Adam Chodorow, Arizona State University

Bitcoin enthusiasts have recently been roiled by claims that an Australian named Craig Wright and his deceased partner are the mysterious founders behind the cryptocurrency.

Of course, we’ve been down this path before. The New York Times, Fast Company, The New Yorker and Newsweek have all made similar claims about different people, only to be proved wrong. And last month, Wired – the magazine behind the most recent claim – said there are reasons to believe Wright is actually a hoaxer and not “Satoshi Nakamoto,” as the currency’s creator is known.

Regardless of whether the new claims are correct, it has resurrected a worry that has long plagued bitcoin users. Around one million bitcoins were mined early in the currency’s history and have never been transferred. Were they to be sold en masse, bitcoin’s value could drop precipitously, wiping out a lot of wealth and threatening its status as a reliable alternate currency, independent of banks and governments.

However, the reporting about Wright and the bitcoin businesses and trusts he has established – presumably for tax and secrecy purposes – reveals an even bigger threat to bitcoin users and other supporters of virtual currency: how will such currencies be treated for tax purposes?

This is a question I have been exploring for the last decade, both with regard to virtual currencies designed to be used solely online, such as for World of Warcraft, and those designed for use in the real world, such as bitcoin.

Currency or investment?

Bitcoins are created by a computer algorithm and are initially allocated through a process colloquially referred to as “mining.” Miners collect bitcoins by solving complex mathematical equations used to authenticate transfers and in so doing both bring more of the currency into the world and maintain the system.

Bitcoin users have a public key and a private key associated with the bitcoins they own. To effect a transfer, one must use the private key. However, transfers are recorded on a public “block chain,” which uses the associated public key.

This secure public record-keeping obviates the need for third-party intermediaries, like banks. While the world can see the public key and how many bitcoins are associated with it, the owner of the bitcoin can remain anonymous if he keeps his association with that key secret.

Approximately 15 million bitcoins have been issued to date, and they are currently valued at about US$430 each, for a total of approximately $6.5 billion. The algorithm is designed to generate 21 million bitcoins, and experts anticipate that the last bitcoin will be issued sometime between 2110 and 2140.

Bitcoin is designed to be used as a currency, though some hold it as an investment. The difficulty is that governments have taken a variety of positions on the nature of bitcoin for tax purposes.

For instance, some countries, including those in Europe, have classified bitcoin as a currency for consumption tax purposes, meaning that the various value-added taxes do not apply to bitcoin exchanges, while others, such as Australia, have not. Similarly, the U.K. treats bitcoin as foreign currency for income tax purposes, while the U.S. regards it as property.

Those who “mine” bitcoins will likely be subject to income tax on the value they receive under the theory that they are being compensated for validating bitcoin transactions and maintaining the block chain that records all transfers. But this is true regardless of whether bitcoin is recognized as a currency. In other words, they are not really mining and not subject to the complex rules governing mining operations. Instead, they are being compensated for services.

The difficulty arises when people try to spend their bitcoins, however acquired.

How cash transactions are taxed

Those who spend local currency, such as dollars (U.S. or Australian) or euros, do not report a gain or loss when they do so. For instance, if I buy a hamburger, I don’t have a gain or loss on the currency used, regardless of whether it has changed value relative to other currencies.

As the baseline currency, a dollar is worth a dollar, even though it may fluctuate against other currencies or be affected by inflation.

Foreign currency is different. If I buy a euro for $1 and spend it later, when it is worth $1.10, theoretically I have a $0.10 gain that I should be taxed on. Different countries have different rules, but in the U.S., taxpayers need not pay taxes on such gains if they are under $200 in a given year.

By refusing to classify bitcoin as a currency for income tax purposes (local or otherwise), tax authorities effectively treat bitcoins as any other property, meaning that those who buy items with bitcoins must report any gain on the transaction associated with a change in its value. That is, it is treated like an investment, regardless of how the owner actually uses it.

It is as if they sold their bitcoins for cash and then used that cash to make a purchase. Worse yet, if the bitcoin has gone down in value, taxpayers might not be able to deduct the losses, because they could be considered personal. Thus, anyone using bitcoin as a currency has to keep track of each bitcoin’s cost so that he can accurately calculate gain or loss.

This administrative task, combined with the potential need to pay income taxes, could make bitcoin too difficult to use as an alternate currency.

Wright’s woes

Wright’s tale of woe with the Australia Tax Authority (ATA) (revealed in a transcript made public as part of the effort to prove that he is Satoshi Nakamoto) shows how the decision not to classify bitcoin as a currency creates problems with a tax on goods and services (GST).

Among other things, Wright sought to create an exchange to buy and sell bitcoin. If bitcoin were considered a currency, such exchanges would be exempt from the GST, and the exchange could operate economically. However, if the GST applied to such transactions, as the ATA claimed, the exchange would be forced to purchase $1 of bitcoin for $1.10 (assuming a 10% rate).

In other words, if you use normal currency, it would cost you $1, but if you use bitcoin, it would cost $1.10. Bitcoin becomes a lot less attractive under those conditions.

To avoid this result, Wright and his lawyers established a number of offshore trusts and argued that, for many of the transactions the ATA was investigating, no bitcoin was actually transferred. Instead, the beneficial interests in the trusts, which were not subject to the GST, were transferred. The bitcoin itself was purportedly held offshore, and any transfer of the bitcoin or rights to it were outside the reach of the ATA.

The problem for tax authorities

It’s not clear whether such arguments would actually succeed, but they illustrate a real problem that intangible assets raise for both consumption and income taxes, especially for countries that use a territorial tax system (that is, one that doesn’t tax foreign income).

If assets are considered to be outside a given country, they will not be subject to that country’s GST or equivalent tax. Moreover, if the asset can be “wrapped” in a trust or other entity whose ownership interests are exempt from the GST, it can potentially escape tax even if it is held locally.

Similarly, if such assets generate income, for instance when they are bought or sold, under a territorial system, that income will be taxed in the country where the sale occurred.

It is not surprising that Wright established at least some of his trusts in known tax havens, such as the Seychelles. Even if his efforts to shield bitcoin from tax through these efforts succeed, they are far too complicated for the average user and will likely further impede bitcoin’s adoption as an alternate currency.

Bitcoin’s challenge

Much of the recent focus has been on whether Wright really created bitcoin and whether he is sitting on a hoard worth close to a half billion dollars, which could potentially destabilize the market.

However, the real threat to bitcoin and other similar products may come from a far more mundane source: the world’s tax authorities. Absent favorable rulings, every bitcoin transaction could generate both income and consumption tax liability, rendering bitcoin impractical as an alternate currency.

Sophisticated tax planning to avoid such outcomes might succeed but would make bitcoin harder to use.

Thus, while bitcoin was developed as a means to free individuals from the need to interact with third parties, including the government, it nonetheless needs governmental cooperation if it is to move from the fringes to the mainstream.

Adam Chodorow, Professor of Law, Arizona State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Thanasis Stengos, University of Guelph

Bitcoin has been on a volatile ride in recent times, its value rising and falling like a kite caught in variable winds.

Its future will likely be as unpredictable as its past given that it’s a currency propped up by risk-takers, a target of lawmakers and tied to nothing more substantial than an algorithm.

But there are certain variables and concurrent conditions that are signals worth watching when considering Bitcoin’s future.

An international research team comprised of me, Theodore Panagiotidis at the University of Macedonia in Greece and Orestis Vravosinos at the Barcelona Graduate School of Economics in Spain recently analyzed a broad spectrum of data representing several years in the life of Bitcoin.

It was our attempt to reach a deeper understanding of what drives the cryptocurrency’s value.

Can you really predict how investors will behave around something with so many layers of complexity — around what is essentially a black box system and the subject of so much hype?

It’s not an easy task. We set out to bring a measure of predictability to the path the cryptocurrency will take.

Online buzz, gold impact Bitcoin

We looked closely at 21 variables that could potentially affect Bitcoin returns. Vital market determinants like gold and oil prices, various currency exchange rates and stock market indexes from around the world were part of the mix.

Government policy-related economic uncertainty, along with the internet search intensity of Bitcoin, were crucial areas of our research.

We took more than 2,500 observations of variables spanning a seven-year period and filtered it through what’s known as a LASSO — a “least absolute shrinkage and selection operator.” It’s an analytical model to determine what the possible predictors, or covariates, might be.

We found that of all the many variables, the amount of online chatter about Bitcoin, along with gold returns, and uncertainty over government policy stand out as possible predictors.

Having said that, Bitcoin is a moving target that appears not to conform to any logical patterns.

In relationship to gold, Bitcoin’s value tends to rise as gold rises. But will that remain consistent if the economy stumbles? In those circumstances, investors seek the safer haven of gold, American dollars and euros, entities they know to have value supported by governments and central banks. The riskier currencies, like the crypto ones, might be abandoned.

Mysterious, alluring

There are many cryptocurrencies in circulation, but Bitcoin has outstripped them all in popularity, mostly because it is cloaked in mystery and because of the media attention surrounding its dramatic value fluxes.

There is a fascination with something that is new, that is technologically created and that’s hard to hack. The idea of having a Bitcoin network that can evade governments is alluring to people.

We found that the general chatter and interest surrounding Bitcoin, positive and negative alike, is a main determinant of its value. We used Google and Wikipedia analytics to measure the hype.

Bitcoin as a means of exchange has been running under the radar of regulation over the entirety of its nine-year lifespan. But we cannot see that scenario continuing for long. And it seems that investors are also mindful of the looming possibility of regulatory oversight since Bitcoin’s value tends to respond negatively when there is speculation about government action.

With Bitcoin and other cryptocurrencies, transactions are conducted free of taxation. We can’t be sure what the nature of those transactions are, but often cryptocurrencies are used to avoid taxes or duties, or to engage in illicit commerce, which makes them even more shadowy, darkly appealing currencies.

Governments will want in on the action

It’s not clear how governments will ultimately respond to this tax-free commerce, but we can be certain that they’ll eventually act. Wherever there are goods and services changing hands and money is being made, government is eager to get a piece of the action.

If cryptocurrencies continue to grow and position themselves as systems that are beyond the influence of banks and the reach of government regulation, we can be sure that governments will enact national laws and take their share of the proceeds.

Many people believe that Bitcoin is going to replace the money we currently use, but we doubt it.

That’s because big government will never allow it. Governments want the tax revenues, and they want control.

Once governments begin to demand access to Bitcoin transaction records, especially those carried out with mainstream businesses, it is likely that regulations will follow. Once that happens, the black box will be opened and Bitcoin’s appeal as an underground tax avoidance scheme will be lost.

Bitcoin’s fate is therefore highly unpredictable and dependent on what governments will do in the future. Once the crytocurrency was taken seriously by gamblers and techies, it became volatile, and that volatility is showing no signs of abating.

What our research has shown is that with something as erratic as Bitcoin, with online chatter its main driving force rather than economic fundamentals, it would be best for investors to fasten their seatbelts and hold on tight.

Thanasis Stengos, Professor of Economics, University of Guelph

This article is republished from The Conversation under a Creative Commons license. Read the original article.

David Glance, The University of Western Australia

Virtual currency Bitcoin is not a subject that ever draws neutral reactions.

Against those who see the radical possibilities of a frictionless payment system designed for the internet, there is a growing resistance to the currencies that threaten existing business models and the perceived traceability of our current currency systems.

Leading the resistance against digital currencies are the banks, with the latest recruit to these ranks, Australian bank NAB, closing accounts of customers whose businesses are engaged in exchanging cryptocurrencies.

An Australian trader operating through LocalBitcoins.com and an another Australian Bitcoin exchange CoinJar have received letters from NAB informing them that:

digital currency providers pose an unacceptable level of risk, both to our business and reputation.

NAB joins banks in China such as the Agricultural Bank of China, that has moved to freeze the accounts of one of China’s larger Bitcoin exchanges, BtcTrade. Likewise, banks in Canada have already largely blocked accounts used for companies trading cryptocurrencies.

Mt Gox the tipping point?

It is easy to point to the recent failure of Bitcoin exchange Mt Gox and the subsequent law suits that have embroiled Japanese bank Mizhuo, as a catalyst for NAB’s move.

But if banks refused to service businesses after one or more of their kind went bust, they would not be left with very many clients. The risk assessed was also not one based on the companies involved, their operations or their clients, it was simply a matter of the business they were in.

Self-interest?

While moves by banks to manage risk is something most customers would welcome, the global financial crisis showed us banks’ views of risk are highly selective and largely determined by the other part of this equation: the rewards. In terms of cryptocurrencies, the rewards to banks at present are very low. This is especially the case for a currency that is designed to largely cut them out of the picture.

Bitcoin and other digital currencies are designed to be exchanged directly between senders and receivers. This means that currently, transaction costs and bank fees can be avoided, so banks’ enthusiasm for supporting this industry or promoting it would be tepid at best.

The real risk to banks is perhaps then not that posed by customers using accounts to enable Bitcoin exchanges, but the threat to their bottom line.

NAB’s own senior currency analyst Emma Lawson has argued Bitcoin has many of the characteristics of regular currency, and that its potential to become a successful payment system it contingent on people’s continued belief in it. Clearly something that banks aren’t yet willing to see happen.

Dirty money

If banks are asked to justify their decisions purely on risk, they are likely to point to Bitcoin’s association with criminal activities. The rhetoric here has recently stepped up with the European police chief claiming we’re just seeing the beginning of Bitcoin’s use by criminal organisations.

Other than the clear use of Bitcoin as the payment system of illegal websites such as Silk Road, the use of cryptocurrencies as a proportion of the total value of money involved in crime is probably tiny. The United Nations Office on Drugs and Crime estimates that in 2009 the total amount of money involved in global criminal activity was US$2.1 trillion. The total market capitilisation of all cryptocurrencies is currently less than US$10 billion.

Cryptocurrencies may appear to be ideally suited to money laundering, but the problem is they eventually have to be exchanged for real currency, which immediately causes problems if you are trying to move large amounts of money. The second issue is the extremely volatile value of such currencies. There is a large risk that money with a certain value ends up being worth a lot less by the time it has been laundered and converted into a currency that can be actually put to some use.

Of the U$2.1 trillion that is involved annually in global criminal activity, most, if not all, will pass through banks at some point, and not surprisingly, will drive revenue for those banks. The idea then that digital currencies pose a larger theoretical threat seems somewhat absurd in comparison to the very real crime involving real currency.

Masterly inactivity

Governments around the world have moved to deal with the lack of regulations on Bitcoin by either banning the currency outright, as in Thailand, or practising “masterly inactivity”, essentially delaying making any moves that might legitimise digital currencies and the industries that would then arise around them.

In this regulatory vacuum, banks have been able to protect themselves against the threat of the bankless payment system that digital currencies represent.

David Glance, Director of Innovation, Faculty of Arts, Director of Centre for Software Practice, The University of Western Australia

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Miranda Stewart, Australian National University and Joel Emery, Australian National University

It’s been about five years since bitcoin emerged online, claiming to be the world’s first digital cryptocurrency. Bitcoin functions as a form of digital cash; really, it is a technology, using cryptography to ensure the validity of transactions and periodically generate new bitcoins. Bitcoin has grown into an industry now worth more than US$6 billion.

Last week, the ATO published long-awaited guidance on the Australian tax treatment of bitcoin, in the form of draft rulings regarding income tax, Goods and Services Tax and Fringe Benefits Tax.

The ATO’s position is that bitcoin is property. So bitcoin’s tax treatment for income tax, GST, and FBT, follows that of a valuable commodity such as gold or shares. Where bitcoins are exchanged for other property or services, this is treated as a barter transaction. Both the supply of bitcoin and the AUD (Australian dollar) value of the property received may be taxable.

Income tax of bitcoin holders and traders

Where a taxpayer holds bitcoin as an investment, capital gains tax (CGT) may apply to gains or losses made on the disposal of the bitcoin. This requires the taxpayer to track the purchase and sale price of bitcoin in Australian dollars.

If the transaction remains under the A$10,000 CGT personal-use threshold, individuals who use bitcoin to purchase goods or services for personal use will not be subject to CGT. Equally, individuals are not required to report or collect GST when using bitcoin to purchase items for personal consumption.

However, businesses will be taxable where bitcoin is received as payment for an ordinary business transaction, as the business must report as income the AUD value of the bitcoin received. Where bitcoin is paid to an employee, it is a property fringe benefit and FBT may apply to its AUD value. And if a business acquires and exchanges bitcoin in the ordinary course of business, the bitcoin is treated as trading stock.

The ATO says bitcoin mining can be a business, depending on the scale and nature of the bitcoin operations. Mining could be treated as generating services income, as miners verify the validity of bitcoin transactions; but if bitcoin is really an intangible commodity, perhaps this is a business of acquiring or producing that commodity itself.

How do we value bitcoin?

The CGT treatment of bitcoin means bitcoins are not fungible. For example, over time, a business or investor acquires three bitcoins for a cost of $100, $500, and $1000 respectively. Later, one bitcoin is valued at $500, and the business wishes to use one bitcoin to pay for a $500 transaction. This could generate very different tax consequences depending on which bitcoin is sold: a taxable gain, a loss, or no net tax. This produces tax planning opportunities, as for other investments such as shares.

Valuing bitcoin is difficult as it has “no intrinsic value” (as noted in an OECD working paper). It is also highly volatile. Determining market value at receipt and disposal of each bitcoin will result in administrative costs.

GST on bitcoin exchanges

GST will apply to a supply of bitcoin by a registered business and it is not treated as an input-taxed financial supply or as money. When bitcoin is used in a transaction with another business, two GST events occur: the supply of the product and the supply of the bitcoin. If cash were used, GST would be charged only on the product.

While a business purchaser is entitled to an input credit for both the bitcoin and product supplies, this approach presents a commercial disincentive for using bitcoin as a means of exchange compared to Australian dollars. It is likely to be more costly and difficult for businesses to reuse bitcoin in business-to-business transactions.

What is the alternative?

The ATO’s approach is broadly consistent with the tax rulings issued to date by many other countries. US IRS guidance issued in March this year acknowledged bitcoin is a “convertible virtual currency” but states that for tax purposes it should be treated as property. Since then, a range of software has been created that helps automatically complete administrative tasks like valuing bitcoin.

But other countries have taken a more flexible view. The UK has avoided giving a blanket tax classification to bitcoin, instead stating tax rules would be applied depending on the facts. HMRC guidance also notes that, given their volatility, bitcoin investments could be considered as gambling gains or losses (and therefore gains may not be taxable – or losses deductible). Most significantly for businesses, the UK takes the view that VAT will not be chargeable on bitcoin mining or on most trading transactions. Uncertainty about VAT and bitcoin in Europe has led Sweden to recently request that the EU Court rule on the VAT status of bitcoin.

The ATO considered whether bitcoin should be treated as a foreign currency or “money” for tax. Some Australian and English courts have taken a functional approach to defining money as a “generally accepted medium and means of exchange, without being legal tender” [Emmett J, Travelex]. However, this is not widely accepted and other courts indicate that money must be issued or authorised by an act of sovereignty.

A fundamental feature of bitcoin and other cryptocurrencies is that they are non-fiat, that is, not established or backed by a government. But what if bitcoin was to gain recognition as a currency by governments in future? This would undermine the ATO approach. California recently legislated to remove impediments for corporations to put bitcoin into circulation although its not legal tender in the US.

Bitcoin in the global digital economy

The ATO rulings do not discuss jurisdiction to tax bitcoin and nor do they address the challenges of secrecy and tax evasion or money laundering potential of bitcoin. These and other issues are raised in a recent OECD report on tax and the digital economy and an OECD working paper.

The question of which country has a right to tax (and ability to enforce tax rules) is increasingly difficult to answer in the digital world. If mining, or trading, bitcoin is a business or service, where does this occur, given that bitcoin operates on a global peer-to-peer network?

It’s possible that countries will treat bitcoin differently for tax and other regulatory purposes. The German Federal Financial Supervisory Authority classifies bitcoin as a financial instrument or “unit of account” that functions as a form of private money, for regulatory purposes. The inability to identify bitcoin owners is a serious problem for regulators, who may treat bitcoin as currency or cash for transaction reporting purposes even though tax authorities view it as property – and that could help tax authorities with enforcement. The tax and regulatory challenges of cryptocurrencies are only just beginning.

Miranda Stewart, Professor and Director of Australian Tax Transfer Policy Institute, Crawford School of Public Policy, Australian National University and Joel Emery, Honours student, law, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

David Koepsell, University at Buffalo

When you begin to delve into the question of what money really is, you must be prepared for some metaphysics. Money, currencies and other such media of exchange differ markedly in their backgrounds and means of operation, and have changed quite recently into forms that are barely understandable.

For centuries, minted coins not only represented the value and trust of banks, their depositors and eventually nation-states, but also were deemed valuable because they were made from precious metals like gold and silver. These metals are difficult to move around in large quantities, and so banknotes were invented as early as the seventh century in China and brought to Europe in the 13th century. Unlike coins, banknotes were not treated as valuable in themselves since they were simply printed on otherwise worthless paper. Rather, they served as a form of promissory note or IOU that could be presented to the banks that issued them in exchange for their face value in precious metal, coins or bullion.

In the 20th century, most central banks and governments stopped backing up their currencies with precious metals, and yet banknotes maintain fluctuating values, with some in high demand as media for exchange both domestically and internationally. Dollars and euros are highly regarded and preferred currencies for international commerce, as well as for stocking private bank accounts.

Now we have bitcoins and other digital currencies that exist entirely in blocks of zeros and ones and are even “mined” by machines running algorithms. And earlier this month, bitcoins and their ilk were officially deemed commodities by the Commodity Futures Trading Commission, which will now regulate them.

So as the greenbacks and quarters in our pockets slowly disappear, replaced by strings of digits stored on our smartphones, and money takes another step away from being tied to anything of value, a philosophical question comes to mind: does money still exist? And if so, what gives it its value?

[youtube https://www.youtube.com/watch?v=s4g1XFU8Gto?wmode=transparent&start=0]

What’s value without value?

Money is a “fungible” item, which means that exchange of any one portion for a portion of equal value is not a “taking” of property. That is, you don’t own a particular US$100 bill. You own the value it represents.

This is how banks have long worked, since when you deposit your money, you are not entitled to receive the same coins or bills back as you deposited. This is also how “fractional reserve” banking began (in which banks do not keep all the curency on deposit “within” the bank, just some fraction of it) and was not regarded somehow as theft. People took their money to a bank, they were given a note of deposit, which entitled them to withdraw the same amount plus some interest, but they were not entitled to the same coins or bills that they deposited.

The money on deposit in a bank is not all physically in the bank (excepting that which is in safety deposit boxes) and has not been really since banking was invented. When you deposit a sum, you no longer own the paper or other medium of exchange used for the deposit, legally. What you own is a debt and obligation by the bank to return the equivalent amount of money with interest.

John Searle has described things like money as “some special sort” of social objects. That is, X (coins, bills, strings of digits) work as Y (money) in context C (an economy, coffee shop, bank, etc). In the case of money, anything can conceivably take on the Y role even without an X (think a barter economy). Where metals, then bills and now bits in computer memory take the role of X, money might well be a “free-standing” Y, meaning it could exist without anything to represent it except the web of intentional states (the debts and obligations) that make more familiar forms of money function. It’s only physical manifestation might be a note in a ledger.

Without precious metal standards backing national currencies, and in the age of digital transactions, money is decreasingly tied to banknotes, just as its ties to metals have faded. Digital ledgers track exchanges and accounts, with digital strings in computer memories representing the trust and value we once attached to more solid things like coins, bills and notes, in more ephemeral digitally encoded, instantly accessible forms attached to cellphones, computers and chip cards.

A brave new world

New types of cryptocurrencies (where cryptography protects its integrity) like bitcoin and others take the concept one step further, distributing the banking to all its users, tying the transactions and ledgers to no particular party but to all users at once. This is similar to mirrored bank servers, but bitcoin is mirrored among all bitcoin owners.

A bitcoin is as ownable as dollars are when they are deposited in a bank. Skipping the stage of physical, fungible currencies, bitcoins exist by virtue of their representations in a ledger in cyberspace. The information encoded in a massively distributed and constantly updated blockchain is incapable of the exclusivity required for owning objects in the traditional sense. But the same is true of the information that tracks most of the money in the world. Money in nearly every denomination exists and flows in a similar state, represented by digital bits.

Bitcoins nonetheless lack some of the institutional guarantees that other types of money has due to nations and their laws.

Trading on trust

Depositors to banks are protected in their debts by states, generally, and through contracts with their banks. State insurance and the contractual guarantee that a bank will pay back what has been put into them mean that there is some force behind our trust in the continued existence of a person’s wealth while digitally stored in a bank’s servers. The blockchain exists on many servers at once, spread across the universe of bitcoin owners.

Without government insurance or contractual guarantees, only mutual trust maintains the value and integrity of the system. What bitcoin owners own is the debt, just as those who own money in banks own debts that are recorded in bits. They do not own the bits that comprise the information representing that debt, nor the information itself, they own the social object – the money – that those bits represent.

Bank ledgers exist. They are tangible, even though digital, and they record the debts owed among parties. While cyberspace is ephemeral, it is still real and physically based. Digital bank ledgers now track money without the necessity for physical transfers of currencies.

Bitcoins too exist as digital records of obligations, physically encoded on servers of those who hold them, propagated and distributed for transparency and security, encrypted for privacy. Bitcoins are as real as money in banks. What’s most fascinating about these new digital cryptocurrencies is how much they reveal about the surreal nature of currencies and wealth in our digitized economy.

If bitcoins are as real as any other money, how real can money be?

David Koepsell, Adjunct Associate Professor, University at Buffalo

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Dejan Glavas, ESCP Business School

One of the hot questions regarding the bitcoin since the first ones were created in January 2009 is its real value. According to Warren Buffett, the most influential investor in the world, the answer to this question would be: not much.

We will try as well to answer to this question using two concepts in economics and finance: minimal (or residual) value and Ponzi schemes. The minimal value approach is a prudent approach. Under this approach we would like to know what value remains when everything goes wrong as in cases of market disruption or economic crisis.

Value as a currency or value as an investment?

Before we try to value a bitcoin we would need to define it as a currency or as an investment. Its use as a means of payment with some merchants can lead us to see the bitcoin as a currency not tied to a country and without central bank.

Bitcoins are usually measured in terms of their exchange rate to the Japanese Yen and US dollar as these two currencies remain the main currencies for which bitcoins are exchanged.

We will now try to value bitcoins as a currency using the minimal-value approach.

All major currencies have a central bank that monitors the exchange rate of their currency respective to other currencies and mostly to the dollar. Contrary to most traded currencies, bitcoin does not have a central bank or an entity monitoring its exchange rate. Therefore, bitcoin exchange rate to the dollar or to the Japanese yen could theoretically go down to zero.

As some academics and practitioners would qualify it bitcoin cannot be considered as a currency but as an investment. In finance, we would measure an investment’s intrinsic value as the sum of future revenues it generates (with a discount to account for time). Bitcoins do not generate any present or future revenues. Therefore, as an investment and using a minimal value approach bitcoins have a zero minimal value.

Is the bitcoin the new gold?

Some assets do not generate revenues, the best known unproductive asset being gold. Bitcoin has frequently been compared to gold given that it cannot be considered as a currency but like an investment that generates no revenues. Using our minimal-value approach, we can assume that gold has a minimal market value due to its industrial use. Indeed, the value as an industrial good of gold would become the minimal value even if it would have no value as a financial investment. Again, bitcoin at this stage does not have any industrial use and could not pretend to such minimal value.

That said, to avoid a totally biased view of the bitcoin, we could argue on one potential value for it as an investment – finance methods see a value in diversification. For asset managers with large investment portfolios, one value of bitcoin could therefore come from the fact that bitcoin is not fully correlated to financial markets.

Or maybe a Ponzi scheme

Then after all we have seen, why do bitcoins have a value on the market? As Warren Buffet puts it, “All you’re counting on is the next person is going to pay you more”. This answer corresponds to the definition of a Ponzi scheme.

A Ponzi scheme can be defined as a dishonest investment scheme where older investors are paid by new entering investors. For the Ponzi scheme to work you need to have a continuous stream of new investors. In this type of system only one manager works at attracting new investors. In the case of bitcoin, the specificity relies on the fact that all owners become bitcoin managers in most cases without knowing it.

Ponzi schemes do not usually give solid grounds for an asset value. Again, assets valued through a Ponzi scheme end up having no value once the Ponzi scheme unravels or collapses. Ponzi schemes usually collapse in times of crisis, when it lacks new entrants or when people try to massively withdraw from it. If the bitcoin system proves to be a Ponzi scheme, the next economic downturn may soon unravel it and bring down bitcoin to its minimal value: not much.

Dejan Glavas, PhD Candidate in Finance, ESCP Business School

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Page jumping, also sometimes referred to as anchor links or jump links, is where you click a link and instantly get moved somewhere further up or down a long page. The Table of Contents below is an example of page jumps.

Table of Contents

1. Why Use Page Jumps?
2. Create a Page Jump
3. Link to your Page Jump
4. Jump Links with No Text
5. Jump to a Target on Another Page or Post
6. Jump Back to Top
7. Page Jumps in a Navigation Menu
8. Page Jumps as Footnotes
9. Classic Editor / HTML Page Jumps

Why Use Page Jumps?

A page jump is a great way to link your visitors from one part of your content to another.

For example, let’s say that you have a list of names at the top of a post. You can link each name to a different spot further down in the post, so visitors can go straight to information about the particular name they are interested in. You can then link readers directly back to the list of names.

 These instructions are for the WordPress Editor, or Block Editor. If you are looking for instructions for the Classic Editor or want to create the jump links using HTML click here.

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↑ Table of Contents ↑

Create a Page Jump

1. Use the Plus Icon to add a new block.
2. Select Heading as the block type, or start typing /heading as a shortcut to the heading block.
3. Enter your heading text.
4. On the right side under Block Settings, click on Advanced.
5. Type a word that will become your link into the HTML Anchor field.

Make sure you have no spaces in your IDs, since that can cause problems in older browsers. Also, be sure to use a different ID for each target that you create.

Remember what you made your anchor / page jump text. You will need it in the next step.

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Link to your Page Jump

1. Type some text, or add an image or button that will become what you want your visitors to click on to go to another section.
2. Highlight the text or image/button, and select the link option from the block’s toolbar.
   
3. Type in the HTML Anchor you created, starting with the pound (#) symbol. For example, if you created an Anchor named create-a-page-jump you would link to #create-a-page-jump.

Now, when visitors click on the link you created, they will go to the header you added the HTML Anchor to when you created a page jump (click here to jump back to that section!)

The jump links will not work when you Preview your site. But you can test them once you Publish the site page.

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Jump Links with No Text

You can also create an empty header and still add an HTML Anchor to it if you do not want to display any text. To do that, add the Heading block and the HTML Anchor in the block settings, but do not type any text for the heading itself. This process is shown in the following GIF:

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Jump to a Target on Another Page or Post

Page jumps don’t have to be used only for jumping within a page. You can use a page jump to link from another page to a specific area on a page.

When you view the live version of the page you created with the page jump, you can click on the link you created, and you’ll see the address of the page in your browser bar is appended with the jump link text.

For example:

• You created a page on your groovy site named Example, and the page address is yourgroovydomain.com/example
• Then, you created a jump link called unique-identifier on that page to content further down
• When you click on the jump link, your page address will change to yourgroovydomain.com/example/#unique-identifier

Now that you have the URL for the target, you can use it to link to that target from any other page or post on your site using the following format https://yourgroovydomain.com/example/#unique-identifier :

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Jump Back to Top

To create a jump link back to the top of the page, you would switch the places where the HTML anchor and link text appear.

For example, at the top of your page you would add a heading with an HTML Anchor, and then lower down on your page, you would create a paragraph or button that is linked to the HTML anchor at the top of the page.

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Page Jumps in a Navigation Menu

You can create a page jump from an item in your navigation menu that jumps to a specific spot on your homepage. This is common for sites that have just one long scrolling homepage. Page jumps make it easier for visitors to view the section of the homepage they want.

The first step is to add your anchor to a Heading block using the same method as described in steps 1 – 5 under Create a Page Jump above. This will be the spot to jump to.

In your menu settings, add a new item using the custom link option. In the URL field, write your anchor with a # symbol in front of it. In the Link Text field, write whatever you would like the menu item to say.

Keep in mind that a page jump like #my-anchor will only work on the one page that anchor is on. If you have more than one page on your site and want to make sure the page jump works on all pages, include your domain before the anchor like yourgroovydomain.com/#my-anchor.

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Page Jumps as Footnotes

See our guide on how to create footnotes using page jumps here.

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Classic Editor / HTML Page Jumps

The following instructions are for the Classic Editor, or if you want to manually create page jumps using HTML code. Click here if you’re using the WordPress/Block Editor.

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Create a Page Jump

The two parts of a page jump are the target text and the link.
When the link is clicked, it will bring your visitors to the place in the page where the target text exists.

The following code would be added in the HTML version of your editor.
Find out which editor you’re using.

The target text is written like this:

<p id="unique-identifier">I am the target text.</p>

The text above which says id="unique-identifier" acts as a label for your target text.

Make sure you have no spaces in your IDs, since that can cause problems in older browsers. Also, be sure to use a different ID for each target that you create.

One way to link to your target is to select some text, and then use the insert/edit link button. In the URL field there, enter the # symbol, followed by the name of the target’s ID like this:

Notice how the #unique-identifier in the link matches the ID of the target text from earlier.

If you wanted to write this link yourself in HTML code, it would look like this:

<a href="https://wordpress.com/support/splitting-content/page-jumps/view-all/#unique-identifier">Click me!</a>

You can repeat this process to create additional page jumps. Just be sure to use a different ID for each target/link pair. IDs can be anything you want, such as "groovy" or "awesome".

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Sending Readers to the Top of the Page

At the beginning of the post or page, use the Text editor to add this above all of the other HTML:

1<div id="top"> </div>

This creates an invisible target at the top of your post or page which has top as its ID. It can be helpful to have an invisible target if you don’t actually want to add visible text to the location of the target.

Alternatively, instead of putting the ID attribute on an empty <div> tag to create an invisible target, you can add the ID to the first element on the page – such as a heading – like this:

<h1 id="top">Page Heading</h1>

You can use the insert/edit link button to link existing text to this target by putting #top in the URL field, or you can write this in the Text editor:

<a href="https://wordpress.com/support/splitting-content/page-jumps/view-all/#top">top</a>

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Jumping to a Target on Another Page or Post

Once you have created an target, you can quickly access the URL which links to that target.

Let’s say that you’ve created an target on a page with this URL:

http://myblog.wordpress.com/example

All you have to do is add the # symbol followed by the target ID to the end of the URL like this:

http://myblog.wordpress.com/example/#unique-identifier

Now that you have the URL for the target, you can use it to link to that target from any other page or post on your site:

Source: https://wordpress.com/support/splitting-content/page-jumps loaded 20.08.2021

Ari Juels, Cornell University and Ittay Eyal, Cornell University

In 2008, short of sending a suitcase full of cash, there was essentially just one way for an individual to send money between, say, the United States and Europe. You had to wire the money through a mainstream financial service, like Western Union or a bank. That meant paying high fees and waiting up to several days for the money to arrive.

A radically new option arose in 2009 with the introduction of bitcoin. Bitcoin makes it possible to transfer value between two individuals anywhere in the world quickly and at minimal cost. It is often called a “cryptocurrency,” as it is purely digital and uses cryptography to protect against counterfeiting. The software that executes this cryptography runs simultaneously on computers around the world. Even if one or more of these computers is misused in an attempt to corrupt the bitcoin network (such as to steal money), the collective action of the others ensures the integrity of the system as a whole. Its distributed nature also enables bitcoin to process transactions without the fees, antiquated networks and (for better or worse) the rules governing intermediaries like banks and wire services.

Bitcoin’s exciting history and social impact have fired imaginations. The aggregate market value of all issued bitcoins today is roughly US$10 billion. The computing devices that maintain its blockchain are geographically dispersed and owned by thousands of different individuals, so the bitcoin network has no single owner or point of control. Even its creator remains a mystery (despite many efforts to unmask her, him or them). Bitcoin’s lack of government regulation made it attractive to black markets and malware writers. Although the core system is well-secured, people who own bitcoins have experienced a litany of heists and fraud.

Even more than the currency itself, though, what has drawn the world’s attention are the unprecedented reliability and security of bitcoin’s underlying transaction system, called a blockchain. Researchers, entrepreneurs, and developers believe that blockchains will solve a stunning array of problems, such as stabilization of financial systems, identification of stateless persons, establishing title to real estate and media, and efficiently managing supply chains.

Understanding the blockchain

Despite its richly varied applications, a blockchain such as bitcoin’s aims to realize a simple goal. Abstractly, it can be viewed as creating a kind of public bulletin board, often called a “distributed ledger.” This ledger is public. Anyone – plebeian or plutocrat, baker or banker – can read it. And anyone can write valid data to it. Specifically, in bitcoin, any owner of money can add a transaction to the ledger that transfers some of her money to someone else. The bitcoin network makes sure that the ledger includes only authorized transactions, meaning those digitally signed by the owners of the money being transferred.

The key feature of blockchains is that new data may be written at any time, but can never be changed or erased. At first glance, this etched-in-stone rule seems a needless design restriction. But it gives rise to a permanent, ever-growing transactional history that creates strong transparency and accountability. For example, the bitcoin blockchain contains a record of every transaction in the system since its birth. This feature makes it possible to prevent account holders from reneging on transactions, even if their identities remain anonymous. Once in the ledger, a transaction is undeniable. The indelible nature of the ledger is much more powerful and general, though, allowing blockchains to support applications well beyond bitcoin.

Consider, for example, the management of title to a piece of land or property. Property registries in many parts of the world today are fragmented, incomplete, poorly maintained, and difficult to access. The legal uncertainty surrounding ownership of property is a major impediment to growth in developing economies. Were property titles authoritatively and publicly recorded on a blockchain, anyone could learn instantly who has title to a piece of property. Even legitimate anonymous ownership – as through a private trust – could be recorded on a blockchain.

Such transparency would help resolve legal ambiguity and shed light on malfeasance. Advocates envision similar benefits in blockchain recording of media rights – such as rights to use images or music – identity documents and shipping manifests. In addition, the decentralized nature of the database provides resilience not just to technical failures, but also to political ones – failed states, corruption and graft.

Smart contracts

Blockchains can be enhanced to support not just transactions, but also pieces of code known as smart contracts. A smart contract is a program that controls assets on the blockchain – anything from cryptocurrency to media rights – in ways that guarantee predictable behavior. A smart contract may be viewed as playing the role of a trusted third party: Whatever task it is programmed to do, it will carry out faithfully.

Suppose for example that a user wishes to auction off a piece of land for which her rights are represented on a blockchain. She could hire an auctioneer, or use an online auction site. But that would require her and her potential customers to trust, without proof, that the auctioneer conducts the auction honestly.

To achieve greater transparency, the user could instead create a smart contract that executes the auction automatically. She would program the smart contract with the ability to deliver the item to be sold and with rules about minimum bids and bidding deadlines. She would also specify what the smart contract is to do at the end of the auction: send the winning bid amount from the winner to the seller’s account and transfer the land title to the winner.

Because the blockchain is publicly visible, anyone with suitable expertise could check that the code in the smart contract implements a fair and valid auction. Auction participants would only need to trust the correctness of the code. They wouldn’t need to rely on an auctioneer to run the auction honestly – and as an added benefit, they also wouldn’t need to pay high auctioneer fees.

Handling confidentiality

Behind this compelling vision lurk many technical challenges. The transparency and accountability of a fully public ledger have many benefits, but are at odds with confidentiality. Suppose the seller mentioned above wanted to conduct a sealed-bid auction or conceal the winning bid amount? How could she do this on a blockchain that everyone can read? Achieving both transparency and confidentiality on blockchains is in fact possible, but requires new techniques under development by researchers.

Another challenge is ensuring that smart contracts correctly reflect user intent. A lawyer, arbiter or court can remedy defects or address unforeseen circumstances in written contracts. Smart contracts, though, are expressly designed as unalterable code. This inflexibility avoids ambiguity and cheating and ensures trustworthy execution, but it can also cause brittleness. An excellent example was the recent theft of around $55 million in cryptocurrency from a smart contract. The thief exploited a software bug, and the smart contract creators couldn’t fix it once the contract was running.

Bitcoin is a proof of concept of the viability of blockchains. As researchers and developers overcome the technical challenges of smart contracts and other blockchain innovations, marveling at money flying across the Atlantic will someday seem quaint.

Ari Juels, Professor of Computer Science, Jacobs Technion-Cornell Institute, Cornell Tech, and Co-Director, Initiative for CryptoCurrencies and Contracts (IC3), Cornell University and Ittay Eyal, Research Associate, Computer Science and Associate Director, Initiative For Cryptocurrencies and Contracts (IC3), Cornell University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Jory Brinkerhoff, University of Richmond

It’s summer, a time to hike, garden, vacation – and to be on the lookout for ticks.

From Lyme disease to lesser-known illnesses like Heartland virus disease, ehrlichiosis and Colorado tick fever, tick-borne disease cases are increasing rapidly in the United States.

In 2017, 59,349 cases were reported to the U.S. Centers for Disease Control and Prevention, an all-time high. Yet, this represents just a fraction of infections because those who don’t exhibit symptoms or fail to seek treatment remain uncounted. A recent report estimated nearly a half-million Lyme disease cases per year in the U.S., with numbers more than doubling from 2004 to 2016.

As a biologist who studies tick-borne disease, I am asked each spring and summer whether it will be a bad year for ticks. The answer: It is never a good year for ticks. There may be relatively few of certain species and many of other types. Different species of ticks live in different environments. Many factors influence numbers, from dwindling biodiversity and ecological change to the changing climate. But every year, the time to be most vigilant is early spring through late fall.

Different species, different patterns

There are at least seven tick species in North America that commonly bite and infect humans and animals with numerous diseases. But there are others, too. Over the past two decades, seven new tick-borne germs have been identified in the U.S., including a newly discovered Lyme disease bacterium found in the Upper Midwest and Bourbon virus, discovered in Bourbon County, Kansas.

Some regions, like where I work in Richmond, Virginia, are home to multiple human-biting species, each with its own suite of pathogens and habitat preferences. Black-legged ticks, which spread Lyme and other diseases, are of greatest concern. They are common in forests across the Eastern U.S.. The bite of an infected American dog tick, which prefer grassy areas, can infect people and dogs with Rocky Mountain spotted fever. Aggressive Lone Star ticks, which can transmit ehrlichiosis and tularemia, thrive in many habitats across the eastern U.S., and can survive hot, dry conditions.

Complex life cycles

These parasitic arthropods are more closely related to mites, spiders and scorpions than to insects. Ticks spend most of their time on the ground in leaf litter or vegetation, undergoing a four-stage metamorphosis.

Eggs hatch into six-legged larvae and attach to a host. Then they drop off and molt into eight-legged nymphs, find a host and grow into reproductive adults. Much of their lives are spent waiting, inactive, for warmer or more humid weather to continue development, or on the hunt for their next meal.

Mortality is high. If just 10% of ticks survived each life stage, it would take 2,000 eggs to produce a pair of reproductive adults. Small changes in survival can affect populations for years.

Most of the hard-bodied, blood-feeding ticks that carry disease take only three bloodmeals during their entire two- to three-year life cycle – meals that allow them to molt into the next stage, or to lay eggs.

They feed on mammals, birds, reptiles and amphibians. Most ticks prefer a different host at each stage of their life, finding it by detecting an animal’s breath or smell, sensing body heat, moisture or vibrations.

The numbers of available hosts may be a key factor in tick abundance, which is sometimes influenced by natural cycles. For example, during “mast” years when acorns are plentiful, white-footed mice populations grow along with black-legged ticks that feed on them, and Lyme disease cases also tend to rise.

[youtube https://www.youtube.com/watch?v=Onx5MTm0RSY?wmode=transparent&start=0]

Expanding territory

Predicting tick numbers grows harder as many species expand their ranges. Altered ecosystems play a substantial role. Lyme disease became epidemic when mice that carry the bacterium proliferated and deer were reintroduced for hunting in the 1900s after a steep decline; deer act as hosts for adult black-legged ticks that spread the disease. Migrating birds have also helped disperse ticks along the Atlantic flyway.

Changing climate, with shorter, milder winters, may increase tick survival, creating larger populations. Shorter, warmer winters have allowed some species to move northward. The two Lyme-spreading tick species now live in at least 43 states. Gulf Coast ticks have spread north to Delaware and Illinois, and the Lone Star tick may soon reach Canada.

However, warming trends may have mixed impacts. Ticks need moisture as well as blood to survive; hot, dry weather kills some species, but not others.

The forecast

While researchers have identified why their numbers change over space and time, predicting risk is difficult. But we do know that tick-borne diseases will continue to be a human and veterinary health threat. Ancient ticks once fed on dinosaurs. Scientists discovered fossilized ticks, some 15 million years old, that carried the Borrelia bacteria that causes Lyme disease, showing that it existed long before humans.

From a public health perspective, the most important question about ticks is not whether a given year will be particularly bad in terms of tick numbers, but what can be done to reduce the risk of encountering these parasites to avoid illness.

[The Conversation’s science, health and technology editors pick their favorite stories. Weekly on Wednesdays.]

Jory Brinkerhoff, Associate Professor of Biology, University of Richmond

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Adrian Lee, University of Technology Sydney and KIHoon Hong, Hongik University

Recently the Australian Securities Exchange (ASX) bought a $15 million stake in Digital Asset Holdings, a developer of blockchain technology. One of the main reasons is to upgrade its share registry system by using blockchain or distributed ledger technology.

And it’s been reported that JP Morgan Chase is also partnering with Digital Asset Holdings to trial the technology.

What is blockchain/distributed ledger technology?

Put simply, blockchain technology is a method of recording and confirming transactions where instead of a centralised platform, participants each hold a complete record of transactions through peer to peer verification of transactions. This means there is no central recording system, rather each participant keeps a record of all transactions ever made. This is the same system which allows Bitcoin to operate with no central body.

How would blockchain technology be adopted at the ASX?

Instead of the ASX clearing house settling trades, trades will be settled by participants confirming transactions through the peer to peer network. The network (likely made up of brokers) will record the buyer and selling participants, the number of shares traded, price of shares, time of exchange and the exchange of funds. The ASX will still provide a centralised electronic exchange for participants to place orders, only the settlement or back office function will be sourced to the network.

The benefits?

Blockchain has great potential to cut inefficiencies in the share settlement function. As trades are settled by peer confirmation, there is no need for a clearing house, auditors to verify trades and custodians to ensure a fund has the shares they say they hold. Essentially this is cutting out the middleman in the back office which means less costs in record keeping and in turn less costs to trading on the ASX. Given the high costs in getting a third party to audit, record keep and/or verify trades these costs are substantial.

The peer confirmation of trades also means settlement can be almost instantaneous. Compare this to the current settlement period of three working days (‘T+3’) as the ASX needs to make sure the participants have the money and shares on hand to exchange. This would make shares a far more liquid investment – almost as good as having cash on hand. Higher liquidity means more investment into ASX shares.

As all participants have the full record of transactions and therefore holdings of investors there is complete transparency in the equity market. This makes it almost impossible to falsify transactions or to alter prior transactions. If a false trade occurs, participants will find inconsistencies in their full ledger and reject the trade. For example an investor would be unable to sell stock that they did not own as all participants would know exactly how much stock the investor owns now.

The challenges?

First, implementing a clearing system using blockchain will introduce a new type of fee. In the Bitcoin blockchain, miners process Bitcoin transactions by solving optimisation problems and get rewarded by newly created Bitcoins and settlement fees offered by Bitcoin users who wish to have their transactions processed.

Miners prioritise the order of transactions to be cleared based on the fees offered and the difficulty of the problems to record the transaction in a block. This is what allows a blockchain to have no centralised clearing house.

If the ASX blockchain requires investors to include transaction fees in order for their transactions to be cleared, then the ASX is transferring the cost of maintaining the back office to the investors. If this is to happen, investors will have to compete against each other to have their transactions cleared faster than those of others. Alternatively, if the new system doesn’t allow such fees and relies on brokers or other entities to clear the transactions, then the ASX is again transferring the cost of maintaining back office to those entities.

The second concern is increased transparency. Under the proposed trading system, most of positions of the market participants could be exposed to the public as the trading ID can be identified. This could disadvantage many investors such as super, managed and hedge funds. For example, a super fund typically sells a large position on a gradual basis for a prolonged time period.

In this process, it is critical not to be noticed by other traders who may take advantage of such large-scale sales. With complete transparency such as in blockchain, such a sell-off could not be applied effectively. Potentially this may make investors leave the ASX and seek more opaque venues to trade such as dark pools.

Will it work?

Clearly a direct adoption of blockchain from Bitcoin technology would not be viable for the ASX. If the ASX is able to adopt blockchain technology and address privacy, security and trade transparency concerns then this would yield great cost savings to investors.

Adrian Lee, Senior Lecturer in Finance, University of Technology Sydney and KIHoon Hong, Assistant Professor, Hongik University

This article is republished from The Conversation under a Creative Commons license. Read the original article.