Based in Nairobi - Research economist at FSD Kenya. Audiobooks & coffee enthusiast. Nature lover, views of course my own.
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How bitcoin was brought down by its own potential—and the banks

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Wouldn't it be so much easier if they just looked like this?

The best that can be said about bitcoin Bitcoin right now is that it still exists.

Split by internal divisions while its most useful aspects are harvested by the very financial behemoths it once hoped to destroy, bitcoin Bitcoin is fast becoming the tech world’s version of Waiting for Godot, wherein a hermetically sealed community squabbles and bickers over arcane points of code and law as their world slowly crumbles around them. In the last 12 months, attempts made to produce a road map for the cryptocurrency’s future have come to naught, all while core developers abandon the project and opaque Chinese mining concerns wield outlandish power.

Welcome to today’s bitcoin—a Bitcoin—a phenomenon so internally focused that its advocates have barely noticed the battle has already been lost.

Back at its inception, the conversation around the currency was driven by an almost unconscionable optimism. This wasn’t simply a mechanism for the easy transfer of capital: This was a tool by which the entire international financial system could be made anew, with corrupt central banks, inflationary currencies, and immoral stockbrokers consigned to the dustbin of history. In a world still reeling from the chaos of the global financial crisis, bitcoin Bitcoin seemed less like a currency and more like a way of future-proofing the global economy from ever having to deal with something so awful again.

The bitcoin Bitcoin boom of late 2013 brought greater mainstream attention to the cryptocurrency. Bitcoin’s value surged from $200 to $1,200 over the space of a few weeks, temporarily rendering it more valuable than gold. This was to be a short-lived state of affairs, however, as a string of scandals, hacks, exchange collapses, and—dare I say it—common sense brought the price of bitcoin Bitcoin plummeting back to Earth. Cue three years of stagnation and false promise, as bitcoin Bitcoin has struggled to prove its use for, well … anything, really. Even after all this time, bitcoin Bitcoin is still an economy driven almost entirely by potential—by the dream that, one day soon, bitcoin Bitcoin will become the lingua franca of the global economic order.

But bitcoin’s Bitcoin’s spike and crash did have one unintended effect: It shone a bright light on a delicate, still-evolving financial ecosystem and shouted to the world, “There’s gold in them thar hills!” While the currency itself struggled to rediscover the magic of that first almighty explosion in 2013, the circling sharks of international finance spotted opportunity. Soon bitcoin Bitcoin seemed primarily valuable for its blockchain, the distributed, unalterable public ledger that allows it to operate without trusted intermediaries. If bitcoin Bitcoin is the power grid, blockchain is the electricity giving it life. But electricity doesn’t need to be bound to a particular power grid—you can find ways to create your own.

At least in the early days, the shift seemed largely semantic; a question of emphasis. But as time wore on, the discussion surrounding bitcoin Bitcoin increasingly became focused on how banks, governments, and financial systems could create or use their own blockchains, of which bitcoin Bitcoin would be, at best, an incidental part.

The revolution heralded by bitcoin Bitcoin now looks more likely to be transactional rather than transformational.Soon, Nasdaq, the world’s second-largest stock exchange, had declared 2015 to be the “year of the blockchain.” They even created their very own blockchain-enabled trading platform, Nasdaq Linq. The momentum has continued to build: A company called R3CEV is working with a consortium of 45 of the world’s most powerful banks and investment firms to create a modified blockchain that would allow companies to pick and choose what information they actually decentralize and what they keep held tight. Meanwhile, the Linux Foundation has joined forces with a who’s-who of the tech and business worlds to create the Hyperledger Project, an open-source attempt to find new use cases for blockchain technology. Goldman Sachs has even patented its very own cryptocurrency, SETLcoin, to permit the instantaneous execution of trades on the stock market.

One thing that links all of these projects? None of them use the word bitcoin. Bitcoin.

For these financial behemoths, the appeal of the blockchain is obvious. Companies spend an inordinate amount of money on the intermediaries that facilitate the flow of capital between markets. Blockchain technology offers the possibility of those issues being delegated to a few lines of immutable computer code that, by their very nature, guarantee the legitimacy of the transaction. Vast swathes of complex transnational banking and investment apparatus could be rendered obsolete in a few comparatively minor technological adjustments.

Bitcoin may be the platform on which this coming blockchain boom operates, or it may not. I imagine this will depend on some purely economic calculations being done by unfathomably vast and powerful financial institutions. In comparison to the almost $5 trillion traded on the international currency markets each and every day, bitcoin’s Bitcoin’s $10 billion market cap is next best thing to a rounding error. It could vanish entirely and only a small cadre of true believers (and high-end drug dealers) would even mark its passing.

What does seem certain is that the revolution heralded by bitcoin Bitcoin now looks more likely to be transactional rather than transformational. Don’t get me wrong: I think bitcoin Bitcoin is a fundamentally useful thing. Its myriad advantages over fiat currency would seem to demand its widespread adoption. But at a basic level, bitcoin Bitcoin is trying to disrupt money. As it turns out, this may be like trying to refashion water, or the second law of thermodynamics.

And like so many technologically disrupted fields before it, the promise of great change has given way to the reality of great consolidation. Whereas we once dreamed of a flat, universal currency with an equal value for all players, irrespective of size, now we face the reality of an international financial system that’s almost entirely the same—just with a new coat of paint.

Technological innovations of all stripes have long wrestled with a tension between revolution and legitimacy, and bitcoin Bitcoin has perhaps felt the tension more keenly than most. To put the dilemma another way: Is bitcoin Bitcoin trying to replace the international economic order, or work within it? Does it want to destroy Goldman Sachs, or be bought by it? To many within the movement, this is still an active question. But as the shadows lengthen on bitcoin’s Bitcoin’s moment in the sun, it’s increasingly hard to believe in its initial promise of changing money for good.

You can follow Luke on Twitter at @lukeayresryan. We welcome your comments at ideas@qz.com.



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edso
2214 days ago
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"The best that can be said about bitcoin right now is that it still exists."
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Figures of the week: The state of Africa’s economic powerhouses

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M

Mariama Sow

Research Assistant - Africa Growth Initiative

After a trend of high economic growth, the sub-Saharan African region finished 2015 with a GDP growth rate of only 3.4 percent. However, with growth rates above the world average, Africa stands as the second-fastest growing continent, behind Asia. As China continues its slowdown, contributing to lower commodity prices, and amid a weak global financial and political environment, it has been argued that sub-Saharan Africa must look inward for economic growth. For Africa’s largest economies, South Africa and Nigeria, political and economic turmoil has rocked the markets, greatly challenging the growth prospects in Africa’s largest economies.

GDP Growth Rates

* Update and modification of Figure 2.1. Sub-Saharan Africa must look inward more than ever for economic growth of Foresight Africa 2016.

South Africa regains position as the largest economy in Africa

During the first six months of 2016, the South African rand’s value has remained relatively unchanged, while the Nigerian naira reached an all-time low this month. The start of the naira’s massive devaluation began on June 20, 2016 when the peg to the dollar was lifted, leading to immediate losses of over 40 percent.

Owing to the differences in the currency exchange rates, South Africa’s GDP in U.S. dollars soared over that of Nigeria, and the gap in economy size has widened since June 20, notwithstanding a 6 percent climb by the naira and a slight dip in the rand this past week (Figure 2). In addition, rumors of a potential arrest of South African Finance Minister Pravin Gordhan also threaten the rand.

Scaled Exchange Rates

Although GDP figures are one of the most commonly used measures of an economy’s output, forecasted GDP growth rates and GDP per capita are more important for policymakers, for they have a more tangible effect on returns for investors, unemployment numbers, and the overall wealth of the citizens; albeit these statistics do not accurately portray the state of income inequality or poverty. In fact, South Africa has had lower GDP growth rates than most other sub-Saharan Africa nations, and these rates are projected to remain low (Figure 3). Meanwhile, Ghana, Kenya, and Uganda, among other sub-Saharan Africa countries, are projected to recover from low growth rates, with growth averaging around 6 percent in the next few years. Nigeria’s economy has struggled so far this year and is seeing growth rates under half the level of that in 2014.

Select Sub-Saharan Africa

Remnants of hope as Nigerian economy remains in shambles

An unrelenting series of economic shocks has been striking Nigeria, sending the most populous African nation deeper into distress after a decade of strong growth. The largest hit to the economy, sending Nigeria into a $7 billion budget deficit, has been the steep drop in oil prices. Oil accounts for 70 percent of government revenue and 95 percent of export income. And as oil prices remain low, the militant group known as the Niger Delta Avengers have cost the country 700,000 barrels of oil per day by blowing up pipelines in the Niger Delta region in southern Nigeria. The aforementioned drop in currency value has led to foreign exchange shortages, import barriers, and economic turmoil for local and multinational firms (Nestle Nigeria’s profits dropped 94 percent due to the currency depreciation). These large economic shocks only add to the country’s instability (Table 1).

Economic and Political Statistics

Although the Nigerian economy remains vulnerable, there are reasons to be optimistic about the future. A weak currency may have many negative effects on a country, but the naira value drop is also an opportunity for exporters who have costs in naira and revenue in foreign currencies. Additionally, the Niger Delta Avengers have agreed to dialogue with the federal government accompanying a declared ceasefire, and the Nigerian army claims to have killed the current leader of Boko Haram, Abubakar Shekau, strengthening the basis of a strong economy: political stability and peace.

Tor Syvrud contributed to this post.

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edso
2227 days ago
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The state of Africa's economic powerhouses
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Know your onions

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From SMBC comes this great graph breaking down the differences between Micro and Macro Economics. Just in time for school, Kids!

 

20130919






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edso
2229 days ago
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Know your branches of economics
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Sequoia Capital is betting $13 million on a peer-to-peer insurance startup

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Sequoia Capital, one of the best known venture capital firms in Silicon Valley, has invested in many notable startups—including Apple, Google, PayPal, and, more recently, Stripe and Instagram. Now, the firm is part of a $13 million seed round (alongside Aleph Ventures) in Lemonade, a peer-to-peer startup focused on the traditionally sleepy property insurance industry that launched in April.

Venture capitalists interested in the burgeoning world of fintech are bullish on insurance, mainly because the industry is still so antiquated. For Sequoia Capital, the investment in Lemonade marks one of the largest seed rounds in the firm’s history. Seed rounds are reserved for startups in their earliest stages, typically those still developing their products and services.

“It is very unusual for a company to receive $13 million in an initial round of funding,” said Haim Sadger, a partner at Sequoia Capital, in a statement. “But it is rarer still to find such accomplished founders tackling such a sizable industry with such a compelling solution.”

New York City-based startup was co-founded by CEO Daniel Schrieber and Shai Wininger. Schreiber was previously the president of Powermat, a wireless charging company, and an executive at Sandisk before that. Wininger was a co-founder of Fiverr.com, a marketplace startup that helps users find people to carry out tasks, and has raised $110 million in funding.

Peer-to-peer technology is at the heart of companies like Uber and Airbnb, allowing users to trade goods, services, and even capital. While there are some startups using the peer-to-peer model in insurance, there aren’t many due to the highly regulated and complex nature of the industry, which has scared off entrepreneurs in the past.

Schreiber told Quartz that the company hopes to launch its platform in the first half of 2016. And while he said Lemonade won’t let people buy and sell insurance directly, he didn’t offer specifics on how it would work. Another insurance startup, London-based Guevara, lets car owners pool their insurance premiums into small groups, and if the premiums aren’t paid out by the end of the year, the group gets to use the remaining money to offset costs next year.

Schreiber said there’s a fundamental problem with insurance, because insurers make their money by rejecting claims, which doesn’t benefit the customer, he told Quartz. “You can’t just slap an app on the existing architecture, you have to go back to basics,” starting with the business model.

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edso
2474 days ago
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The fundamental prob with insurance: "insurers make money by rejecting claims"
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Critics says Alain de Botton is a marketer of solipsism, a moron. But does their ire just highlight their own unwillingness to engage the public?

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Critics says Alain de Botton is a marketer of solipsism, a moron. But does their ire just highlight their own unwillingness to engage the public?
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edso
2667 days ago
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Critics says Alain de Botton is a marketer of solipsism, a moron. But does their ire just highlight their own unwillingness to engage the public?
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Should we care about the effects of causes or the causes of effects?

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Your propeller-head stats paper of the day:

The statistical and econometrics literature on causality is more focused on “effects of causes” than on “causes of effects.” That is, in the standard approach it is natural to study the effect of a treatment, but it is not in general possible to define the causes of any particular outcome. This has led some researchers to dismiss the search for causes as “cocktail party chatter” that is outside the realm of science. We argue here that the search for causes can be understood within traditional statistical frameworks as a part of model checking and hypothesis generation. We argue that it can make sense to ask questions about the causes of effects, but the answers to these questions will be in terms of effects of causes.

By two guys who know what they are talking about: Andy Gelman and Guido Imbens.

The post Should we care about the effects of causes or the causes of effects? appeared first on Chris Blattman.

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edso
3246 days ago
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