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Articles by J.P. Koning
Crypto’s Privacy/Commingling Dilemma
Print People need financial privacy. (Yes, even regular people!) Alas, blockchains are panopticons. The entire history of one’s bitcoins or ether are indelibly etched on the blockchain for all to see. Mixing is one way to get necessary on-chain privacy. In short, a bunch of people use an automated tool such as Tornado Cash or Wasabi Wallet to combine their crypto together and then withdraw it, obfuscating the trail of each person’s crypto. But mixing is a less-than ideal way to gain privacy.
What Does Kyle Rittenhouse’s Legal Campaign Tell Us about Access to Crowdfunding?
Print Questions about accessibility to the payments system resurfaced last month when Kyle Rittenhouse was acquitted of felony charges for killing two people and wounding a third. A year earlier, in August 2020, crowdfunding website GoFundMe shut down a campaign to raise funds to pay for Rittenhouse’s legal costs. Everyone is entitled to a lawyer. And for most people, a lawyer is a major expense. So why would a crowdfunding website not support someone’s efforts to fund legal protection?
Was Satoshi Nakamoto Right about Bitcoin Payments?
Print On October 31, 2008, Satoshi Nakamoto published a white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Thirteen years have passed. What sorts of payments are being conducted using Nakamoto’s cash system? Has bitcoin met Nakamoto’s expectations? Let’s be clear. In the white paper, Nakamoto plainly meant bitcoin to be used for online payments, not speculation.
Was the OnlyFans Ban a Symptom of Creeping Financial Censorship?
Print Many people were shocked when OnlyFans, a popular website for porn, recently announced that it would ban “explicit conduct.” Less explicit nudity consistent with its acceptable use policy would still be allowed. Why would a porn-dependent company ban a big chunk of its business?
To CBDC or Not to CBDC?
Print Count me as bemused by the idea of issuing a central bank digital currency. The rough idea is to let citizens directly hold electronic currency issued by their central bank—the Federal Reserve in the US, the Bank of Canada in Canada. Citizens could then use the central bank digital currency, or CBDC, to make payments and transfers. Why am I bemused? I’ve listened to all the arguments made for issuing a CBDC in Canada or the US.
The Decentralization Fetish
Print There is a common view among bitcoin advocates, which also prevails to some extent among economists working in the Austrian tradition, that decentralization is always good and more-decentralized solutions are always better. In both forms, this view starts with a reasonable premise. Bitcoin revolutionized payments by enabling digital transactions to take place between strangers without a trusted third party serving as a centralized clearinghouse.
Reining In the Fed
Print A specter is haunting the Federal Reserve: the specter of political activism. It’s no secret that something strange is happening at the Fed. Visitors to the New York Fed’s homepage are greeted, not with a description of the Fed’s important monetary and regulatory mandates, but an affirmation of the Fed’s commitment to economic justice. “We are firm in the belief that economic equality is a critical component for social justice,” the banner reads. Social equity is important.
The Origin of SARS-CoV-2
Print Since March 2020, the world has reeled from the Covid-19 pandemic caused by the SARS-CoV-2 virus. According to Johns Hopkins University & Medicine, there have been 177 million known cases and 3.8 million deaths worldwide. Covid-19 touches much more than just the medical world. It and responses to it have devastated economies around the world. But it also raised issues of free inquiry, truth, and trust. Have people in positions of power lied to us? Have they put us at undue risk?
Fighting Invisible Enemies
Print In a galaxy not so far far away, we used to fight real enemies. Tangible ones, with guns or cannons or bows-and-arrows, who shot back when we invaded their lands or defended our own keeps against their aggressions. In the twenty-first century, many things have changed – most of them, luckily, for the better – but one change is, if not worse, then at least seriously disturbing.
Hyperbitcoinization: By Choice or by Force?
Print On June 5th, El Salvador became the first country in the world to require its citizens to use bitcoin. President Nayib Bukele made the announcement at a major bitcoin event and El Salvador’s Congress ratified Bukele’s Bitcoin Law a few days later. Until now, bitcoin adoption has proceeded in a market-driven manner. Bukele’s announcement marks the first time that government force is being used to speed up bitcoin acceptance.
Fighting Ransomware Doesn’t Require Banning Cryptocurrency
Print Ransomware has seeped into the mainstream consciousness thanks to the recent shutdown of the Colonial Pipeline. Crippled by a ransomware attack, Colonial ended up paying a $4.4 million ransom in bitcoins to free itself from its attackers. In the meantime, the U.S. Eastern Seaboard suffered from gasoline shortages. What is ransomware? It is malicious software that takes control of a computer, say, by encrypting files or threatening to publicly expose data.
Why Do Cryptocurrencies Use So Much Energy?
Print By design, cryptocurrencies such as Dogecoin, Litecoin, and Bitcoin are expensive, energy-intensive products. Because they are expensive, cryptocurrencies shouldn’t be very popular – they should be niche tools for specialists. With only a few users, their overall energy footprint would be tiny. But an odd thing has happened. These expensive products have gone mainstream. Their energy footprint has reached epic proportions, attracting the anger of environmentalists.
Gift Cards: When Good Products Do Bad Things
Print Gift cards are consistently ranked as one of the most popular Christmas presents. But they have also earned a more dubious distinction. According to the Federal Trade Commission (FTC), they have become the favorite way for scammers to extract money from their victims, particularly the elderly. When good products are used for bad things, our gut reaction is to inquire whether something has gone wrong. Who is responsible? Is there a way to fix gift cards?
In Finance, Slow is Good
Print In an age of instant communications, a stock trade takes a leisurely two days to settle. That is, if you buy some shares of Tesla on Monday, your brokerage won’t receive the shares (or pay the cash) until Wednesday. In industry speak, this is called T+2. This seems an achingly long time to settle a transaction.
Algorithmic Stablecoins
Print Ever wonder why PayPal balances are always worth $1? PayPal uses a time-tested recipe for creating a stable representative of the dollar: it makes sure that each PayPal dollar is backed by sufficient assets. But a new breed of financial engineers, so-called algorithmic stablecoin designers, want to do something that’s never been done before. They want to create a stable representative of the dollar, but without any assets to back it. That is, they want to fabricate stability… out of nothing.
A Soviet Dissident Explains American Censorship
Print Many consider Vasily Grossman’s Life and Fate to be the greatest Russian novel of the 20th century. A searing portrait of Stalinist Russia, Life and Fate on its very first page exposes the bitter truth about authoritarianism: “Everything that lives is unique.
Why We Tolerate Fake Check Scams
J.P. Koning American Institute for Economic Research January 6, 2021 The daily news is filled with personal stories about bad experiences with banks. Here’s a recent example. A Toronto man was tricked by a job scammer into accepting a fake check. The man’s bank let him cash the check, only to discover it a few days later. The bank then raided the man’s savings account for the full amount. Read Full Article »
Here’s Why We Tolerate Fake Check Scams
The daily news is filled with personal stories about bad experiences with banks. Here’s a recent example. A Toronto man was tricked by a job scammer into accepting a fake check. The man’s bank let him cash the check, only to discover it a few days later. The bank then raided the man’s savings account for the full amount. Readers will find this story disturbing. Banks are supposed to protect scammed customers, not kick them while they are down.
Pornhub: Victim of Visa and Mastercard Censorship or Money Laundering Risk?
– December 19, 2020 Reading Time: 4 minutes Print Pornhub, the world’s largest aggregator of pornographic videos, has been cut off from accepting credit cards. The company is only accepting cryptocurrency for its premium service at present. It happened quickly.
A Simpler and More Accurate Way to Teach Money to Students
– December 10, 2020 Reading Time: 4 minutes Print When we first learn about money and banking in high school or university, we are all taught that money has three functions: medium of exchange, unit of account, and store of value. Maybe it’s time for educators to throw out this triumvirate. It’s not very accurate. We need a simple and teachable device to take the triumvirate’s place. I propose the money Venn diagram. Before I explain the money Venn diagram, let’s revisit the textbook triumvirate.
FinCEN and Fed Proposal Means Less Privacy, More Exclusion
Print Two government financial regulators, the Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve (“Fed”), have jointly proposed a major change to money laundering rules. Up until now, U.S. regulators have deemed that financial institutions needn’t bother collecting and storing customer information for any fund transfer below $3,000.
Two Types of Postal Banking
Print Should the U.S. Postal Service get into the banking business? U.S. Senators Kirsten Gillibrand (D-N.Y.) and Bernie Sanders believe it should, and have introduced the Postal Banking Act. The idea is that with 8.4 million unbanked American households, banks are doing a bad job of serving low-income people. If the U.S. Postal Service (USPS) began offering banking services, it may be able to reach these people.
The Rise of the Shotgun Banknote Switch
Print Every decade or two, central banks replace their existing issue of banknotes with a new issue. The main reason they do this is to thwart counterfeiters, who by then will have started to get pretty good at duplicating the existing version. Central bankers have usually tried to make the process as convenient as possible for citizens by offering long, drawn-out — sometimes even indefinite — switching periods. Anyone who finds an old note stored away in a cupboard needn’t worry.
Bitcoin Financial Literacy and Crypto-Twitter
A recent Cointelegraph article soul-searchingly asked: “Are we dumb?” Cointelegraph was reacting to a recent Bank of Canada survey showing that, on average, Canadians who own bitcoin have lower financial literacy than Canadians who don’t own bitcoin. The Bank of Canada’s 2020 Cash Alternative survey found that 4% of Canadians with high financial literacy own cryptocurrencies. But 8% of Canadians with low financial literacy own cryptocurrencies.
AMPLs and YAMs aren’t Monies; They are Gambling Technologies
Print If you follow the cryptocurrency universe, you’ve probably seen the big explosion in interest in Ampleforth and the Yam Protocol. Both cryptocurrency projects advertise themselves as a new sort of monetary technology. They aren’t. They’re a new type of betting game. I’ve got no problem with these games, but people should see them for what they are. To understand how Ampleforth works, let’s compare it to bitcoin.
So-Called Stablecoins
Print Stablecoins are an anonymous-ish way of making transactions. But a recent pronouncement from the Financial Action Task Force (FATF) could change that. The global anti-money laundering watchdog seems intent on making stablecoins a little less anonymous in the near future. What is a stablecoin? If you’ve got $10 in your PayPal wallet, then having $10 in a stablecoin wallet lets you do pretty much the same thing.
What Can Be Done to Remedy the Coin Shortage?
Print It is common to hear calls for change in an election year. But such requests are not usually directed at the Mint. Alas, the US is currently experiencing a coin shortage. And many stores are asking customers to use a card or pay with exact change until the shortage is remedied. What is causing the coin shortage?
How to Deal With Counterfeiters
How to Deal With Counterfeiters J.P. Koning American Institute for Economic Research June 25, 2020
Should Those Passing Counterfeits be Treated like Counterfeiters?
Print Law enforcement agencies around the world treat attempts to spend, or “utter,” counterfeit currency as a serious crime–sometimes unreasonably. In Switzerland, an 8-year old boy recently tried to spend pretend euros. The shop notified the police. Mugshots were taken. And, while not charged, the boy will reportedly have a Swiss police record until 2032.
It’s Time for a Taxpayer Debit Card
Print The coronavirus has revealed the U.S. Federal government’s inability to make timely payments to citizens. Most adult Americans were promised a $1,200 relief payment. But millions are still waiting for their paper checks. If the government is going to adopt a policy of providing direct relief to its citizens, the payments should at least be prompt. A $1,200 lifeline is less helpful if it arrives 75 days later. Much of this sluggishness can be blamed on paper checks.
One Country, Two Monetary Systems
Yemen has a dual currency system.
Neg. Rates: A Free-Market Phenom
Neg. Rates: A Free-Market Phenom J.P. Koning American Institute for Economic Research May 20, 2020
Negative Interest Rates: A Free Market Phenomenon
Last week, Federal Reserve Chair Jerome Powell poured cold water on negative interest rates. They are “not something we’re looking at,” he said. Just a few hours before, and on the opposite side of the world, New Zealand’s central bank was warming up to them. Negative interest rates “will become an option in future” and discussions with New Zealand banks about “preparing for a negative OCR” are ongoing. Which of these two contrasting views on negative interest rates is right?
Why Relief Payments Are So Slow to Arrive
Home >> Sound Money Project >> Central Banking Print The Federal government has started sending relief funds to Americans. But, according to the New York Times editorial board, it is not doing so quickly enough. “The government has made matters worse by dawdling,” it writes. The editorial board is right. Americans have been promised $1,200 in relief funds. But it took almost a week for the first direct deposits to arrive in people’s bank accounts.
Burner Cards and Financial Privacy
Home >> Sound Money Project >> Technology Print Our ability to make private payments is already quite limited. I sometimes wonder if the wiggle room we currently have will have shrunken or expanded ten years from now. Economist Charles Kahn, is optimistic about the future of financial privacy. “…the demand for privacy, like the demand for other aspects of payments services, is multifaceted,” he writes.
Commercial Habits and Pandemics
Home >> Sound Money Project >> Crisis Print Going out to buy groceries this morning was an eye-opening experience. The coronavirus pandemic is forcing us to rapidly evolve new habits for trading with each other. My grocery store has adopted a policy that requires all customers to disinfect their hands at the entrance. Bright orange lines have been painted on the floor indicating proper distancing for the lineup.
Why Aren’t Anti-Money-Laundering Regulations Adjusted for Inflation?
Print Banks and other financial institutions are required by law to implement measures for catching money launderers. Over the decades, these obligations have been getting more onerous due to new rules and the tightening of existing rules. They have also become more onerous because of inflation. Anti-money-laundering (AML) rules set a number of fixed-dollar trigger points. The most well-known of these is the $10,000 threshold for filing a currency transaction report.
Financial Services and Hate Speech
Home >> Sound Money Project >> Free Banking, Technology Print Photo Illustration by Elizabeth Brockway/The Daily Beast Should everyone be granted access to the payments system, as long as they are engaged in legal activity? Or should payments providers be able to bar certain businesses and individuals that engage in activities that are legal but controversial and potentially risky to the provider’s brand? This isn’t just a theoretical debate.
PayPal, Pornhub, and Financial Inclusion
We live in a world inundated with, and crafted in turn, by data. It’s gathered (or created), used, stored, and often used again, alone or in conjunction with other data elements as inputs into simple decisions and exceptionally complex models. We accept it as is. What else can we do? And yet, quantitative undertakings, despite their nominal exactness, carry all of the same failings of the individuals and organizations that create, gather, and employ them.
Cash Is King in COVID-19
Home >> Sound Money Project >> Cash Print Worries about the coronavirus and the government’s response are having dramatic impacts on our financial decisions. One of the instruments that people are turning to is the good ol’ fashioned banknote. Over the last two weeks, the supply of Federal Reserve banknotes has increased by around $70 billion to $1.876 trillion, a week-to-week increase of 1.75%.
Does Libra Threaten Monetary Sovereignty?
Last week, France's Minister of the Economy Bruno Le Maire declared that "we cannot authorize the development of Libra on European soil." Several months earlier, Maxine Waters, chairwoman of the U.S. House Financial Services Committee, asked for a "moratorium on any movement forward on Libra.” If you didn't know what Libra was, you might be forgiven for guessing that it is some sort of dangerous super-missile or highly volatile chemical agent. What is this dangerous device?
Don't Say Unbanked,Say Differently Banked: Walmart and Finance
J.P. Koning, American Institute for Economic Research September 19, 2019 Prepaid debit cards issued by retailers like Walmart, the federal government, and banks like Green Dot and Comerica are providing unbanked Americans with a different but fully functional and cost-effective connection to the national payments system. Read Full Article » Show comments Hide Comments
Who Should Provide Central Bank Digital Currency?
Should central banks issue their own version of digital cash? Historically, central banks have limited their interactions with the public to the provision of paper money. By introducing central bank digital currency, or CBDC, central banks would also be supplying us with electronic money. CBDC might be in the form of an account that people can keep at the central bank, or maybe some sort of blockchain token that the central bank issues to the public.
To Save Cash from Extinction, Consider Banknote Lotteries
A few years back, Brett Scott wrote a classic anthem to “grungy and unsexy” cash: As unsexy an analogue as cash is, it is resilient. It is easy to use. It requires little fancy infrastructure. It is not subject to arbitrary algorithmic glitches from incompetent programmers. And, yes, it leaves no data trail that will be used to project the aspirations and neuroses of faceless technocrats and business analysts into my daily existence. I agree.
In Praise of the $1 Bill
Coinage is a topic that touches all our lives. Some of us use coins every day, others just a few times a month. Even if some of us have gone digital and never pay or receive coins, we probably have a few pennies or nickels tucked away in a box somewhere. Last month the Government Accountability Office (GAO), a government agency that audits federal government programs, issued a report on U.S. coinage.
The War on Cashless Stores
If you're a store owner in Philadelphia or the state of New Jersey, and you don't accept cash from your customers, pretty soon you'll be breaking the law. Last month Philadelphia became the first U.S. city to ban cashless stores. And a few days ago, New Jersey became just the second U.S. state to prevent stores from refusing to accept banknotes and coins. Other cities are considering the approach. Cashless bans are well-intentioned.
The Case for Prepaid Debit Cards
Jerry Brito recently published a paper entitled “The Case for Electronic Cash.” He argues that peer-to-peer forms of payment like banknotes and cryptocurrency are essential to modern democracy. Centralized intermediaries like banks can be easily deputized by the state to monitor all transactions and exert social control.
Will Bitcoin’s Lightning Network Bring Back the Promise of Electronic Cash?
Ten years have passed since Bitcoin was introduced, and it still isn't used much in online commerce. Will the Lightning Network, a new upgrade to Bitcoin, get it back on track? When Satoshi Nakamoto introduced Bitcoin, they intended it for online shopping. Without an electronic form of cash, wrote Nakamoto, merchants must be "wary of their customer," hassling them for extra information. Like the banknote, Bitcoin provides irreversible online payments.
Should Central Banks Lock Out Non-Bank Payment Providers?
When the Hong Kong Monetary Authority, Hong Kong’s central bank, unveiled its new, faster payments system this October, there was a notable difference from similar rollouts by other central banks. Not only can traditional commercial banks like Bank of China and Citibank join Hong Kong’s Faster Payment System (FPS), but so can non-banks and fintechs.
Should Central Banks Lock Out Non-Bank Payment Providers?
When the Hong Kong Monetary Authority, Hong Kong's central bank, unveiled its new, faster payments system this October, there was a notable difference from similar rollouts by other central banks. Not only can traditional commercial banks like Bank of China and Citibank join Hong Kong's Faster Payment System (FPS), but so can non-banks and fintechs.
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