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The Bitcoin Mining Council: Centralization in the Crypto-world?

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The tremors in the Bitcoin market are all the ears since the market crash. The famed cryptocurrency staggered from the April highs to almost half of its over Trillion-Dollar valuation in mere weeks as the halving event was followed by a ban levied on Bitcoin Mining by the People’s Republic of China. However, the series of unfortunate events draped a rather peculiar facet. The reaction of Mr. Elon Musk regarding Bitcoin. Earlier this month, the Tesla CEO pulled the cord from his unwavering support to the digital currency, citing environmental concerns and the inimical Mining procedures making up the mechanism of Bitcoin. However, the bizarre part of the whole scenario made news when a council was announced out of the blue that drove netizens into a storm of criticism and confusion.

The Mining process is an integral part of the ‘Proof of Work (PoW) framework embedded in the Bitcoin Protocol introduced in 2009. The process involves trusted users, also known as ‘Miners’, using copious amounts of electricity to compute complex mathematical problems, known as the ‘Hash Functions’, to authenticate each additional block of transaction data added to the initial ledger/blockchain. Simply put, the more computational power Miners utilize, the more blocks of transactions they could authenticate and, as a reward, the more Bitcoins they could mine. The process, however, by its very nature involves high energy usage to keep fraudulent transactions at bay as to corrupt a digital ledger, the fraudster would have to accumulate enormous computing power. Such a level of computation would require expensive resources that would simply render the fraud futile. Thus, the PoW protocol retains the authenticity of Bitcoin as a shared ledger.

However, Miners in existence continue to use high levels of electricity given the recent expansion and raging popularity of Bitcoin in recent years. This excessive usage sparked a debate between the environmentalists and the Bitcoin aficionados. It is estimated that Bitcoin’s electricity consumption surpasses that of Argentina. Moreover, the Cambridge Bitcoin Electricity Consumption Index (CBECI) reported that Bitcoin’s energy usage, as of 2020, also outnumbered the consumption of the The Netherlands. While the energy usage could be debated in the account of the technological boom that the world faces due to the pandemic, most of the energy used through the Mining process is generated via non-renewable resources like coal and oil which depletes the world resources whilst causing damage to the atmosphere. Recent research reported that China leads the chart of Miners with more than 75% of Bitcoin Mining being traced to the Mainland. That being said, roughly 40% of that exorbitant energy usage is leveraged through electricity mainly generated through coal mining and burning fossil fuels.

The environmental concern irked the SpaceX founder as Tesla suspended their newly introduced payment mechanism; subsiding from accepting Bitcoin as a mode of value for their vehicle purchases. The announcement wreaked havoc in the already ebbing market as billions of dollars were wiped off the market capitalization of the Cryptocurrency market in a matter of days. However, Musk still displayed hope in Bitcoin. He recently tweeted: “Spoke with North American Bitcoin Miners. They committed to publish current and planned renewable usage”. While the comments were possibly aimed to assuage the bearish sentiment lurking in the market, the following tweets befuddled the Bitcoin connoisseurs. Michael Saylor, the CEO of MicroStrategy, reiterated the meeting in a rather nuanced style, tweeting: “Yesterday I was pleased to host a meeting between Elon Musk and the leading Bitcoin Miners in North America. The Miners have agreed to form the Bitcoin Mining Council to promote energy usage transparency and accelerate sustainability initiatives worldwide”. Saylor rejoiced the members of the newfound council including reputed Mining firms like Argo, Hire, Galaxy Digital Holdings, Riot Blockchain, and a handful of others.

Within hours, however, the Bitcoin enthusiasts took the internet by storm, questioning the rudiments and merits of a council on a decentralized platform. Many started drawing comparisons to the Organisation of the Petroleum Exporting Countries (OPEC), insinuating a fledgling monopoly in the Bitcoin market. A small-scale Bitcoin miner expressed his dissent, stating: “Its extremely concerning that this group of Bitcoin Miners wandered into this meeting without any sense of self-awareness”. Adding more about his fears of a growing centricity, he stated: “Do they not recall the last time there was a closed-door meeting that involved industry stakeholders who attempted to speak on behalf of an entire industry? How did they think this would turn out?”. Moreover, the concerns revolving around the fungibility of Bitcoin were exacerbated by the council formation as Miners feared a disparity of value between a Clean Bitcoin (a Bitcoin mined using renewable energy) and a Dirty Bitcoin (a Bitcoin mined using non-renewable energy). The concerns were long present since the environmental shift allows US citizens an advantage of Mining Bitcoin through means of wind energy whilst Miners in countries like China and Russia would continue to resort to coal-driven energy production.

While the internet bustled with criticism and analysis, the fellow Miners of the newly formed council quickly came out in defense of their stance. Peter Wall, the CEO of Argo Blockchain, stated: “We’re not talking about Bitcoin code or block size or anything related to changing the nature of Bitcoin. We all love Bitcoin the way it is, as a decentralized, permissionless system”. This statement was aimed to placate the concerns lacing around the possibility of threat of a collusion and an end to the ideal ‘Leaderless Model’ of Bitcoin. Wall further added: “Discussions with the group so far have been very clear that 1 BTC = 1 BTC, and that the fungibility and essential properties of Bitcoin shouldn’t be changed”. While the comments did provide some level of comfort and relief to the low-end Miners, the question remains regarding the role and tools of the Bitcoin Mining Council since, without an authoritative position or a penalty to discourage the adverse usage of energy, the Council would be nothing but an entity of no value since despite their collective Bitcoin holdings worth billions of dollars, the mechanism would render the council powerless when it comes to regulating the Mining process in a decentralized medium.

The statements, however, did pump up the stumbling Bitcoin as it climbed from USD 34700.36 on May 24th to USD 38,994.09 on May 25th; a recovery of more than 12%. However, the market still reels with a negative sentiment. With looming ESG concerns and economies closing doors on Bitcoin, the newly formed council faces a series of dilemmas: How could an expanding group of small-scale Miners join hands with the industry veterans? How would the power and decision-making fall into equitable brackets? Especially in an industry that by design is leaderless.

The author is an active current affairs writer primarily analyzing the global affairs and their political, economic and social consequences. He also holds a Bachelor’s degree from Institute of Business Administration (IBA) Karachi, Pakistan.

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Economy

Economy Contradicts Democracy: Russian Markets Boom Amid Political Sabotage

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The political game plan laid by the Russian premier Vladimir Putin has proven effective for the past two decades. Apart from the systemic opposition, the core critics of the Kremlin are absent from the ballot. And while a competitive pretense is skilfully maintained, frontrunners like Alexei Navalny have either been incarcerated, exiled, or pushed against the metaphorical wall. All in all, United Russia is ahead in the parliamentary polls and almost certain to gain a veto-proof majority in State Duma – the Russian parliament. Surprisingly, however, the Russian economy seems unperturbed by the active political manipulation of the Kremlin. On the contrary, the Russian markets have already established their dominance in the developing world as Putin is all set to hold his reign indefinitely.

The Russian economy is forecasted to grow by 3.9% in 2021. The pandemic seems like a pained tale of history as the markets have strongly rebounded from the slump of 2020. The rising commodity prices – despite worrisome – have edged the productivity of the Russian raw material giants. The gains in ruble have gradually inched higher since January, while the current account surplus has grown by 3.9%. Clearly, the manufacturing mechanism of Moscow has turned more robust. Primarily because the industrial sector has felt little to no jitters of both domestic and international defiance. The aftermath of the arrest of Alexei Navalny wrapped up dramatically while the international community couldn’t muster any resistance beyond a handful of sanctions. The Putin regime managed to harness criticism and allegations while deftly sketching a blueprint to extend its dominance.

The ideal ‘No Uncertainty’ situation has worked wonders for the Russian Bourse and the bond market. The benchmark MOEX index (Moscow Exchange) has rallied by 23% in 2021 – the strongest performance in the emerging markets. Moreover, the fixed income premiums have dropped to record lows; Russian treasury bonds offering the best price-to-earning ratio in the emerging markets. The main reason behind such a bustling market response could be narrowed down to one factor: growing investor confidence.

According to Bloomberg’s data, the Russian Foreign Exchange reserves are at their record high of $621 billion. And while the government bonds’ returns hover at a mere 1.48%, the foreign ownership of treasury bonds has inflated above 20% for the second time this year. The investors are confident that a significant political shuffle is not on cards as Putin maintains a tight hold over Kremlin. Furthermore, investors do not perceive the United States as an active deterrent to Russia – at least in the near term. The notion was further exacerbated when the Biden administration unilaterally dropped sanctions from the Nord Stream 2 pipeline project. And while Europe and the US remain sympathetic with the Kremlin critics, large economies like Germany have clarified their economic position by striking lucrative deals amid political pressure. It is apparent that while Europe is conflicted after Brexit, even the US faces much more pressing issues in the guise of China and Afghanistan. Thus, no active international defiance has all but bolstered the Kremlin in its drive to gain foreign investments.

Another factor at work is the overly hawkish Russian Central Bank (RCB). To tame inflation – currency raging at an annual rate of 6.7% – the RCB hiked its policy rate to 6.75% from the all-time low of 4.25%. The RCB has raised its policy rate by a cumulative 250 basis points in four consecutive hikes since January which has all but attracted the investors to jump on the bandwagon. However, inflation is proving to be sturdy in the face of intermittent rate hikes. And while Russian productivity is enjoying a smooth run, failure of monetary policy tools could just as easily backfire.

While political dissent or international sanctions remain futile, inflation is the prime enemy which could detract the Russian economy. For years Russia has faced a sharp decline in living standards, and despite commendable fiscal management of the Kremlin, such a steep rise in prices is an omen of a financial crisis. Moreover, the unemployment rates have dropped to record low levels. However, the labor shortage is emerging as another facet that could plausibly ignite the wage-price spiral. Further exacerbating the threat of inflation are the $9.6 billion pre-election giveaways orchestrated by President Putin to garner more support for his United Russia party. Such a tremendous demand pressure could presumably neutralize the aggressive tightening of the monetary policy by the RCB. Thus, while President Putin sure is on a definitive path of immortality on the throne of the Kremlin, surging inflation could mark a return of uncertainty, chip away investors’ confidence: eventually putting a brake on the economic streak.

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Economy

Synchronicity in Economic Policy amid the Pandemic

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business-economy

Synchronicity is an ever present reality for those who have eyes to see.Carl Jung

The Covid pandemic has elicited a number of deficiencies in the current global governance framework, most notably its weaknesses in mustering a coordinated response to the global economic downturn. A global economy is not fully “global” if it is devoid of the capability to conduct coordinated and effective responses to a global economic crisis. What may be needed is a more flexible governance structure in the world economy that is capable of exhibiting greater synchronicity in economic policies across countries and regions. Such a governance structure should accord greater weight to regional integration arrangements and their development institutions at the level of key G20 decisions concerning international economic policy coordination.

The need for greater synchronicity in the global economy arises across several trajectories:

· Greater synchronicity in the anti-crisis response across countries and regions – according to the IMF it is a coordinated response that renders economic stimulus more efficacious in countering the global downturn

· Synchronicity in the withdrawal of stimulus across the largest economies – absent such coordination the timing of policy normalization could be postponed with negative implications for macroeconomic stability

· Greater synchronicity in opening borders, lifting lockdowns and other policy measures related to responding to the pandemic: such synchronicity provides more scope for cross-country and cross-regional value-added chains to boost production

· Greater synchronicity in ensuring a recovery in migration and the movement of people across borders.

Of course such greater synchronicity in economic policy should not undermine the autonomy of national economic policy – it is rather about the capability of national and regional economies to exhibit greater coordination during downturns rather than a progression towards a uniform pattern of economic policy across countries. Synchronicity is not only about policy coordination per se, but also about creating the infrastructure that facilitates such joint actions. This includes the conclusion of digital accords/agreements that raise significantly the potential for economic policy coordination. Another area is the development of physical infrastructure, most notably in the transportation sphere. Such measures serve to improve regional and inter-regional connectivity and provide a firmer foundation for regional economic integration.

The paradox in which the world economy finds itself is that even as the current crisis is leading to fragmentation and isolationism there is a greater need for more policy coordination and synchronicity to overcome the economic downturn. This need for synchronicity may well increase in the future given the widening array of global risks such as risks to cyber-security as well as energy security and climate change. There is also the risk of the depletion of reserves to counter the Covid crisis that has been accompanied by a rise in debt levels across developed and developing economies. Also, the speed of the propagation of crisis impulses (that effectively increases with technological advances and globalization) is not matched by the capability of economic policy coordination and efficiency of anti-crisis policies.

There may be several modes of advancing greater synchronicity across borders in international relations. One possible option is a major superpower using its clout in a largely unipolar setting to facilitate greater policy coordination. Another possibility is for such coordination to be supported by global international institutions such as the UN, the WTO, Bretton Woods institutions, etc. Other options include coordination across the multiplicity of all countries of the global economy as well as across regional integration arrangements and institutions.

Attaining greater synchronicity across countries will necessitate changes in the global governance framework, which currently is characterized by weak multilateral institutions at the top level and a fragmented framework of governance at the level of countries. What may be needed is a greater scope accorded to regional integration arrangements that may facilitate greater coordination of synchronicity at the regional level as well as across regions. The advantage of providing greater weight to the regional institutions in dealing with global economic downturns emanates from their greater efficiency in coordinating an anti-crisis response at the regional level via investment/infrastructure projects as well as macroeconomic policy coordination. Regional development institutions also have a comparative advantage in leveraging regional interdependencies to promote economic recovery.

In conclusion, the global economy has arguably become more fragmented as a result of the Covid pandemic. The multiplicity of country models of dealing with the pandemic, the “vaccine competition”, the breaking up of global value chains and their nationalization and regionalization all point in the direction of greater localization and self-sufficiency. At the same time there is a need from greater synchronicity across countries particularly in the context of the current pandemic crisis. Regional integration arrangements and institutions could serve to facilitate such coordination in economic policy within and across the major regions of the world economy.

From our partner RIAC

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Economy

A New Strategy for Ukraine

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Authors: Anna Bjerde and Novoye Vremia

Four years ago, the World Bank prepared a multi-year strategy to support Ukraine’s development goals. This was a period of recovery from the economic crisis of 2014-2015, when GDP declined by a cumulative 16 percentage points, the banking sector collapsed, and poverty and other measures of insecurity spiked. Indeed, we noted at the time that Ukraine was at a turning point.

Four years later, despite daunting internal and external challenges, including an ongoing pandemic, Ukraine is a stronger country. It has proved more resilient to unpredictable challenges and is better positioned to achieve its long-term development vision. This increased capacity is first and foremost the result of the determination of the Ukrainian people.

The World Bank is proud to have joined the international community in supporting Ukraine during this period. I am here in Kyiv this week to launch a new program of assistance. In doing this, we look back to what worked and how to apply those lessons going forward. In Ukraine—as in many countries—the chief lesson is that development assistance is most effective when it supports policies and projects which the government and citizens really want.

This doesn’t mean only easy or even non-controversial measures; rather, it means we engage closely with government authorities, business, local leaders, and civil society to understand where policy reforms may be most effective in removing obstacles to growth and human development and where specific projects can be most successful in delivering social services, particularly to the poorest.

Looking back over the past four years in Ukraine, a few examples stand out. First, agricultural land reform. For the past two decades, Ukraine was one of the few countries in the world where farmers were not free to sell their land.

The prohibition on allowing farmers to leverage their most valuable asset contributed to underinvestment in one of Ukraine’s most important sources of growth, hurt individual landowners, led to high levels of rural unemployment and poverty, and undermined the country’s long-term competitiveness.

The determination by the President and the actions by the government to open the market on July 1 required courage. This was not an easy decision. Powerful and well-connected interests benefited from the status quo; but it was the right one for Ukrainian citizens.

A second area where we have been closely involved is governance, both with respect to public institutions and the rule of law, as well as the corporate governance of state-owned banks and enterprises. Poll after poll in Ukraine going back more than a decade revealed that strengthening public institutions and creating a level playing field for business was a top priority.

World Bank technical assistance and policy financing have supported measures to restore liability for illicit enrichment of public officials, to strengthen existing anticorruption agencies such as NABU and NACP, and to create new institutions, including the independent High-Anticorruption Court.

We are also working with government to ensure the integrity of state-owned enterprises. Our support to the government’s unbundling of Naftogaz is a good example; assistance in establishing supervisory boards in state-owned banks is another. We hope our early dialogue on modernizing the operations of Ukrzaliznytsia will be equally beneficial.

As we begin preparation of a new strategy, the issues which have guided our ongoing work—strengthening markets, stabilizing Ukraine’s fiscal and financial accounts; and providing inclusive social services more efficiently—remain as pressing today as they were in 2017. Indeed, the progress which has been achieved needs to continue to be supported as they frequently come under assault from powerful interests.

At the same time, recent years have highlighted emerging challenges where we hope to deepen and expand our engagement. First, COVID-19 has underscored the importance of our long partnership in health reform and strengthening social protection programs.

The changes to the provision of health care in Ukraine over recent years has helped mitigate the effects of COVID-19 and will continue to make Ukrainians healthier. Government efforts to better target social spending to the poor has also made a difference. We look forward to continuing our support in both areas, including over the near term through further support to purchase COVID-19 vaccines.

Looking ahead, the challenge confronting us all is climate change. Here again, our dialogue with the government has positioned us to help, including to achieve Ukraine’s ambitious commitment to reduce carbon emissions. During President Zelenskyy’s visit to Washington in early September we discussed operations to strengthen the electricity sector; a program to transition from coal power to renewables; municipal energy efficiency investments; and how to tap into Ukraine’s unique capacity to produce and store hydrogen energy. This is a bold agenda, but one that can be realized.

I have been gratified by my visit to Kyiv to see first-hand what has been achieved in recent years. I look forward to our partnership with Ukraine to help realize this courageous vision of the future.

Originally published in Ukrainian language in Novoye Vremia, via World Bank

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