation has gone up, or should the new amount (calculated according to current valuation) be sent? Which currency should BTC tied to when comparing valuation? These are still important questions that the Bitcoin community still has no consensus over.
  • No Buyer Protection
          When goods are bought using Bitcoins, and the seller doesn’t send the promised goods, nothing can be done to reverse the transaction. This problem can be solved using a third party escrow service like ClearCoin,but then, escrow services would assume the role of banks, which would cause Bitcoins to be similar to a more traditional currency.
  • Risk of Unknown Technical Flaws
          The Bitcoin system could contain unexploited flaws. As this is a fairly new system, if Bitcoins were adopted widely, and a flaw was found, it could give tremendous wealth to the exploiter at the expense of destroying the Bitcoin economy.
  • Built in Deflation
          Since the total number of bitcoins is capped at 21 million, it will cause deflation. Each bitcoin will be worth more and more as the total number of Bitcoins maxes out. This system is designed to reward early adopters. Since each bitcoin will be valued higher with each passing day, the question of when to spend becomes important. This might cause spending surges which will cause the Bitcoin economy to fluctuate very rapidly, and unpredictably.
  • No Physical Form
          Since Bitcoins do not have a physical form, it cannot be used in physical stores. It would always have to be converted to other currencies. Cards with Bitcoin wallet information stored in them have been proposed, but there is no consensus on a particular system. Since there would be multiple competing systems, merchants would find it unfeasible to support all Bitcoin cards, and therefore users would be forced to convert Bitcoins anyway, unless a universal system is proposed and implemented.
  • No Valuation Guarantee
          Since there is no central authority governing Bitcoins, no one can guarantee its minimum valuation. If a large group of merchants decide to “dump” Bitcoins and leave the system, its valuation will decrease greatly which will immensely hurt users who have a large amount of wealth invested in Bitcoins. The decentralized nature of bitcoin is both a curse and blessing.


Opinion


         I believe that is only the fallacious modernist view of currency that promotes the status quo, and indeed, provides the constant support for the gold standard. Restricting currency to single nations that can control policy has enormous precedent, and that alone will be a driving force against Bitcoin’s adoption. However, unlike previous era’s, I believe we are now quite firmly in a postmodern age where we no longer turn to local powers to affect our desires and in turn, repress the desires of those outside their domain. Rather, I find that Bitcoin’s embodies the individualist yet cosmopolitan spirit that lurks within us all. I think it is clear our current level of income inequality is intolerable and unsustainable. 

So much of the world's wealth is concentrated in the hands of a few. Maybe a libertarian currency regime can help change that.
          Bitcoins are a representation of humanity’s desire to broach the confines of history and precedent, and move forward toward a conception in which all barriers to social elevation and self-actualization have been eroded. Bitcoins might not provide us as much financial security in the short-term, but it would definitely empower us overall.

Tuesday, February 18, 2014

The world's most livable cities, and the reasons behind it.

The past week we learned about different measures of Standards of Living. We focused and talked a lot about the Human Development Index, which was the statistic of how developed or undeveloped a country is – Gini Coefficient which was the measure of inequality and income distribution per household – the Human Poverty Index which took into account factors such as hunger, and ability to provide basic needs such as shelter and clothing, and there was also a presentation on gross national happiness, which focuses on the overall happiness of a country by taking into account factors such as: economic wellness, environmental wellness, workplace, social, and political wellness.

Today we are going to take into account all these measures of the standards of living and we’re going to expand it into the real world, and talk about the best and most livable cities in the world.  We will also discuss why these cities are ranked to be the most livable, how they compare internationally, and take a look behind the scenes of the best city in the world.

When determining the best cities, economists take into account how tolerable a city is. Some potential factors are: crime levels, threat of conflict, quality of medical care, levels of censorship, temperature, schools, and transportation links in the city such as buses, metro, etc. and how efficient these transportation methods are.


The Economist Intelligence Unit’s (EUI) livability rating quantifies the challenges that might be presented to an individual’s lifestyle in 140 cities worldwide. It assigns each city a score for over 30 qualitative and quantitative factors across five broad categories: stability, healthcare, culture, environment, education and infrastructure and they take these into consideration to determine the well-being of a city.

Professor Rob Adams, Director of City Design for the City of Melbourne, says livability is about choice and access.
- “A city feels livable if its citizens have choices – the choice to walk instead of drive for example. Walk-ability is probably one of the basic indicators of a livable city.”

By all these measures, surely Melbourne is indeed livable – it is certainly walk-able, with functioning hard infrastructure.



The listing here is dominated by Australasia, and Canada. Melbourne, Australia takes first place as the most livable city in the world for the past 3 years, at a rating of 97.5 / 100, and just behind it we have Vienna, Austria, and then 3 of the top 5 cities are Canadian cities; Vancouver, Toronto, and Calgary which is very positive for Canada once again. As noticed, there is a very little amount of European countries which really surprised me, considering that during the past week, most presentations consisted lots of European countries to have the most developed, and happiest origins to live in, but apparently they are not all the most livable countries, which really got my attention – this is most likely due to the fact that although a country may have a high HDI rank, different factors such as crime rate or transportation may be lower compared to other cities, and that affects their ranking in terms of ‘livability’. 

Half of the cities are in Australia and New Zealand, three are in Canada, and two are in Europe. One thing most of these cities have in common is that they’re all medium-size cities in prosperous countries, with relatively low population densities. It’s an equation that leads to low crime rates, functional infrastructure and plenty of recreational activities for residents. This also helps the cities in terms of crime, congestion, and public transport efficiency.


On the bottom of the list we have very undeveloped, dangerous, unstable, cities that are primarily located in Africa and the Middle East. Countries such as Syria, Bangladesh, Pakistan and Nigeria are home to cities which would be considered unstable, and dangerous and also because there's lots of war going on there and conflict was responsible for many of the lowest scores.

Australia was a country with one of the highest HDI’s, and it also proves that it is a very well rounded country overall due to its consistency of having one of its cities as the most livable city in the world, and 3 others in the top 10.

Maybe some of you are surprised that not a single American city is top 10. Regardless of the fact that the United States is a very rich and developed country, it doesn't have the most livable cities. But this is most likely because, aside from the fact that most cities look really nice to live in, such as Los Angeles or Miami, the lack of efficient healthcare, crime rates, and ability to own guns which causes lots of risks and threats is a problem. Also, high poverty rates, and cost of living are factors as well. These are some factors that really influence how livable a city is, and clearly these factors are affecting cities in America very negatively.



 Above, is a snapshot of Melbourne, Australia. You can notice that it looks like a stable city from the top, with an attractive skyline, a nice river flowing around the city center, and although you cannot see it in this picture, there are numbers of beaches just minutes away from the city center. 

Some things that make these cities stand out and that give them a jump start is the ability to host major events such as the Fifa World Cup, or Olympics and they gain lots of revenue towards the city and are able to make changes internally. But just because you host a major event, won’t automatically fix all the economic problems, but it might certainly give a country, and its cities a boost.  

After doing my research and reading a lot about Melbourne I realized that it is very clean, there is great temperature and weather, great skyline, there is a nice mix of new and old buildings, loads of great eating places, it is very diverse and there’s lots of variety – and all these factors make the city very attractive, so that’s one thing.



There are also three main modes of transportation: Trains, trams, and buses. These are all very essential for a city to be considered 'most livable', because basic, and efficient transportation within the city is the key to access the city's infrastructure. There is also a free tram that circles the entire city and stops at major areas such as the beach, key areas for tourists, and University students have access to free transportation to-and-from University.  People also use walking, bicycles, or a car as methods of transportation.

Melbourne is also planning on constructing another skyscraper into their skyline, which would make it the tallest building in the Southern Hemisphere and this project is expected to be finished in 3-4 years. So as we can see, Australia is continuously investing in the future and expanding their economy.

Every year Melbourne hosts a major tennis event; the Australian Open and they gain lots of revenue from that, especially through sponsorship. They also have lots of beaches just a few minutes away so that is very appealing, especially to tourists.

Speaking of tourists, we’ll talk about immigration. Australia is an immigration-friendly country, and is the second most immigrated country in the world, just behind Canada. It is also very diverse and multicultural. It has one of the highest standards of living in the world, subsidized language lessons to foreigners, employment support, and comprehensive healthcare services. Sydney, the capital of Australia, and Melbourne are the two main cities of immigration for Australia.

Here is a video and it will help us learn why Melbourne is one of the most immigrated cities in the world, and why this city has been considered the ‘most livable’ city in the world for the past three years.


Investment, business, innovation, creativity. As said in the video, this is the ingredient to reach out to the world; ; and this ingredient is what helps this economy to keep going and expanding continuously with immigration, and innovation with the current residents. In the video, it also talks a lot about opportunity for business, so that may be very appealing for residents outside of Australia to try and invest in a new life, in a new country.

After learning more about the city, we realize that factors such as opportunity for business, great quality of medical care/education, employment opportunities, low crime rate and other measures, help determine how livable a city is, and because of such high quality of living - Melbourne, Australia is the most livable city in the world for the third straight year. 


- Mati Jankowiak

Monday, February 10, 2014

The Macroeconomics of Hosting the Olympic Games

We've started off the new term with a new unit in Economics 40S - Economic Indicators. To start off the unit, we looked specifically at Gross Domestic Product (GDP), which the textbook, Working with Economics, defines as "...the value of all final goods and services produced in a country in a given year." GDP helps to measure the health of a nation's economy, because a healthy economy allows for low unemployment and high wages. Macroeconomics looks at a nation as a whole, when dealing within the realms of the economy, as the textbook defines macroeconomics as "...the area of economics concerned with the overall view of an economy, rather than with individual markets."

With that in mind, it is clear that the beginning of this term also marks a spectacular international event - it marks the beginning of the 2014 Sochi Winter Olympic Games. 


So, why host the games, you may ask? The games are not only a great method of promoting tourism and nationalism in a country, and it also helps to increase spending, create jobs, and promote the construction of better infrastructure and transportation systems.

These long-term benefits were especially evident in London, after hosting the 2012 Summer Olympic Games. In fact, in an interview with the Olympics Committee, Mayor Boris Johnson of London praised the games, and said that these games will secure a "lasting legacy" on the capital of England. He noted, "We can secure a transport, housing, infrastructure, sporting, cultural, and social legacy from these games and turn these Games to gold for decades to come." However, this was not just a speculation, as the national GDP of England had finally risen over 1% after the games, after a long period of decline. According to journalist Mark Thompson of CNN, the Olympics had helped to lift the UK out of recession. In fact, British Finance Minister George Osbourne stated that the games had put the UK on the right track on its mend towards economic strength and growth. 

But, what about all this controversy over the heavy financial burden placed on the host cities? 



The grandeur of the Beijing Olympic Games of 2008 had cost the country roughly $40 billion, shocking the international community with the depth of its financial commitment. While $40 billion may seem like an extraordinary amount to be spending on a sporting event to the rest of the world, China did not suffer great financial implications, because, according to an article on Bloomberg Business Magazine, the games only accounted for, on average, 0.3% of China's total GDP each year, hardly significant on a national scale. 

Looking at it from a macroeconomic standpoint, the Sochi Olympic Games, which had cost the Russian government an estimated $50 billion (the most ever spent on the games), did not impact the nation's economy greatly, costing only a mere 2.4% of the national GDP. In fact, the financial impact of the Sochi Olympic Games pale in comparison to the 2004 Athens Olympic Games, which had cost the Greek government roughly $11 billion, or a heavy 7% of their national GDP, according to the same article from Bloomberg Business Magazine. 

So, what's the moral of the story? 

It's simple - don't let the numbers scare you (unless you're looking at the national GDP). In a paper published by Markus Bruckner and Evi Pappa of the London School of Economics and Political Science, it has been shown time and time again that hosting the games generates positive investment, consumption, and output responses, even before the games begin. 



The games unite the international community, bringing people from all corners of the world together to celebrate, compete, and enjoy one another's company. It (generally) strengthens a city's economy, and encourages spending, tourism, and improved services for years to come. It's definitely an investment on a nation's part, but a good one at that. 

In the end, Russia spending $50 billion on the games will not send the country into a recession. However, many economists speculate that Athens spending 7% of its GDP had sparked its economic downfall. 

As you can see, the common misconception that the Olympic Games are a waste of money, and only damages a country's economy, is wrong. Looking at the grand scheme of things, or, looking at it from a macroeconomic perspective, we can see that the financial implications of hosting the Olympic Games do not heavily increase a nation's debt, as long as a moderate amount of money was spent in relation to the nation's GDP. So, the numbers don't matter - it's the percentages that count.