A library of snippets
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Now, with those politicians convinced that a European payments system is a question of sovereignty, some of the currency area’s largest lenders have teamed up to launch a new attack on their dominant US rivals.
From Why Europe’s banks want to end US dominance in payments | Financial Times:
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Some El Salvadoran residents are excited by the thought of bitcoin being treated as legal tender, while others are concerned it may just be a tool for corrupt officials.
From El Salvador Residents Are Split on Bitcoin Adoption Bill – CoinDesk:
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The bill will mandate all businesses to accept bitcoin for goods or services, but the government will act as a backstop for entities that aren’t willing to take on the risk of a volatile cryptocurrency, he said.
A trust that the government will set up at the Development Bank of El Salvador to instantly convert bitcoin to U.S. dollars will assume merchants’ risk, he said. It will hold about $150 million in dollars in the trust fund.
From El Salvador Officially Votes to Adopt Bitcoin as Legal Tender – CoinDesk:
So businesses will be forced to accept Bitcoin which they will then “instantly” convert into the US dollars that they actually want.
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This has perverse implications. Say that Bukele goes all-out and declares bitcoin to not only be legal tender but also requires Salvadoran stores and markets to set prices in bitcoin and accept bitcoin as payment (along with dollars). No Salvadoran will choose to take advantage of this feature: bitcoiners for fear of missing out on a price rise, and non bitcoiners out of fear of bitcoin’s volatility.
From JP Koning: El Salvador Adopts Bitcoin. Hype or History? – CoinDesk:
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So according to the lawyer’s definition of the term, Bukele’s desire to declare bitcoin as legal tender probably is more of a publicity stunt than a substantial change to its monetary status.
From JP Koning: El Salvador Adopts Bitcoin. Hype or History? – CoinDesk:
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DRUG dealers are using chip and pin to take payments for Class A substances and laughing gas, a Sun probe reveals.
One asked our reporter to enter his card and code into a wireless device to buy a gram of cocaine for £60 outside a dance music party.
From Drug dealers are using chip and pin to take payments for cocaine and ‘hippy crack’ – The Sun:
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The personal ID feature will be part of iOS15, the next version of Apple’s mobile operating system planned for the fall, Apple vice president Jennifer Bailey said Monday at the opening of Apple’s 2021 Worldwide Developers Conference.
From Apple to add digital ID storage to Wallet app | PaymentsSource | American Banker:
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Now, to be fair, some delegates at the 2016 cryptocurrency conference Consensus were sceptical when I shared my preferred strategy for securing my digital dosh, which was to convert the security key into a QR code and have it tattooed onto my scrotum. You could see them questioning my grasp of the relevant risk models and questioning my confidence in the technology. I was not dismayed by their negative reaction. In fact, I had suggested this approach to managing privates keys (sic) before and had toyed with the idea of patenting this breakthrough in cyber defence but sadly never got round to it. Now I am kicking myself about it, because I was delighted to read in the New York Times that numerous people of an innovative bent have indeed had QR code tattoos and… guess what, they work.
The problem with scrotum-based QR codes though is that you have to take your clothes off to use your cryptocurrency wallet, which might we the sort of the thing that people do in El Salvador (although as I recall from my last visit, most people there were fully-clothed) but it’s often a bit chilly in Woking. On reflection, I thought that a better plan might be to have an RFID chip injected somewhere more accessible and store my keys there.
Well then… RFID chip implants or QR code tattoos? What is the right choice for the discerning cryptocurrency enthusiast on the go? In truth I am somewhat conservative, so I am still using my Bitbox USB hardware wallet but perhaps I should be more happening and down with the kids on this one. Let’s look at the pluses and minuses.
On the plus side of implants, can be read passively and at a distance, can generate digital signatures and can store a reasonable amount of data. On the minus side, if you are kidnapped by a El Salvadorean drug cartel they will cut it out of you and send it as proof of capture to your nearest and dearest along with a Bitcoin random demand.
On the plus side of QR, everyone uses QR codes. There are two reasons for this: COVID-19 and Apple. A couple of years ago, Apple changed the iPhone software so that you could scan QR codes with your iPhone camera and not have to run a separate app. At a stroke, gazillions of people gained the ability to automagically enagage in contact-free transactions, while shortly afterwards along came the pandemic and the demand for contact-free transactions for everything, not only shopping. It’s not all down to Apple, of course. The cameras in mobile phones have improved across the board so that QR codes can be scanned clearly from a safe distance so that consumers can stand a couple of metres away from the point of sale and buy without using cash. On the minus side, QR codes are insecure and easy to copy.
This means that they are a security problem and the pandemic has indeed presaged a variety of scams.
While I am very enthusiastic about the prospects for payments wearables (I am the non-executive Chairman of Digiseq, which personalises wearables of many kinds), the British-Polish startup Walletmor has launched a “wearable” that goes a step further than the bracelets, rings and key fobs that we all know and love. They are launching a biopolymer payment device that can be implanted just under the surface of the skin.
Not a wearable, but an injectable. And for the low, low price of €199, you get an implant is the size of a small safety pin and about half a millimeter thick, comprising a chip and a metal sheath that acts as an antenna. The device was created by VivoKey Technologies Inc. in Seattle to comply with the ISO 10993 standard for “biocompatible” medical devices. Implantation is painless and takes only 15 minutes, they claim. Currently, there are over 50 recommended Walletmor professional implant installers in the European Union, including traditional hospitals, clinics and aesthetic medicine laboratories.
The device itself is a prepaid EMV card that is linked with an iCard wallet. According to Walletmor there are already 200 people across the UK, Germany, Poland and Scandinavian countries using the implant.
What an interesting new idea! No, wait… what an interesting old idea.
A decade back I can remember writing about rumours that Google and a number of other organisations had formed a study group to look at the idea of offering people free injectable NFC chips in return for special offers, coupons, additional loyalty points an a variety of value-added services around Android NFC phones. I thought this was quite interesting because the idea of making Android more attractive than iPhone/iPad by making the owners part of the much-talked about “Internet of things” was a pretty wild approach. But who knows? Stranger things have happened. Anyway, I noted that Katrina Michael, associate professor of the University of Wollongong’s school of information systems and technology, and author of scientific paper “Towards a State of Uberveillance”, said subdermal chip implants in humans could be commonplace within “two to three generations“.
Why would anyone want one of these? Well, for example, suppose that I take my URL “www.dgwbirch.com” and encode it in some way (you can see an example here) and add that to my chip, then anyone who taps me with a Android could read it (even if it was under my clothes) and have it added to their bookmarks immediately. Some people might want to have their Facebook “Real Name” coded into the chip, but I thought at the time that for rather dull middle-aged businesspersons (such as myself) the LinkedIn profile would be better. Who knows – the point is that surveys have shown that whatever the Privacy International’s of the world might think, people liked the idea: a survey of Germans at the time found that a quarter were happy to have a chip planted under their skin for very trivial uses for example to pass gates more quickly at a discotheque for example and to be able to “pay for things more quickly in the supermarket“.
The advantages are obvious. You would never have to remember a wallet, an ID card, a bus pass, whatever, because it would be permanently embedded in you. It is not difficult to see why Big Tech, never mind Big Government, might want to implant chips in people, but looking back on this stories what strikes me is that they were contemporaneous with stories about the imminent demise of QR codes: for example, Google sending out window decals with NFC chips to participating businesses in after dropping support for QR codes.
Back then, I could see that not everyone was as enthusiastic about the chipping as I was. I’m not an expert on the Book of Revelations, so I don’t understand the theological objection to tracking at 13.56GHz as opposed to optical wavelengths, but it should be noted that there are people who believe that the chips are a mark of the beast and are against implants. In biblical prophecy, this is a number written on the forehead, to mark those controlled by an evil power. To be fair, neither Google nor WalletMor nor anyone else was talking about having the chips implanted in the forehead: when I was trying to persuade a company to implant a chip in me, I was imagining that fleshier areas would be more appropriate. In that was another five years back.
I had been reading a global survey by Unisys that found that 69% of Europeans supported the use of biometrics for identification purposes. As far as I could tell, it wasn’t out of deep-seated concerns about security and a balanced, but informed, perspective on biometric technology: it was because of laziness: 83% of those supporting biometrics cited convenience, not security, as their main reason for wanting the technology. This was a point that I made repeatedly in client work at the time and when the iPhone’s TouchID came along I think it proved this point conclusively: biometrics int he mass market are a convenience technology not a security technology.
Anyway, what caught my eye in the survey was that it found that rather than use PIN, ID cards or biometrics, one in 10 Asia-Pacific consumers said at the time that they would prefer to have a chip implanted in their body!
I’d looked this before, back in 2004, because at the time everyone’s current favourite case study for this sort of thing was the Baja Beach nightclub in Barcelona, where patrons had been offered the choice between a card and a chip and some of them chose the chip. Those chips (which were VeriChips, produced by Applied Digital Solutions) had been approved for use in humans so I decided that I would try to have one injected live on stage at an event but the companies that I spoke to refused to do it (something to do with insurance, if I recall) which I was at bit disappointed about.
The chips were the size of a grain of rice (1.2mm wide and 12mm long) and at the nightclub they were injected (by a “medically trained” person, according to the New Scientist) under the skin in the upper left arm. As I said (rather wittily, I thought, although the joke’s pretty thin now) in a presentation to the International Association for Biometrics (IAfB) back in September 2004, you really can’t leave home without it.
If I were the sort of person to go to nightclubs in Barcelona I would definitely have opted for the chip. After all, chipped clubbers could jump the entrance queue, reserve a table and use a VIP lounge. The waiters had handhelds to scan the chips to charge drinks to your bill: what could be more convenient, especially when you’re wearing clothes with no pockets. Or no clothes.
In summary: I don’t have a point, except to say that actually I would prefer to have a chip containing revocable credentials injected into my arm than have privacy-invading facial identification systems installed everywhere.
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Detecting fraudulent transactions in a large dataset poses a problem because they are a minority class. For example, there may only be 1,000 cases of fraud in every million transactions, representing a minute fraction (0.1%) of the full dataset.
In data science, these imbalanced datasets can be very difficult to analyse, because machine learning algorithms tend to show a bias for the majority class, leading to misleading conclusions.
From Imbalanced data and credit card fraud | by Hazy | Medium:
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El Salvador is in the cryptocurrency news. I can understand why using renewable geothermal energy from a volcano to mine Bitcoin and then sell it to support the El Salvadoran economy in the absence of new IMF support makes sense. But I do not see why it follows that El Salvadorans should be forced to accept Bitcoin in payment for goods and services.
You can own these cartoons!
NFTs available from the artist Helen Holmes at TheOfficeMuse
(CC-BY-ND 4.0)
The economist Hyman Minsky famously observed that creating money is easy but getting it accepted is difficult. Indeed, and innovators throughout history have faced this same problem and dealt with it in different ways.
In 1260, the Chinese Emporer Kublai Khan determined that it was a burden on commerce and drag on taxation to have all sorts of currencies in use, ranging from copper coins to iron bars, to pearls to salt to gold and silver, so he decided to implement a new currency. The Khan decided to replace metal, commodities, precious jewels and specie with a paper currency. A paper currency! Imagine how crazy that must have sounded! Replacing actual stuff with apparently worthless paper! It’ll never work!
Crazy or not, it worked and just as Marco Polo and other medieval travellers returned along the Silk Road breathless with astonishing tales of paper money, so modern commentators (e.g., me) came tumbling off of flights from Shanghai with equally astonishing tales of a land of mobile payments, where paper money is vanishing and consumers pay for everything with smartphones. So what was the Khan’s marketing plan for his new paper currency and how did he persuade merchants to accept it? Well, it was quite simple. If you didn’t accept the emperors paper money in full and final settlement, then he would kill you.
Now, that seem a little harsh by modern standards but as a legal tender law, it had admirable clarity. You may have disagreed with his policies here and there, but you knew where you stood with the Khan.
A similar problem with acceptance arose after the French Revolution when a lack of trust in the state quickly led to a shortage of credit in the marketplace and, therefore, to an immediate demand for a circulating medium of exchange. France did not have a central bank along the lines of the Bank of England, so the revolutionary government took over church lands and, on the basis of this security, issued interest-bearing bonds with the redemption being a portion of the land itself. The interest and redemption were soon abandoned and the notes, the assignats, simply became state-issued currency. In 1793, the National Convention decreed that “any Frenchman convicted of having refused to accept assignats as payment or to have presented or received them at a loss of any kind, shall be condemned, for the first offense, to a fine of three thousand livres and six months’ imprisonment; in case of repeat offenders, the fine shall be doubled and the person condemned to twenty years in irons”. To be honest, even two decades of hard labour wasn’t enough to persuade the populace to accept the new currency at par. By October 1795, 100 Franc assignats could be traded for only 15 sous in coin and the Paris riots of the time opened the door for Napoleon.
Given the history of forcing people to accept new forms of money, I was a little surprised to hear from the Bitcoin 2021 conference in Miami that El Salvador planned to introduce legislation to make Bitcoin legal tender alongside the U.S. Dollar since, as I wrote earlier in the year, I couldn’t see why any country would bother doing this, partly because “legal tender” is such a misunderstood term, partly because whatever else Bitcoin is, it isn’t money. But largely because legal tender is an outdated and essentially meaningless concept, which is why I am baffled by the continued discussion of it.
It doesn’t mean what a lot of people think it means. Here’s a quick legal tender recap, using the United States as the case study. Section 31 U.S.C. 5103 “Legal tender” states that “United States coins and currency [including Federal reserve notes and circulating notes of Federal reserve banks and national banks] are legal tender for all debts, public charges, taxes, and dues”. Here is chapter and verse from The Man commenting on what that means: “This statute means that all United States money as identified above is a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise”.
TL:DR; Legal tender doesn’t mean you have to accept cash. It means that if you incur a debt, you cannot refuse cash in payment, which is different. Businesses in the US are perfectly free to say that they will only accept Bitcoin if they want to (apart from areas such as San Francisco where local legislators have passed the “party like its 1699” laws imposing a stealth tax on retailers by forcing them to accept cash). I don’t know what the current legal tender laws in El Salvador are but I assume that merchants can accept Bitcoin in payment if they want to.
Legal tender isn’t even necessary. I remember a story about a schoolboy who was chucked off a Welsh bus for trying to pay with a Scottish banknote. The bus company apologised, saying that “Scottish currency is legal tender” which, of course, it isn’t. Scottish banknotes are not legal tender in England or, for that matter, Wales. In fact Scottish banknotes are not legal tender anywhere, even in Scotland. As it happens, Bank of England banknotes are not legal tender in Scotland either, because Scotland (which has a separate legal system) has no legal tender law although bizarrely (and thanks to Colin Platt for this via Twitter) Royal Mint coins are legal tender in Scotland in thanks to the Coinage Act 1971 (Section 2).
No legal tender banknotes! Oh my goodness, it must be chaos!
Actually, it isn’t. I’ve been to Scotland several times and I’ve often seen Scots buying things in shops using banknotes, cards and mobile phones. So not having legal tender laws does not seem to be much of a barrier to trade. This shows how uninteresting the issue of “legal tender” really is in the modern age and for decades I’ve tended to assume that any article, tweet or LinkedIn comment that talks about making a digital currency legal tender is written by someone who doesn’t really understand either topic.
So why attempt to make Bitcoin legal tender?
El Salvador is a cash economy, where roughly 70% of people do not have bank accounts, and remittances are a fifth of the economy. In the 1990s Salvador operated under a “peg” with the national currency, the colón, trading around nine to the dollar. But in 2001, El Salvador official adopted the U.S. dollar as legal tender. As a result, all wages, and prices, all accounts and transactions, were covered to dollars and over a period of time the domestic currency vanished. The result of handing over monetary policy to the Federal Reserve was, as this IMF paper explores, pretty positive. Removing the risk of devaluation and currency together reduced interest rates by 4-5% giving a net saving of around 0.5% of GDP per annum for the private sector. The net saving for the public sector was about half that and it was offset by the seigniorage foregone: the £10 note in my pocket is an interest-free loan to the Old Lady of Threadneedle Street, but if the UK dollarised then it would be replaced by an interest-free loan to Uncle Sam.
Talking about seigniorage, by the way, it is important to understand that the US Federal Reserve banknotes that are in circulation in El Salvador and elsewhere, stuffed under mattresses in Colombia and fuelling the less-formal sections of the Mexican economy are in essence an interest-free loan to Uncle Sam. If El Salvador decided to bring in a digital dollar then it could reclaim the seigniorage for itself by issuing against an interest-bearing dollar reserve.
Rather than implement a digital dollar in a form that makes sense as a digital currency, President Nayib Bukele (labelled a “millennial dictator” by some and an “instrument of god” by himself) announced that “I will send to congress a bill that will make bitcoin a legal tender” and like thousands of other people I listened in live on Twitter Spaces while he did just that and it was ratified by the delegates.
But why pass this bill? As noted there was nothing to stop merchants in El Salvador from accepting Bitcoin if they wanted to, and it sounds a tad illiberal (to say the least) to force people to accept something they don’t want to. JP Koning was quick to point out the perverse implications of requiring Salvadoran stores and markets (what the bill refers to as “economic agents”) to set prices in bitcoin and accept bitcoin as payment. No Salvadoran will choose to take advantage of this feature: the Bitcoin folks for fear of missing out on a price rise, and no-coiners out of fear of bitcoin’s volatility. This is why the President announced at $150m fund to be set up to convert the coins received by merchants into dollars “instantly” (although it is not clear to me what this means in this context).
This isn’t about legal tender at all. It is, as the economist George Selgin notes, compulsory tender. Something wholly different and surely at odds with the libertarian outlook of Bitcoin’s founder(s) which is why it is no surprise to me that some El Salvadorans are “concerned it may just be a tool for corrupt officials”. David Gerard wrote about this in Foreign Policy, speculating whether the President preparing to inject bitcoins into the economy, mark them as “dollars” to make up the government’s deficit, and the grab the actual dollars (coming in via remittances) to pay foreign debts in a kind of stealth de-dollarisation. (This why, I assume, the markets left Bitcoin flat after the announcement while the price of El Salvadoran debt went off a cliff.)
Like many others, I will watch the dynamics of El Salvador’s cryptocurrency sector with great interest and as a student of new forms of money I will be fascinated to see and understand the consequences of the bill. Whether it will happen or not — the Salvadoran Finance Minister Alejandro Zelaya sought technical assistance from the World Bank to help it to use bitcoin as a parallel means of exchange alongside the U.S. dollar, but the Bank refused “given environmental and transparency drawbacks” — I have to say, though, that I am unconvinced that making one particular cryptocurrency a form of compulsory tender will deliver financial inclusion that improves the lot of the average El Salvadoran.
(An edited version of this article first appeared on Forbes, 14th June 2021.)
Snippings