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Bitcoin, the Zimbabwe Dollar, and Reasonably Priced Pizza

 4 min read / 

There are many things that fill Bitcoin fans with pride. One is the recent spike in its value, which clearly reflects the world coming to its senses and recognising the genius of Satoshi Nakamoto.

Another is the fixed supply that apparently makes the cryptocurrency immune to the evil inflationary ways of governments and central banks. A third is the Pizza story.

The Pizza Story

The Pizza story tells of the first time anyone used Bitcoin to buy anything tangible. On the 23rd of May 2010, Laszlo Hanyecz bought a couple of Dominos pizzas with Bitcoins. The price in nasty real-world fiat money, $43, in nice cryptocurrency 50,000 bitcoins (BTC). Now Laszlo did not actually buy the pizzas from Dominos, another Bitcoin fan bought the pizzas for dollars and then sold them to Lazlo.

In fact, you still cannot buy pizzas from Dominos for bitcoins, but that is not the point of the story. The pizza transaction set a value for the Bitcoins people had been mining since January the previous year, of slightly less than one-tenth of a cent each.

Bitcoin’s Appreciation

At today’s price for bitcoin, the 50,000 bitcoins are worth $122m – the moral of the story, like all bitcoin stories, is that bitcoin is amazing. If you still think Bitcoin is bad just look at Zimbabwe… friendly, well-educated people, amazing scenery, terrible economy and sufferer from the worst hyperinflation in recent memory. Bitcoin fans love to bring up Zimbabwe at every opportunity.

If the Pizza story proves how great Bitcoin is, Zimbabwe’s hyperinflation proves fiat money is bad, or does it? Using the wonders of mathematics and the story of two pizzerias I will now demonstrate that both Bitcoin and the Zimbabwe dollar were both equally useless as currencies.

Zimbabwe went through over 30 years of escalating inflation and multiple re-denominations (knocking zeros off the end) of their currency, so to avoid confusion I have created a Zimbabwe pizza index for an eleven month period.

Hyperinflation

The 43-dollar pizzas would have started the period at a cost of Z$10,528, by the end of the period the pizzas would have cost Z$1,260,975. That is assuming the pizza parlour is willing to sell them to you.

The problem with extreme hyperinflation is that by the time the store keeper has sold their goods the value of the money received has declined so much they cannot afford to buy the flour, tomato paste and anchovies to make another one. Hence hyperinflation can lead to complete economic collapse.

Now let’s go to Bitcoinland’s pizzeria. Bitcoinland is special because they have a pizzeria that actually accepts bitcoins. Unfortunately, everything else is imported, and the outsiders all want to be paid in dollars.

Now the people of Bitcoinland believe in price stability, so they fixed the price of pizza in the only currency that matters – bitcoins. The Coinbase website provides excellent data about the value of Bitcoin, but only going back to 17th May 2010, so let us fix the price of Pizza on that date. Henceforth in Bitcoinland, two pizzas will no longer cost $43; they cost 477.78 BTC.

Hyperdeflation

For the first few months, the cost of the pizza in dollar terms (for tourists to Bitcoinland or the unfortunate majority who did not work as Bitcoin miners) fluctuated around $30 as the Bitcoin dropped in value, but then it started appreciating.

After a year, a pair of pizzas cost over $6,000, and people stop holidaying in Bitcoinland. A few weeks later, pizza was only $3,000, but still, nobody wanted to come to Bitcoinland. By July 2017, pizza costs over a million dollars and even the more successful citizens of Bitcoinland have fled to Zug in Switzerland, a place where they really know how to control inflation.

Conclusion

Is the pizzeria still open though? No, that closed long ago. The owner could make far more money sitting on his bitcoins and watching them appreciate than using them to buy flour, tomato paste and anchovies.

The moral of the story is that a currency subject to real world hyper-deflation is just as useless (as a currency) as a currency subject to hyperinflation. In the contest to create the world’s most useless currency, I declare a draw between Bitcoin and the Zimbabwe Dollar.

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Africa

Standing Defiant: African Countries Respond to Trump’s Comments

 5 min read / 

Africa Trump

Trump’s recent bout of racism has given African states the opportunity to exert considerable agency on the world stage and also take the moral high ground of dignity and respect. Though Trump’s comments are of a vulgar and vile nature, they represent nothing new: African countries are severely misunderstood and misrepresented in mindsets and media, in particular by those of some western publics.

This is to everyone’s detriment, as African countries are strategic partners in trade and security and will only grow more vital to the state of global, economic and political affairs – it is estimated that the majority of the world’s population growth will take place on the African continent.

The African Union’s Response

Trump’s comments are an opportunity for the African Union, or AU, and for individual African states to exert agency and also strengthen their moral standing. Trump’s outright racism and the ensuing African diplomatic response and the strong voices on social media represent a key moment in recognising Africa’s all too often under-appreciated importance to global affairs. The African Union condemned Trump’s comments in the strongest of terms, and issued a statement declaring that:

“The African Union Mission wishes to express its infuriation, disappointment and outrage over the unfortunate comment made by Mr. Donald Trump, President of the United States of America, which remarks dishonor the celebrated American creed and respect for diversity and human dignity.” The comments were further characterized by African envoys as “outrageous, racist, and xenophobic.”

Botswana has been a major voice in this response, describing the comments as “irresponsible, reprehensible, and racist.” Among the larger African states, Nigeria has not issued an official response, though South Africa is issuing a diplomatic protest over the comments, stressing that “relations between South Africa and the United States, and between the rest of Africa and the United States, must be based on mutual respect and understanding.” US diplomats were summoned in Ghana, Botswana, and Senegal – more African countries are expected to follow suit.

American Views on Africa

The racism and ethnocentrism inherent in labelling “distant” countries (such as Haiti and nations in Africa) pejoratively is nothing new. Though most Americans would not express their worldviews in such crass and vulgar terms, there is widespread ignorance about African countries, with little recognition that African countries represent strategic trade and security partners, not to mention their vast cultural wealth. This problem lies in all facets of American society, from predominantly negative and homogenising news coverage about the African continent to the Eurocentric focus of the education system.

These comments were made in a larger context of domestic demographic change within the US, in which white people will enter minority status by 2044, in addition to the global power shifts of the wider world. Not only are Trump’s comments steeped in racism and ignorance, but they represent the uncertainty and deep discomfort many white Americans feel in the midst of the changing domestic demographics and a world order in which the US is no longer the lone superpower.

Africa is the Future

The African continent is the future, as African population growth will account for the majority of the world’s global population with half of the world being African by 2100. African countries are already strategic partners in trade and security, and will only become stronger players in global political and economic affairs.

Though it is certainly a desired goal for public opinion – the worldviews of western publics in particular – to recognise and appreciate the importance of African countries in their right and their integral significance to international relations, in some respects it doesn’t matter what Americans might think about a massive continent of 54 countries. As John and Jean Comaroff have written in ‘Theory from the South‘, “Lagos is not catching up to us. Rather, we are the ones catching up to Lagos.” African countries are not waiting on Western publics’ enlightenment.

Due to the rise of emerging powers changing the global landscape of power relations, African countries have more opportunity than ever to exert agency in selecting their partners and leveraging relations for national gain. Though the US is a key economic partner for much of the continent, African countries have many other options and it is well known that the approach of China and other emerging powers are, in many respects, regarded more positively than traditional western approaches. Relations between the US and African countries have been marked by longstanding goodwill, but Trump’s comments may complicate relations, ranging from security cooperation to trade ties.

Most important is African ownership of African development, in which the harmonisation of external partners aligns with domestically articulated goals and aims in respect to the continent’s nations. African countries, and all of the diversity within them, must be appreciated in their own right and understood on their own terms.

Conclusion

African countries have their own visions and national development plans and are charting a course marked by innovation and holistic strategies aimed at meeting both human and environmental needs. It is time African countries are recognised and respected for the leaders they are on the world stage and that western publics realise that society’s global future is very much an African one.

Trump’s comments are of course vulgar and crude, but should make people think very seriously about society’s own failings in how people portray – and learn about – Africa, an incredibly diverse continent of 54 countries, from our media to our classrooms. Africa is the future, and – following Trump’s comments – African countries have taken the opportunity to exert agency on the world stage and take the moral high ground.

Keep reading |  5 min read

Africa

Gem Reports Finding Fifth-Biggest Diamond in History

 2 min read / 

biggest diamond

One of the biggest diamonds in history has been dug up in the Kingdom of Lesotho, Southern Africa.

The diamond has been valued at 910 carats and described as of “exceptional quality”. At roughly the size of two golf balls, it is the fifth biggest diamond ever found.

The stone was found at the Lestseng Diamond Mine in north-east Lesotho, operated by Gem Diamonds Ltd.  The mine is renowned for the size and quality of its stones, which have the highest average selling price in the world. It was at the Letseng mine that the 603-carat Lesotho Promise diamond was found in 2006 and sold for a reported $12.4bn in Belgium.

“This exceptional top-quality diamond is the largest to be mined to date and highlights the unsurpassed quality of the Letseng mine,” CEO Clifford Elphick said in a statement. “This is a landmark recovery for all of Gem Diamonds’ stakeholders, including our employees, shareholders and the Government of Lesotho, our partner in the Letseng mine.”

It has been categorised as a D colour Type IIa diamond, meaning it has very few or no nitrogen atoms making it a very rare, and very expensive, find. The price of a diamond is determined by the size and quality of the stones cut from it but it is estimated the stone could be worth at least $40m.

Last week, Gem reported it had found a 117-carat and 110-carat stone. In July, the company reported discoveries of two stones that exceeded 100 carats. 

At the news, Gem shares bumped up 18%, trading at 93 pence by 9:06 am.

(Photo: Gem Diamonds)

Keep reading |  2 min read

Africa

Blockchain and Cryptocurrencies: The Keys to Reforming Inefficiencies in Nigeria?

 5 min read / 

Blockchain Nigeria

Nigeria, though still a developing country, is very much a resource-rich one – and that means a lot of potential for prosperity for the nation as a whole. Through the extraction and exportation of its vast oil reserves, Nigeria could raise huge sums of money to grow and develop infrastructure to reduce poverty and improve citizens’ quality of life. However, undermining all these possibilities are inefficiencies and corruption in the public sector; problems which have persisted for the last forty years. But could modern technologies such as Blockchain and cryptocurrency provide a solution?

Corruption and Inefficiency

Corruption and inefficiency are worryingly common in African countries at varying levels of development, and Nigeria is one of the worst affected. Its main industry, oil, has been particularly crippled by inefficiency problems; non-enforcement of contract terms in 1993 led to losses of $60bn, while between 2009 and 2011 a further $11bn was lost through theft. Nigerian ports are also impacted upon by inefficiencies and corruption and consequently suffer losses of nearly $3bn annually, as well as having the generation of 10,000 jobs each year stifled. Poor infrastructure, inconsistent policy and an unclear administrative system have been listed causes of the issues.

Yet, the problems are not limited only to commerce and businesses. The public sector in Nigeria is riddled with corruption, and this extends to the citizens that government officials are meant to serve. A report by anti-corruption organisation Transparency International ranked Nigeria lowly 136th in its annual Corruption Perception Index; it has also been found that on average a Nigerian will pay a bribe once every two months according to Nigeria’s 2016 National Corruption Report, with the police and prosecutors being the most frequent recipients. Clearly, Nigeria is consistently sabotaging its own potential through administrative problems and personal greed. However, a combination of Blockchain technology and cryptocurrency could help end this cycle.

As explained in the previous article on Blockchain, the concept can be described as a decentralised peer-to-peer digital ledger in which financial records, compiled into a block, are added to a digital chain in a permanent and unchangeable way. By being decentralised, there are both security and speed improvements; security is increased by the removal of any ‘master copy’ of the ledger, while the absence of a middle-man drastically decreases the time a transaction takes to be completed. The other technology mentioned – cryptocurrencies – are digital currencies that harness the Blockchain technology in an online marketplace. But what does this have to do with preventing corruption and inefficiency? Well, in fact, there are uses of these two concepts that are very relevant here.

Smart Contracts

Firstly, smart contracts could be used to provide citizens with access to their legal entitlements. Blockgeeks state how smart contracts help ‘exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman’. In the more remote areas of Nigeria, this could prove revolutionary. It could give farmers legal rights for their land, in doing so providing them with a valuable and tradeable asset; an NGO called Bitland is already providing this service in Ghana with great success – there’s no reason why Nigeria could not engage in the same process, improving current inefficiencies in the legal sector as well as reducing inequalities.

Additionally, if citizens were to have access to their own legal profile in which their rights, assets and licences are all easily available, it could go far in reducing the prevalence of the everyday bribery that appears to go on so often. If an individual needed to obtain a new copy of a driving license, for example, they could do so using Blockchain, without the need to go through a public sector that is almost above the law and can charge illegally.

Democracy

Furthermore, Blockchain technology could be used to ensure true democracy occurs. A lot of African countries remain in quasi-dictatorial states, in which a dictator operates essentially under the illusion of untampered democratic process. A Blockchain can provide a transparent, unchangeable ledger of digital votes that would ensure corruption could not occur, and therefore democracy would be protected.

While Nigeria does operate democratically, it is evident that corruption is present throughout the state infrastructure, and therefore the country would benefit from having a system that could ensure democracy exists without exploitation. This open-ledger technology, in combination with cryptocurrency, can prevent corruption outside of voting too. By providing a traceable record of every single financial transaction and through the absence of a middle-man, it could create tangible progress in the prevention of foreign aid being misappropriated, something that has been seen to occur in Nigeria.

Conclusion

However, for all the potential improvements that Blockchain and cryptocurrencies can provide, major obstacles still remain. There will be significant data privacy and governance considerations surrounding the transparency of these ledgers; ledgers that will be containing what is currently regarded as confidential and private information. As well as this, there has to be a willingness of the existing government to use the new technology – it obviously cannot be forced upon them.

Given that the government largely is the target of the reform that Blockchain and cryptocurrencies would enable, it appears unlikely that such technology will be welcomed with open arms. Instead, it seems that there somehow needs to be an overhaul of the attitudes within the Nigerian public sector, so that it is more willing to find solutions to the crippling problems that have persisted for so long. 

Keep reading |  5 min read

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