Tuesday, September 4, 2018

Is Cryptocurrency Money?

“It Depends.” (TM)

In which state are you’re doing business?

Each state has its own money transmitter regulations. Most states are way behind the times in regards to cryptocurrency. States regulations vary wildly.

Q: Why should you care?

A: Because you can be arrested and charged with financial crimes for unlicensed transmission of Bitcoin or other cryptocurrencies.





Definitions

FinTech: Financial Technology allowing commercial banks to use online delivery systems to market their banking products and services to customers outside the banks’ geographic branch footprints.
FinCEN: The Financial Crimes Enforcement Network of the United States Department of Treasury.
Money Transmitter: Any business performing money transmission. (Exact definition varies by state.)
Money Transfer Service: Any business entity that provides money transfer services or payment instruments. Money Transmitters in the US are part of a larger group of entities called money service businesses (MSBs).

Federal Crime

Transmitting money without a license is outlawed in 48 states and the District of Columbia, and it was made a federal offense under the Patriot Act in 2001. This is mostly a consumer protection policy meant to make sure people’s money isn’t transmitted by fraudulently.

Money transmitters must register with the proper state agency and may need to register with the FinCEN. They are also required to implement specific anti-money laundering policies and file regular reports.

Money transmission is a broad term, but its legal definition is much more narrow. Cryptocurrency investors are not automatically subject to state and federal regulation simply because they send Bitcoin or other virtual currencies from one person to another. Rather, a money transmitter must be licensed if it exchanges virtual currency for real currency, other virtual currency, or other value.

Who Needs to Register as a Money Transmitter?

Any business that conducts more than $1,000 in business in any category of activity listed below:
  • Check Cashing
  • Money Orders
  • Currency Exchanges
  • Money Transfer Services
  • Traveler’s Checks


What’s the Best State For Cryptocurrency Entrepreneurs to do Business?

Very few states have explicitly amended legislation to address cryptocurrency. Most states have not dealt with the issue and could put you in legal jeopardy.

In my next article, I’ll attempt to rank the states for cryptocurrency friendliness.

Are Your Wages Money?

Do you consider the wages/salary your employer pays you to be “money”?

In the United States, employees could be paid in cryptocurrency. However, it would be difficult for the employer to comply with U.S. tax laws.

Several U.S. based-companies are paying their international workers in Bitcoin. About 200 companies are using a service called Bitwage, a Bitcoin payroll company that allows W-9 and 1099 workers to receive payments in Bitcoin, according to Bloomberg Law.

What do You Think?

Economists define money as something that serves as a medium of exchange, a unit of accounting, and a store of value. Money is a medium of exchange when everyone agrees to accept it in making transactions. Does everyone accept it now?

When Bitcoin began, it was not accepted. Now, it’s gradually becoming more and more accepted.


Gaining Understanding and Confidence

  • What is money?
  • What are digital currencies?
  • Are cryptocurrencies money?
  • How do they work?

Find out the answers to these questions an more.

Day 1 of the Cryptocurrencies Developers Class is all about money (what it is, its history and relationship to digital currencies) and would serve as a good educational resource for those in finance and insurance professions.

The rest of the course is about how to leverage our understanding of money and blockchain technologies to build our own cryptocurrency.

Join me in class where we’ll:
  • Distill facts from fiction
  • Provide pertinent resources on a guided journey of learning
  • Provide well structured lab assignments
  • Provide starter projects (and completed solutions)
  • Provide insightful visual presentations
  • Provide a Certificate of Completion to attendees that finish the assignments
… and that’s just the 1st half of the course. In the 2nd half we cover the Ethereum blockchain.

I have condensed this class into an Immersive one week Master Class in Atlanta, GA.
The class location is TBD but will not be far from the airport.

I’m working on getting a package, discounted hotel deal for out-of-town attendees.

Register now, while seat are still available at https://cryptocurrencies.developersclass.com/products/register




Thanks, hope to see you in class! — Lex Sheehan






Lex Sheehan



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Sunday, September 2, 2018

How Does the Central Bank Print Money?

I ran across a most interesting Twitter post yesterday.

The Challenge

A day ago, Jimmy Song posted the following tweet:



Jimmy Song (송재준)‏ @jimmysong


Challenge: Explain how a central bank prints money in 20 words or less.

The Answer

At first, I was fooled by this trick question.

As it ends up, the central bank creates money, but it’s the treasury department that actually prints the money.


The Explanation

The Central Bank creates money when it converts debt to cash or credit.

The debt is comprised of Treasury bills, bonds, notes and TIPS.

Cash includes bank accounts and marketable securities. Cash can also refer to checks or any other form of currency that is easily accessible and can be quickly turned into physical cash (paper money or coins).

It’s a common misconception that the Central Bank prints money.  However the Treasury Department is actually the entity responsible for printing paper currency and minting coins; the Treasury oversees the Bureau of Engraving and Printing and the U.S. Mint.

When we examine the US Money Supply context diagram below, we see that there is a big difference between the actual money in circulation (shown in green $) and how much money people perceive is in circulation (shown in red):

How Money is Created in the US




Fractional Lending

The magic that creates the excessive supply of money is called fractional lending.  

Banks are only required to keep a small percentage the cash depositors give them on hand available for withdrawal. When an individual or business deposits $100, the bank $90 and only keep 10% of the deposit, aka “reserves” on hand. This reserve requirement is set by the Federal Reserve and is one of the Fed's tools to implement monetary policy. Increasing the reserve requirement takes money out of the economy, while a decrease in the reserve requirement puts money into the economy.

This process continues many times thereby putting more and more perceived money into circulation.  For example, say Alice deposits $100 into Bank A. Bank A turns around and lends out $90 to Bob. Bob puts his $90 into Bank B and Bank B turns around and lends $81 to Cindy, etc.


Treasury and Federal Reserve

The U.S. government has a vested interest in the health and welfare of the country's economy. The Department of the Treasury works hand in hand with the Federal Reserve to maintain economic stability.

Central bank mandate:  To keep our money valuable and our financial system healthy.
The Department of the Treasury and Federal Reserve work together to maintain a stable U.S. economy. The Federal Reserve serves as the government's banker, processing transactions, e.g., accepting electronic payments for Social Security taxes, issuing payroll checks to government employees and clearing checks for tax payments and other government receivables.

The Federal Reserve and the Department of the Treasury also work together to borrow money when the government needs to raise cash. The Federal Reserve issues U.S. Treasury securities and conducts Treasury securities auctions, selling these securities on behalf of the Department of the Treasury. Examples of Treasury securities include:

  • Treasury Bonds
  • Treasury Bills
  • Treasury Notes
  • Treasury Inflation-Protected Securities (TIPS)

Debt

The U.S. Congress creates the U.S. Federal Budget and grants itself permission to borrow money. The borrowing is accomplished by the U.S. Department of Treasury issue debt contracts (Treasury Bonds and Notes) Example: “We agree to pay the bearer $1,000 sixty days from today. The Central Bank buys a lot of them.

A treasury bill is a monetary policy instrument through which government raise funds for short term requirements and commercial banks invest their short term surpluses by buying these bills from government.

Treasury Inflation-Protected Securities (TIPS) provides protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

(Un)Printing Money

The Federal Reserve has 12 regional banks that supervise commercial banks in local areas. These regional federal banks are responsible for meeting the physical currency needs of local banks, providing cash and taking excess cash. They also take currency out of circulation when it is deemed to be damaged, counterfeit or just too old. They order newly printed bills and coins to replace discarded notes and coins.



Gaining Understanding and Confidence


It's easy to get tripped up with questions about how the US monetary system works.

Throw cryptocurrencies into the equation and it can get down right confusing.

I grew up with a mom that was intrigued with US economy, gold, currency and investments.

I guess that's why cryptocurrency (and blockchain technology) is so interesting to me.

I get to combine the rhetoric that I heard in my formative years with my professional years.

So interested that I studied, developed software and a training course to help others "get it".

That's a big part of what my Cryptocurrencies Developers Class is about.


 Join me in class where we’ll:
  • Distill facts from fiction
  • Provide pertinent resources on a guided journey of learning
  • Provide well structured lab assignments
  • Provide starter projects (and completed solutions)
  • Provide insightful visual presentations
  • Provide a Certificate of Completion to attendees that finish the assignments

… and that’s just the 1st half of the course.  In the 2nd half we cover the Ethereum blockchain.

I have condensed this class into an Immersive one week Master Class in Atlanta, GA.
The class location is TBD but will not be far from the airport.

I’m working on getting a package, discounted hotel deal for out-of-town attendees.

Register now, while seat are still available at https://cryptocurrencies.developersclass.com/products/register


Thanks, hope to see you in class!  - Lex Sheehan


Lex Sheehan
Atlanta, GA
Software Engineer
   Twitter @lex_sheehan
   LinkedIn lexsheehan


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