What are Cryptocurrencies - PowerPoint Presentation

1. What are Cryptocurrencies and How Significant are They to Our Economy?Cryptocurrencies are digital commodities designed to serve as an alternative to conventional currencies.Examples of cryptocurrencies include: Bitcoin, Litecoin, Ethereum, Ripple, Stellar, NEO, Cardano, among others.Cryptocurrencies operate independently of any government monetary authority such as the Federal Reserve, or Central Bank in any individual country.The number of cryptocurrencies in circulation as of 2020 has been estimated at 50 million blockchain users.The total number of bitcoins in circulation as of 2020 has been estimated at 18,748,468.75. The estimated limit value is 21 million bitcoins

2. Landmarks of Historical Payment Systems

3. Evolution of Payment SystemsBarter – Silent (Sub-Saharan, Punt-Kush) and not so silent tradingCoins – 600 BCE, stater (drachma), used in Kingdom of Lydia (pre-Turkey regime)Paper currency – Song dynasty (960-1279 CE) in ChinaDouble entry accounting – Luca Pacioli (1447-1517), in Summa de Arithmetica, Geometria, Proportioni, et Proportionalita (1494).Bank lending and Fractional reserve banking– Knights Templar (1119-1312 CE); Medici Florentine bank (1397 CE). ATM – Barclay’s bank (June 27, 1967).Online banking – Wells Fargo (May 18, 1995)Credit and debit card banking – Diners’ Club (1950); American Express (1958); Square (2009)First bitcoin transaction – Laszio Hanyecz at Papa John’s pizza spent 10,000 BTC for two pizzas (May 22, 2010).

4. How are cryptocurrencies created? Cryptocurrencies are created through “mining”, a process of undertaking a series of mathematical calculations that are registered through a series of autonomous internet nodules that together constitute a blockchain.A blockchain is a digital ledger mechanism designed to insulate a validated cryptocurrency from hacking. Blockchain validation is undertaken continuously by independent computing systems .Blockchain validation of cryptocurrency mining provides a way of currency quantity control independent of any governmental central banking authority

5. Cryptocurrency miningA key to the appeal of a cryptocurrency is the perceived protection against counterfeiting. This is particularly relevant in the context of cryptocurrency mining, which is the basis for expanding the existing stock of the commodity. Readily available online programs for bitcoin mining are available. One of the most popular is the CG Miner Bitcoin Software program. All mining software engage in energy intensive hashing, which is a way of executing a series of code to unlock a bitcoin blockchain to create a new block.

6. Validating cryptocurrency miningAll cryptocurrency mining solutions require proof of work to establish a new bitcoin blockchain

7. Proof of Work as a Decision Tree

8. Successive hash algorithms establish validation

9. Successful mining hashing confers ownership

10. Mining Difficulty Increases as the Quantity Upper Asymptote is Approached

11. Can Bitcoin Serve as Legal Tender?

12. Can a cryptocurrency serve as a currency? A successful currency ultimately must satisfy four criteria:It serves as a medium of exchange – In El Salvador, bitcoin has been declared legal tender, though passing through a dollar exchange rate. Some firms have declared acceptance of bitcoin as payment (e.g., Elon Musk and Tesla), only later to restrict or withdraw endorsement. Bitcoin transactions as a means of payment constitute only a fraction of daily transactions in both the U.S. and foreign economies.It serves as a unit of account – Pricing goods and services in a cryptocurrency such as bitcoin depends on the stability of its value relative to standard currency such as the dollar. Although bitcoin is the most popular cryptocurrency, its acceptability as a unit of account has been severely constrained by its volatility.

13. Bitcoin Price Volatility

14. Can a cryptocurrency serve as a currency?It serves as a standard of deferred payment – Given the role of time-dependent transactions in an economy, the acceptability of a cryptocurrency is determined in part by the extent to which it can fulfil the requirement of satisfaction of a future obligation. As long as the cryptocurrency undergoes price fluctuation, it becomes difficult to rely on it as a means of settling future obligations, e.g., loans, mortgages, futures, and the likeIt serves as a store of value – This appears to be the only function that cryptocurrencies may offer. Its appeal resides in the domain of commodity investments such as gold, platinum, or other precious commodities in which it serves as a hedge against inflation. As with gold, where inflationary spikes appear, investors turn to “safe” investment such as precious commodities, of which cryptocurrencies now form part of the stable of such goods.

15. Bitcoins have promised relative returns

16. Commodity Prices in an Era of Low Inflation

17. Where does this leave Monetary and Fiscal Policy? Some time ago, libertarian economist Friedrich Hayek (1899-1992) argued the dangers of an interventionist economy. His best-known treatise, The Road to Serfdom (1944), argued that postwar Europe would again suffer economic instability and depression as long as government intervention prevailed. His “Austrian” theory of economics went so far as to anticipate the rise of cryptocurrencies. His 1976 book, The Denationalization of Money argued for an end of central banking by creating an autonomous commodity that could serve all the needs of a currency. When first published, it went largely unnoticed by the general public, only to become a matter ofinterest with the launching of bitcoin and other cryptocurrencies. As such, cryptocurrencies can serve as a benchmark against standard central banking currencies. What cryptocurrencies cannot accomplish is a guaranteed level of price stability while expanding economic income and wealth as a whole. The standard equation of exchange serves to illustrate this problem.

18. The Equation of Exchange As a Foundation of Monetary and Fiscal Policy MV = PQ is a basic statement of the equation of exchange. It states that the quantity of money (M) when multiplied by its velocity of circulation (V) is equal to the product of the price level multiplied by the quantity of goods and services produced.An economy’s capacity to produce goods and services (Q) is a function of the stock and quality of inputs: land, labor, capital, and entrepreneurship. Various determinants shape the rate at which these inputs will generate an increase in Q, the economy’s productive capacity.. If the velocity of circulation is relative stable (which is a function of the level of price inflation), then there is a proportional relationship between the stock of money and the level of output in the economy. If M expands at the rate of increase in Q, then there will be a price stable pattern of economic growth. If M expands too slowly, underemployment will result, and conversely, inflation will result.

19. Cryptocurrency and the Sustainable Rate of Economic GrowthIn the case of bitcoin, with each transaction, it becomes increasingly difficult to validate new blockchain levels of currency. It is estimated that with an upper asymptotic value of 21 million bitcoins, no further increase in bitcoins can be accomplished. While this holds appeals to those seeking a safe investment haven, it implies that as the upper asymptotic value is increased, as long as the economy’s productive capacity, Q, is expanding, the economy will face a currency constrained rate of growth, thus resulting in growing underemployment. For this reason, a cryptocurrency is likely to ill serve the needs of economic growth, much as the gold standard once did years ago. The United States abandoned its price pledge to a fixed rate of exchange of dollars to gold in 1971 when it was clear that the U.S. did not hold sufficient quantities of gold to satisfy dollar holders should they choose to redeem their paper money for gold. In the case of a cryptocurrency, no such treasury obligation exists, but the risk of depression constrained money stocks would lead inevitably to an inexorable rise in the value of bitcoins, which translates on the opposite side of the equation of exchange as an unsustainable level of price increases as long as the quantity of cryptocurrency does not expand in proportion to the economy’s productive capacity.. Monetary and fiscal policy thus are likely to be executed under the auspices of central banks and sovereign political institutions.