Bitcoin first started making headlines in 2009 and has continued to grow into one of the world’s most well-recognized, thorough, and usable cryptocurrencies. But with multiple legal controversies and the general public’s skepticism when it comes to something as new as “cryptocurrency,” it’s difficult to tell whether Bitcoin has much of a future. Read on to learn more about the currency and its future.

What is Bitcoin?

Bitcoins are widely known as a digital or cryptocurrency. Unlike conventional currencies that are regulated by central authorities in their respective regions (such as the Federal Reserve Bank for the United States Dollar), Bitcoin is border-less and managed by a cryptographically-secured peer-to-peer network. The demand for Bitcoins determines their value in the market, and their supply is determined by complex mathematical algorithms developed by the founder–a person who goes by the pseudonym Satoshi Nakamoto. This supply generation process is called Bitcoin mining. So, Bitcoins are usually created by being “mined” by computers solving a complex string of processing problems, although one can now purchase existing Bitcoins.

Only fifty were created at the time of the cryptocurrency’s genesis and the maximum number of coins that can be issued is locked at 21 million. Just like the lowest value that the United States dollar can be divided into is one-cent pennies, a Bitcoin can at most be divided into eight decimal places. It gained prominence in April 2013 when its value spiked to $266 US Dollars compared to only $22 earlier that  same year. More than 10 million coins had been issued at that point at a total market value of $2 billion.

Courtesy of Idology.com.

Who likes Bitcoins?

Proponents of the cryptocurrency appreciate its purity in terms of supply and demand without any governmental interference. Bitcoins mitigate privacy concerns because they eliminate the need to enter information such as name and address for online transactions. For many tech aficionados, the cryptocurrency provides the thrill of following a new trend in the virtual world. Bitcoins are now being accepted by many platforms like WikiLeaks, restaurants, mobile payment applications, and retail apps that have partnered with major consumer brands like GAP and Sephora.

A federal district court recently ruled that Bitcoin is indeed a currency, given that it can be either used to purchase goods and services directly, or to purchase currency that can in turn be used to purchase goods and services. According to a study conducted by the European Central Bank, Bitcoins do not pose a risk to price instability given that their supply is capped at 21 million coins, and will not negatively affect  the economy as long as the government monitors it to ensure that its not being used for fraudulent purposes.

Who doesn’t like Bitcoins?

Opponents worry that the unregulated and anonymous nature of cryptocurrency lends itself to be used for illegal trade, tax evasion, money laundering, and investment frauds like Ponzi schemes. Dread Pirate Roberts, the owner of Silk Road, an online drug market in the deep web that is now shutdown, blatantly admitted that Bitcoin helped him win the war of drugs against the state.

Opponents also criticize Bitcoin’s algorithmic design for specifically inducing rise and fall in its value. But unlike traditional currencies, Bitcoin is not insured by the government in case it gets devalued enough to cause a major financial crisis in its market. Some claim that Bitcoin is being used more like a stock than a currency and that once the initial hype dies down its value will eventually decrease to nothing because it doesn’t have anything to offer except for its cool factor. Since Bitcoin is primarily digital (though coins are now available), it can be lost forever if a user loses his/her computer or account in which it’s stored.

What’s next for Bitcoin?

Bitcoin’s future is somewhat uncertain. While the cryptocurrency is still growing, there are many concerns that it’s not worth it. Detractors point out things like a possible Ponzi-style scheme involving Bitcoin in North Texas as indicative of the worthlessness of the currency. On the other hand, Bitcoin-based ventures have been growing, such as the development of startups like Coinffeine, which aims to create a new way to exchange Bitcoins. These are just a few examples of the ways in which Bitcoin is slowly breaking its way in into the mainstream, albeit with many setbacks.

Conclusion

Bitcoin. and other similar digital currencies, is just one of many interesting developments that has come about because of the internet. In essence, it’s a pretty revolutionary and fascinating idea, but whether or not it is actually good for the global economy remains to be seen. The potential for the use of Bitcoin as part of illegal activity though, should not stop people from using it for legitimate means. It’s only through incorporating online tools into the mainstream that it will become a genuinely useful and productive innovation.

Resources

Primary 

Bitcoin: Official Site

US District Court: Securities & Exchange Commission v. Trendon T. Shavers  and Bitcoin Savings & Trust

Additional

European Central Bank: Virtual Currency Schemes

Techland: Online Cash Bitcoin Could Challenge Government, Banks

Coindesk: Confirmed: Bloomberg Staff Are Testing a Bitcoin Price Ticker

CIO: In Kenya, Bitcoin :Linked to Popular Mobile Payment System

ParityNews: The Internet Archive Starts Accepting Bitcoin Donations

Webcite: In Bitcoin We Trust: The Berlin District Where Virtual Currency is as Easy as Cash

Readwrite: What’s Bitcoin Worth in the Real World?

Wire: Today’s Bitcoin Shows Why It’s Not Really a Currency

Fox Business: The Consumer Risks of Bitcoins

Slate: My Money is Cooler Than Yours

Washington Post: Imagining a World Without the Dollar

Social Science Research Network: Are Cryptocurrencies ‘Super’ Tax Havens?

The New York Times: Winklevoss Twins Plan First Funds for Bitcoins

Forbes: Goodbye Switzerland, Hello Bitcoins

Treasury Department: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies

GAO: Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks

Forbes: IRS Takes a Bite Out of Bitcoin

The New York Times: New York and U.S. Open Investigations Into Bitcoins

TechCrunch: New York’s Financial Services Subpoenas Bitcoin Firms To “Root Out Illegal Activity”

Salome Vakharia

Salome Vakharia is a Mumbai native who now calls New York and New Jersey her home. She attended New York School of Law, and she is a founding member of Law Street Media. Contact Salome at staff@LawStreetMedia.com.

The post Bitcoin: What’s Next? appeared first on Law Street.

In June 2013, Edward Snowden changed the course of American history when he released thousands of classified documents to the media. He has since fled the country, and remains on the run. His choice to disclose those documents fundamentally altered the perceptions that Americans have about the ways in which the government monitors them. It sparked national conversations about the role that the Patriot Act and other legislation have played in our national security landscape. A year and a half after these revelations, the United States is still collectively reeling from the information that Snowden provided. And a year and a half later, it’s easy to wonder where all of that info is today.

What exactly did Snowden leak?

Leaked by Edward Snowden, PRISM is the code name for a data-mining program operated by the National Security Agency (NSA) since 2007. It accesses user audio and video chats, photographs, e-mails, documents, and connection logs from nine internet companies: Microsoft, Yahoo, Google, Apple, Facebook, Skype, YouTube, AOL, and Paltalk. Government officials involved with the program claim that PRISM is only used to focus on foreign communications that are potentially dangerous to the security of the United States. Foreign communication often flows through American servers even when sent from one overseas location to another overseas location; however, experts who analyzed the most recently leaked slides of the operation claim that PRISM guidelines require NSA analysts to be only 51 percent confident to reasonably believe that a potential “target” is a foreigner. A 51 percent confidence level can leave ample room for Americans to inadvertently become targets of this operation.

PRISM is still in operation, although there are pending legal cases against the Obama Administration over it. Since the first disclosure of information by Edward Snowden, more revelations have come to light that show very specific targeting. In addition, PRISM, has raised criticism from our international allies. President Obama has, in many cases, had to go on the defensive, and explain that PRISM is intended for legitimate intelligence collection, not Big-Brother style spying.

Courtesy of BackgroundChecks.org

Prism – Everything you need to know. [Infographic]

What is the argument against PRISM?

Opponents of the PRISM program claim that it is unconstitutional under the Fourth Amendment of the Constitution.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

They argue  that the collection and surveillance of data by the NSA is too broad and “akin to snatching every American’s address book.” Yahoo initially fought the order to participate in PRISM in 2008. It argued that even if PRISM’s main goal is to focus on foreign communication, the incidental collection and gathering of American data is unconstitutional because such surveillance violates the “warrant clause” and “unreasonable searches clause” of the Fourth Amendment. Yahoo lost the case.

What is the argument in favor of PRISM?

Proponents of the PRISM program claim that cases in which the goal is to gain foreign intelligence are exempt from being subject to the Fourth Amendment’s “warrant” and “unreasonable searches” clauses. For the warrant clause, the Supreme Court has recognized a general “special needs” exception in cases like Vernonia School District v. Acton, where insisting upon a warrant would interfere with the accomplishment of that purpose. Proponents argue that there is a high degree of probability that requiring a warrant would hinder the NSA’s ability to collect time-sensitive information, and therefore would impede national security interests.

For the unreasonable searches clause, the Foreign Intelligence Surveillance Act (FISA) Court, in Yahoo’s case, held that PRISM’s operations were not unreasonable in light of the extremely important goal of national security. It found that PRISM’s procedures for targeting, minimization, and ensuring existence of a surveillance purpose to obtain foreign intelligence information serve to mitigate potential abuse of this power and risk of error to a reasonable level. Proponents also point to United States v. Miller to argue that people have no Fourth Amendment rights after they have already divulged their personal information to third parties, such as the internet companies participating in PRISM.

Conclusion

PRISM’s depth and extensiveness were a huge revelation for the American public after the secret documents were leaked by Edward Snowden. It raises a few important questions, first and foremost: is it constitutional? That will have to be decided by the courts, but it also raised interesting questions about the tradeoff between privacy and protection. As our technological abilities continue to increase, it will be fascinating to see the steps that this administration and any future administrations take to stem or expand PRISM.

Resources

Primary

ProPublica: NSA Surveillance Lawsuit Tracker

Additional

The New York Times: Secret, Court Vastly Broadens Powers of NSA

Huffington Post: America’s Take on the Fourth Amendment and the NSA

Concurring Opinions: Does the Fourth Amendment Regulate the NSA’s Analysis of Call Records? The FISC Might Have Ruled it Does

Assasination Archives: The National Security Agency and Fourth Amendment Rights

The Peoples’ View: A Crash Course in the NSA and the Fourth Amendment

Reason: Why the NSA’s Snooping Supposedly Complies With the Fourth Amendment

Washington Post: U.S., British Intelligence Mining Data from Nine U.S. Internet Companies in Broad Secret Program

Washington Post: NSA Slides Explain the PRISM Data-Collection Program

Brennan Center for Justice: Are They Allowed to Do That? A Breakdown of Selected Government Surveillance Programs

Cato Institute: NSA Spying, NSA Lying, and Where the Fourth Amendment Is Going

Washington Post: The Foreign Intelligence Surveillance Court

POLITICO: NSA Memo Pushed to ‘Rethink’ 4th Amendment

Salome Vakharia

Salome Vakharia is a Mumbai native who now calls New York and New Jersey her home. She attended New York School of Law, and she is a founding member of Law Street Media. Contact Salome at staff@LawStreetMedia.com.

The post Eighteen Months After Snowden Leak, What’s Next for PRISM? appeared first on Law Street.

The Social Security program was enacted in 1935 to provide post-retirement income security for workers and their families. Since then, it has grown to become the world’s largest government program with a total expenditure of $768 billion in fiscal year 2012. Americans are seriously concerned about the sustainability of Social Security, which has led to questions about whether privatizing the system could be wise. Read on to learn about Social Security privatization efforts, and the arguments for and against such a move.

The Current Status of Social Security

Social Security isn’t in great shape right now. Various reports have estimated different dates at which the entitlement program may have difficulty paying out full benefits to those who should receive them, but the current most cited year is 2033. One of the big reasons for why Social Security is in big trouble is because of our changing demographics and health statistics. When Social Security was first introduced pre-World War II, people did not live nearly as long as they do today. In addition, the post-World War II Baby Boom led to a glut in our population size. Social Security’s forecasting methods weren’t able to accurately predict the situation we’re in now, where there are many healthy people retiring who will live longer than ever before. To put this into context, in 1960, there were about 5.1 workers paying into the system for every retiree; now the ratio has shifted to under 3:1.

What does “privatizing” Social Security mean?

Given Social Security’s current state, there have been solutions suggested to try to fix it. One of the most popular is privatizing the system. That would most likely mean creating individual private accounts for the workers. Those private accounts will be subject to more control by those who are paying in, and would be able to interact with the private market. The funds could be invested in things like private stocks, which advocates point out would boost workers’ rate of return.

The proposition of its privatization came into the limelight when George W. Bush proposed the Growing Real Ownership of Workers Act of 2005. The bill aimed at replacing the mandatory payouts from workers’ checks with voluntary personal retirement accounts. In 2010, Paul Ryan, a major supporter of privatization, attempted unsuccessfully to reignite interest in the idea in his Roadmap for America’s Future budget plan.

What are the arguments for privatization?

Proponents of privatization argue that the current program significantly burdens fiscal debt and will lead to increased debt and taxes for future generations. They claim that privatizing it will keep the program from collapsing in the future. It would actually lead to higher post-retirement earnings for workers or, at the very least, keep earnings at a relatively stable rate. Additionally, it would empower workers to be responsible for their own future.

Advocates for privatizing social security also point out that in the past, funds in Social Security have been diverted to pay for other things the government has needed to pay for, and then replaced in time. If Social Security was privatized into individual accounts, the government wouldn’t be able to take such actions. According those who want to privatize Social Security, doing so would also help minimize the bureaucracy involved in the process.

Case Study: Chile

Chile’s post-privatization success is used as an example that the United States can learn from. Chile transferred to a new program in which  workers put 10-20 percent of their incomes into private pension funds. When the worker retires, an insurance company gets involved to help with the dispensation of money, but even at that step the Chilean worker has a lot of choice and flexibility. Although long term effects of the plan have yet to be discovered, the short term effects are positive.

What’s the argument against privatizing the Social Security system?

Opponents worry that privatizing social security will lead to risk and instability in post-retirement earnings and cause significant reductions in the same. They argue that privatization can also potentially place minorities at a disadvantage, as well as anyone who doesn’t have the time, knowledge, or desire to effectively manage their account. Many also claim that the media has exaggerated the program’s financial demise and that its balance is currently in surplus with most Baby Boomers currently in the workforce.

Those who argue against Social Security privatization have also expressed concern about the financial and logistical resources that would be needed to start a privatized Social Security program. They also believe that a move toward privatization would create more, not less bureaucracy, because of the complexity of private markets. Several groups and individuals, such as the Center for American Progress and economist Robert Barro oppose the idea.

Conclusion

It’s no secret that Social Security is currently struggling, and if something is not done, it will continue only get worse. There’s no easy answer, but privatization is one frequently suggested option in the public debate. Exactly how privatization would occur, what its benefits and downsides would be, and its overall effectiveness are still up for debate, but for now it’s definitely an idea that we can expect to see on the list of possible solutions for the foreseeable future.

Resources

Primary 

Social Security Administration: A Program and Policy History

Social Security Administration: The Social Security Act of 1935

Social Security Administration: Fast Facts & Figures About Social Security, 2012

Social Security Administration: The 2013 Annual Report of the Broad of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds

Social Security Association: Privatizing Social Security: The Chilean Experience

Additional 

Daily Signal: Social Security’s Unfunded Obligation Rises by $1 Trillion

CATO: Still a Better Deal: Private Investment vs. Social Security

Safe Haven: Privatize Social Security Before I Spend Your Pension

Sun Sentinal: Privatization Would Help But Liberals Resist Changes

Independent: Privatizing Social Security the Right Way

Freedom Works: Chilean Model of Social Security

NCPSSM: The Truth About Privatization and Social Security

Economic Policy Institute Report: Saving Social Security With Stocks: The Promises Don’t Add Up

Fortune: Privatizing Social Security: Still a Dumb Idea

Center on Budget and Policy Priorities: What the 2013 Trustees’ Report Shows About Social Security

CATO: Speaking the Truth About Social Security Reform

AARP: In Brief: Social Security Privatization Around the World

National Bureau of Economic Research: Social Security Privatization: A Structure for Analysis

NEA: Social Security Privatization: A Bad Deal for Women

Salome Vakharia

Salome Vakharia is a Mumbai native who now calls New York and New Jersey her home. She attended New York School of Law, and she is a founding member of Law Street Media. Contact Salome at staff@LawStreetMedia.com.

The post The Social Security Privatization Debate appeared first on Law Street.

TARP is the Troubled Asset Relief Program, created to help stabilize the financial system during the financial crisis of 2008. This program was the focus of significant debate when it was created. Read on to learn about the program, the different sides of the debate, and how it fares a few years after its inception.

What is TARP?

TARP was authorized by Congress through the Emergency Economic Stabilization Act of 2008 (EESA), and is overseen by the Office of Financial Stability at the U.S. Department of the Treasury. It was essentially a way for the government to address some of the problems of the 2008 subprime mortgage crisis. It allowed the government to buy some stocks from big banks and other financial institutions while those companies were struggling, with the understanding that in a few years they’d be sold back to the companies. The government would profit, and the companies would be able to get back on their feet. This is obviously a simplified explanation — there was much back and forth on what TARP should and could actually do.

Was TARP successful?

Yes and no — we don’t really know yet. The TARP program was instituted just a few years ago, and while the economy certainly appears to be be getting better, long-term effects are mostly unknown. If anything, programs like TARP are more frequently invoked as political talking points rather than economic topics of discussion. There is also some disagreement as to how much TARP actually cost taxpayers — with so many different moving parts, it’s difficult to calculate. What seems most striking however, is the ire that TARP and other “bailout” programs received.

What was the argument for TARP?

Proponents believe that TARP helped prevent a financial Armageddon by directly or indirectly injecting funds into banks that were on the brink of collapse. Even those who didn’t necessarily agree with the way that TARP was enacted agreed that it was essential to keep things afloat during such a turbulent period of American economic conditions. As former GOP Presidential nominee Mitt Romney put it:

The TARP program, while not transparent and not having been used as wisely it should have been, was nevertheless necessary to keep banks from collapsing in a cascade of failures. You cannot have a free economy and free market if there is not a financial system… The TARP program was designed to keep the financial system going, to keep money circulating in the economy, without which the entire economy stops and you would really have an economic collapse.

This reduced the number of lost jobs by approximately 85 million, reduced or displaced the number of housing foreclosures by approximately three million, and increased consumer confidence. It cost taxpayers $50 billion, which is 85 percent less than the Congressional Budget Office’s original estimate. Additionally, banks have returned at least 78 percent of their borrowed TARP funds with interest. Those in favor of TARP also praise its ability to infuse liquidity and flexibility into a struggling economy.

What is the argument against TARP?

Opponents believe that TARP was a rushed, ad hoc policy. Even if it helped prevent a complete financial meltdown, it did not live up to one of its major original goals of supporting struggling homeowners. Its Home Affordable Modification Program (HAMP) prevented less than half of the foreclosures that original estimates projected it would. TARP only helped the big banks grow bigger and did little to help the common man on Main Street. Such programs set a bad precedent and implicitly encourage banks to continue making risky choices.

Opponents also argued that because the United States is a democracy the American people shouldn’t have to support a program, like TARP, that received such intense backlash from the public. The political toxicity made it more dangerous, to the point where some politicians didn’t even want to discuss it. That could have prevented much-needed discussions to help improve the program, and make it even more effective. Even if it did work in some ways, it’s difficult to bill such a despised program as successful. As Anil Kayshyap of the University of Chicago put it:

The TARP was presented by former Treasury Secretary Hank Paulson in a misleading way, because buying toxic assets never made sense. That confusion led to the populist rhetoric that TARP was just a bailout for the banks. “The public’s frustration has led to a general rise in populist political rhetoric and has polluted the policy discussion in many other areas.” Also, it did nothing to forestall foreclosures.

 

Courtesy of CBO.gov. Click here for a bigger version.

Conclusion

TARP was an attempt to fix a huge problem — the monumental financial crisis that the United States was facing. Six years we still see some after-effects of the crisis, and whether or not we’re out of the woods completely is a topic that is still up for debate, but the long-term effects of programs like TARP probably won’t be known for a few years. The arguments will continue, however — look for economic arguments that invoke memories of TARP to be present in both the 2014 and 2016 elections.

Resources

Primary

Federal Reserve: TARP Information

Additional

CBS: Auto and Bank Bailouts Prove Effective

Seeking Alpha: The Five Most Effective Bailouts

The New York Times: Audit Finds TARP Program Effective

Pro Publica: Bailout Tracker

Phys Org: Are Corporate Bailouts Effective?

Congressional Oversight Panel: TARP Provided Critical Support But Distorted Markets and Created Public Stigma

TIME: Bailout Report Card: How Successful Have the Financial-Relief Efforts Been?

The New York Times: Where the Bailout Went Wrong

Reuters: Are Americans Really Benefiting From TARP Repayments?

Politico: Criticism of TARP Persists

Salome Vakharia

Salome Vakharia is a Mumbai native who now calls New York and New Jersey her home. She attended New York School of Law, and she is a founding member of Law Street Media. Contact Salome at staff@LawStreetMedia.com.

The post The Troubled Asset Relief Program (TARP) Six Years Later appeared first on Law Street.