tag:blogger.com,1999:blog-67998861151320425872024-03-05T11:44:25.948-08:00Jeremy BatchelderAnonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-6799886115132042587.post-35715506392113610232019-02-15T08:55:00.003-08:002019-02-15T08:55:32.181-08:00A Primer on Augur and Veil<h3 class="graf graf--h3" name="fac4">
A Primer on Augur and Veil</h3>
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<tr><td class="tr-caption" style="text-align: center;"><span class="markup--em markup--p-em">A photo of Augur's UI</span><em class="markup--em markup--p-em"><br />This article is specifically focused on binary markets and assumes a basic understanding of how Augur, 0x, and prediction markets work.</em></td></tr>
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<br />January will be a big month for Augur. Second layer Augur applications <a class="markup--anchor markup--p-anchor" data-href="https://veil.co/" href="https://veil.co/" rel="noopener" target="_blank">Veil</a> launched on January 15 and <a class="markup--anchor markup--p-anchor" data-href="https://guesser.io/" href="https://guesser.io/" rel="noopener" target="_blank">Guesser</a> started rolling itself out to select users on January 29. While Augur has had over<a class="markup--anchor markup--p-anchor" data-href="https://predictions.global/?s=Money%20at%20Stake" href="https://predictions.global/?s=Money%20at%20Stake" rel="noopener" target="_blank"> $1.2 million</a> staked on their platform to date, there are still multiple hurdles a user needs to jump through in order to trade on an Augur prediction market. By making the user experience easier to use, Veil and Guesser aim to increase the adoption of this technology and open up entirely new applications. For example,</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTrVWWGSsQzr29kwwVu17q3ahLMGbiohRlsclIH8dTrQjfazPPgqunOSSsgayxn2T1nWvJIvZQPvS6Jm8XWZU1aftO6RA2UPRts0JdofZMPV-S8xO7QkstQivWGzB3yQDCpk5O-qh_i9s/s1600/Screen+Shot+2019-02-15+at+8.42.55+AM.png" imageanchor="1"><img border="0" height="227" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgTrVWWGSsQzr29kwwVu17q3ahLMGbiohRlsclIH8dTrQjfazPPgqunOSSsgayxn2T1nWvJIvZQPvS6Jm8XWZU1aftO6RA2UPRts0JdofZMPV-S8xO7QkstQivWGzB3yQDCpk5O-qh_i9s/s320/Screen+Shot+2019-02-15+at+8.42.55+AM.png" width="320" /></a></div>
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Before I explain how to use Augur, I want to define some concepts that are important to understanding how Augur works.</div>
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Volume</h3>
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Volume is the cumulative amount of value that has changed hands in exchange for Augur shares using Augur’s native exchange. When an Augur share is bought, the volume will increase by the amount that was paid for the share.</div>
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The volume metric displayed on Augur is not an accurate measure of a given market’s liquidity for two reasons. First, users can easily wash trade on Augur (Buy and sell a share with themselves), which artificially inflates the volume number. Second, there is a<a class="markup--anchor markup--p-anchor" data-href="https://github.com/AugurProject/augur/issues/904" href="https://github.com/AugurProject/augur/issues/904" rel="noopener" target="_blank"> bug</a> in the Augur software that does not divide the volume by the proper denominator.</div>
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EST Fee</h3>
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There are two different fees that are charged on Augur: creator fees and reporting fees. Anyone can create a market on Augur, however, you need to pay a substantial gas fee to create the smart contract that operates the prediction market. To incentivize market creation, market creators can set a fee that is paid out to them — it’s called the creator fee. The reporting fee is used to pay for Augur’s oracle system. This fee is dynamically calculated every seven days and is based on both the price of REP (Augur’s native token) and the total open interest in a given prediction market.</div>
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These two fees are known as settlement fees on Augur, and they are only charged on transactions that decrease the total amount of open interest. I believe that fees will move towards an equilibrium that compensates market creators for the setup fee but does not take away significant profits from traders. Currently, there is a wide range in settlement fees for markets on Augur, which is something to be aware of before you place a trade.</div>
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Open Interest</h3>
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Open interest is the total amount of ETH that has been locked up in a given prediction market. (Each Augur prediction market is its own smart contract). Open interest increases when new Augur shares are minted, and the ETH backing the original orders is locked up in the unique prediction market smart contract.</div>
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Open interest can decrease in two different ways. The first way open interest decreases is when a complete set is closed out because the open interest is used to market make against the two sell orders. When a complete set is canceled, settlement fees will be charged. In Augur’s native UI, there is no way to determine if the orders are backed by ETH or shares, which can lead to surprise settlement fee charges when placing sell orders backed by shares.</div>
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The second way that open interest can decrease is when a prediction market has been reported on. Once this event occurs, the correct share (long or short) will be worth 1 ETH. An individual can then redeem their winnings, which will decrease the open interest. The amount that a user will be able to redeem their shares for will be equal to 1 ETH minus the settlement fees.</div>
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Expires</h3>
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The date that the reporting period for a given prediction market begins on. After this date, the outcome for the prediction market should be known.</div>
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Unique Properties of Augur</h3>
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It is important to understand this section if you want to use Augur’s native UI. You don’t need to read this section if you want to just use Veil.</div>
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In Augur, there are two ways for an order to be filled. It can either be filled by a counterparty paying ETH — like on a traditional exchange — or by a complete Augur set being created or canceled.</div>
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An Augur set is created when a party goes to purchase shares on Augur and another party takes the opposite side of their bet. Also, the combined total of these two orders has to be equal to 1 ETH. For example, I can submit an order to buy one long share in a binary market at a price of 0.7 ETH. If there is another order to buy one short share at a price of 0.3 ETH, a complete Augur set will be formed. When a complete Augur set is formed, new long and short shares are minted and issued to the two parties in exchange for their ETH.</div>
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A complete Augur set is canceled when there are two opposite sell orders for a combined total of 1 ETH. These two orders will be matched and the respective shares will be burned. The ETH that was being escrowed by the prediction market smart contract will be paid out to the respective makers of the orders.</div>
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This means that orders can be mirrored across order books, which gives Augur and subsequent second layer relayers twice as much liquidity as traditional exchanges with the same amount of orders.</div>
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Here is an example to show how the unique properties of Augur allow a buy order for a short share at 0.3 ETH to be mirrored onto the long order book as a sell order for a long share at 0.7 ETH. A buy order for a short share at 0.3 ETH can be filled by either a sell order for a short share at 0.3 ETH or a buy order for a long share at 0.7 ETH. Both of these subsequent orders can be filled by a sell order for a long share at 0.7 ETH. This means that a sell order for a long share at 0.7 ETH can be added to the long order book, even though no one explicitly placed an order for this.</div>
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Another way to think about this is to denominate all orders in long shares with the knowledge that orders can either be backed by shares or ETH. Here is an example to illustrate this concept.</div>
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If we wanted to buy a short share for 0.3 ETH, we could submit a buy order for a short share at 0.3 ETH and a sell order for a long share at 0.7 ETH. Even if we didn’t own a long share, we could still submit a sell order for a long share at 0.7 ETH, the order would just be backed by ETH and not shares. Since we are only using the long order book, our sell order for a long share is the only order that will actually be added.</div>
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Imagine that a buy order for a long share for 0.7 ETH is submitted to the order books after we have submitted our sell order for a long share that we don’t actually own. Our orders will be matched and sent to Augur’s matching engine. The matching engine will parse the orders to determine if there is ETH or shares backing the orders. There are three possible ways that our orders are filled depending on what backs the two orders:</div>
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<li class="graf graf--li" name="2579">If there are shares backing both orders, which isn’t the case for our hypothetical example because we are selling a share we don’t have, a complete set is canceled because a buy order for a long share at 0.7 ETH is equivalent to a sell order for a short share at 0.3 ETH. The sell order for a long share at 0.7 ETH is matched with a sell order for a short share at 0.3 ETH and is sent to the Augur contract. These two shares are burned, open interest is decreased, and the ETH that was locked up in the contract minus the settlement fees is distributed to the two sellers.</li>
<li class="graf graf--li" name="16e9">If there is ETH behind both of these orders, which is the case in our hypothetical example above, a new set will be created because a sell order for a long share at 0.7 ETH is equivalent to a buy order for a short share at 0.3 ETH. The buy order for the long share at 0.7 ETH is matched with the buy order for a shart share at 0.3 ETH and sent to the Augur contract that mints a new set. The open interest would increase and the new shares would get distributed to the makers of the orders.</li>
<li class="graf graf--li" name="e6cd">If there is a share behind one order and ETH behind the other order, which isn’t the case in our example above, one person would get ETH and the other gets the shares. No new sets are created or destroyed in this scenario.</li>
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Augur’s binary market order books work like in the example above: all orders are denominated in long shares and no orders are sent to the short order book. The smart contracts that hold these order books store information to differentiate if an order is backed by ETH or shares.</div>
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Orders can also be filled without Augur issuing or canceling sets. Augur maintains their own order book and matching engine, where investors can buy and sell their shares in exchange for ETH. The two ways that an order can be filled are abstracted away from the end user on Augur.</div>
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Augur’s Native UI</h3>
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You can choose to interact with Augur directly using the Augur app and a web browser such as Chrome. Once Augur has been<a class="markup--anchor markup--p-anchor" data-href="https://www.augur.net/#download" href="https://www.augur.net/#download" rel="noopener" target="_blank"> downloaded</a> (This took me ~4.5 hrs), you will be able to browse all the prediction markets that have ever been created on Augur. Upon opening the Augur app in your browser, you will encounter a variety of numbers and terms.</div>
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Making a Trade</h3>
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When you click on a prediction market in Augur, an order book will appear. Orders in green are buy orders and orders in red are sell orders. Remember, Augur’s native UI only shows the order book for long shares.</div>
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Purchasing a long share</h3>
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When you want to purchase a long share because you think the outcome of the prediction market will occur, you can input your quantity and limit price into the respective fields. If you are a “rational” individual, you won’t want to set a limit price that is higher than the expected probability of the event happening. For example, setting a limit price of 0.7 ETH means that you think there is at most a 70% chance of this event occurring.</div>
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Checking the box “FILL ORDERS ONLY” will scan the order book for matching orders and only fill your order if a matching order currently exists on the order books. Your order will not be added to Augur’s order book. The reason that you might not want to add an order to Augur’s order books is if the odds for a prediction market could change suddenly. In the scenario where the odds change significantly, you would have to remember to cancel your order to prevent yourself from getting taken advantage of.</div>
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After you click submit, Augur will ask you to send an approval transaction to Augur’s exchange contract that allows it to move ETH on your behalf. Since every Augur prediction market is its own set of smart contracts, you will also need to send an approval transaction to Augur’s exchange contract any time you want to sell shares in a new prediction market. (You can check out<a class="markup--anchor markup--p-anchor" data-href="https://blog.smartdec.net/erc20-approve-issue-in-simple-words-a41aaf47bca6" href="https://blog.smartdec.net/erc20-approve-issue-in-simple-words-a41aaf47bca6" rel="noopener" target="_blank"> this</a> Medium article to learn more about ERC-20’s approve function.)</div>
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Once the order has been added to the order book, you will see the order under the “Open Orders” tab. You can cancel this order by clicking the “Cancel” button. Canceling an order will cost gas, however, it will free up the ETH that has been locked up in the order.</div>
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Once you have purchased your long share, you will see your share underneath your “My Positions” tab. You can sell this share by clicking on the sell tab and submitting an order for the same quantity of shares you own.</div>
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Purchasing a short share</h3>
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When you want to purchase a short share using the Augur UI, you click on the sell tab. This is counterintuitive because you are placing a sell order for a long share that you don’t own, however, this is an equivalent order type to buying a short share as explained above.</div>
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The order book and its colors will stay the same when you switch to the sell tab because the UI only exposes the long order book. You can input the quantity that you would like and set a limit price. The price that you input will not actually be the price you pay. Since everything is denominated in long shares, the price you pay for the short shares is 1 ETH minus the limit price.</div>
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Here is an example of how the math for the actual cost of your short share works out. If you purchase a short share by selling a long share that you don’t own at a price of 0.8 ETH, you will be buying a short share for a price of 0.2 ETH. In more human readable terms, this price means that you think there is a greater than 20% chance this event won’t occur. In the scenario where the long outcome does occur, you lose your 0.2 ETH. However, in the scenario where the long outcome doesn’t occur, you receive 1 ETH — Settlement Fees and your profit will equal 1 ETH — Settlement Fees — 0.2 ETH.</div>
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In Augur, you can sell your shares before a prediction market has been reported on. If an event occurs that makes this prediction market less likely to occur, the price of a short share should increase to a price that is higher than when you initially purchased your share. If you choose to sell your short share before the market reported, your profit would equal Current Market Price — 0.2 ETH. As an aside, you wouldn’t be charged settlement fees here, unless the other side of your trade was backed by shares and not ETH.</div>
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Once you have purchased a short share, you will see a negative value under the “My Positions” tab, instead of a positive value. If you want to cancel your position or sell your short share, you will actually need to buy the same quantity of long shares to do so.</div>
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Veil</h3>
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Veil is a second layer application on top of Augur that aims to increase the liquidity of markets on Augur and provide an easier way to interact with them. Only selected prediction markets on Augur are available to trade on Veil. I believe that the team takes into account settlement fees, reporting risk, and legal liability when deciding which prediction markets to list. Right now, Veil is not available to residents in the US or any of the OFAC countries.</div>
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Differences between Veil and Augur’s UI</h3>
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One of the main differences between Veil and Augur’s UI is that Veil runs a matching model relayer on the 0x protocol. This makes trading Augur shares faster and easier than if you were to use Augur’s native exchange, however, liquidity is not pooled between Augur’s order books and Veil’s order books. For the services that Veil provides, they charge a 1% fee on all orders.</div>
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Second, Veil offers instant settlement for Augur prediction markets. It can take over 27 days for a market on Augur to finish reporting, which means that users won’t have access to their winnings until the reporting process has finished. Veil will let users redeem their winning shares before the reporting period has finished for a 1% fee.</div>
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Lastly, Veil is a company incorporated in the Cayman Islands, whereas Augur is an open source project that is currently being maintained by the non-profit Forecast Foundation.</div>
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I am going to define a few of the term’s shown on Veil’s trading UI below and explain how they differ than the ones in Augur’s UI.</div>
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Volume</h3>
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Volume on Veil represents the same metric as on Augur’s UI. Veil’s volume metric will usually state a different amount than the volume metric that Augur’s UI reports because Veil operates their own order book and calculates volume based on this.</div>
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Last trade value</h3>
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For binary markets, the last trade value shows the most recent price that a long share was purchased at. If the last trade value was .4 ETH, this means that the market thinks there is a 40% chance of the event occurring.</div>
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Purchasing a long share</h3>
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To make a trade on Veil, you have to create an account and whitelist your Ethereum address. You also need to wrap your ETH into<a class="markup--anchor markup--p-anchor" data-href="https://github.com/veilco/veil-contracts/blob/master/contracts/VeilEther.sol" href="https://github.com/veilco/veil-contracts/blob/master/contracts/VeilEther.sol" rel="noopener" target="_blank"> Veil Ether</a>. Veil Ether has a function called depositAndApprove that lets users wrap their ETH into an ERC-20 token like WETH while also approving the 0x Exchange contract to transfer ETH on the msg.sender’s behalf. (This removes the approval transaction that we encountered when placing an order via Augur’s UI).</div>
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To purchase long shares, you can click on the “Long” tab. Unlike in Augur’s UI, Veil shows the order books for both long and short shares. You will notice that the sell side of both the long and short order books are always shown, independent of if you are buying long or short shares. Veil also offers a pro UI that looks like a more traditional exchange order book with a depth chart.</div>
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<tr><td style="text-align: center;"><img class="graf-image" data-height="765" data-image-id="0*C0BiDKSBCjnB-bmj" data-width="1600" height="191" src="https://cdn-images-1.medium.com/max/900/0*C0BiDKSBCjnB-bmj" style="margin-left: auto; margin-right: auto;" width="400" /></td></tr>
<tr><td class="tr-caption" style="text-align: center;">Veil's Pro UI</td></tr>
</tbody></table>
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On the long and short tabs, Veil makes the current probabilities more human readable. For the order book above, you would want to buy a short share if you thought there was less than an 83% of the event occurring and you would buy a long share if you thought there was above a 92.5% of the event occurring.</div>
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Veil also includes a payout gauge, which shows the max gain and loss that you could encounter for a given trade. To learn more about how the economics of Augur prediction markets work, check out the Veil team’s article<a class="markup--anchor markup--p-anchor" data-href="https://medium.com/veil-blog/a-guide-to-augur-market-economics-16c66d956b6c" href="https://medium.com/veil-blog/a-guide-to-augur-market-economics-16c66d956b6c" target="_blank"> here</a>.</div>
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There a few important differences between Veil’s user experience and Augur’s user experience. Veil is using a matching relayer model, which means that they use an off-chain order book. This means that the user can submit an order or cancel an order without having to pay gas costs. (When you place an order, Metamask will ask you to sign the order transaction, but you will not be charged any gas.) Veil is also using the 0x order format, which means investor’s do not lock up their ETH when they submit a transaction.</div>
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Purchasing a short share</h3>
<figure class="graf graf--figure" name="39b9"> <img class="graf-image" data-height="455" data-image-id="1*y9TY8W7jQY3A2lHp8uuZeg.png" data-width="288" height="400" src="https://cdn-images-1.medium.com/max/1200/1*y9TY8W7jQY3A2lHp8uuZeg.png" width="253" /></figure><figure class="graf graf--figure" name="39b9"><br /></figure><div class="graf graf--p" name="3baa">
Purchasing a short order on Veil is much more intuitive than on Augur’s UI. To purchase a short share, you can click on the “Short” tab. Similar to the order flow for purchasing a long share, you can enter the price per share and see potential payouts for your trade. Again, you don’t need to do any complex calculations to actually determine your costs when purchasing a short order. The price per share that you enter will be the price that you end up paying. This is because Veil denominates orders in both long and short shares.</div>
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When you want to sell your short share, you can easily sell your short share by switching to the “Sell Shares” tab.</div>
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Conclusion</h3>
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Veil is a much better option than Augur’s UI for users who want to be able to submit and cancel orders freely, use Augur without waiting 4.5 hours to download the application and redeem their winnings instantly.</div>
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I am excited about Augur because it allows anyone to create a financial market for anything. There are two reasons that I believe this is important. First, financial markets are an ingenious invention that incentivizes individuals to work towards a common goal, and these have traditionally only been applied to a small subset of tasks. I am very excited to see what will happen when financial markets are created for tasks such as volunteer efforts or predictions. Secondly, more diverse financial markets will allow individuals to hedge their risk in many more ways than what is currently available. While it may be years before these goals are realized for mainstream consumers, the Augur ecosystem is actively growing and the user experience is improving.</div>
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I want to thank @micah, @aaaaaaaaaaaaa, @ryanb, and @joeykrug from the Augur Discord group, <a class="markup--anchor markup--p-anchor" data-href="https://twitter.com/pfletcherhill?lang=en" href="https://twitter.com/pfletcherhill?lang=en" rel="noopener" target="_blank">Paul</a> and <a class="markup--anchor markup--p-anchor" data-href="https://twitter.com/GrahamKaemmer" href="https://twitter.com/GrahamKaemmer" rel="noopener" target="_blank">Graham</a> from Veil, and <a class="markup--anchor markup--p-anchor" data-href="https://twitter.com/jtgregorius" href="https://twitter.com/jtgregorius" rel="noopener" target="_blank">Justin</a> at CoinList for answering questions that I had and reviewing drafts of this article.</div>
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If I have made a mistake in this article, please comment below. If you are still confused about how Augur works, feel free to message<a class="markup--anchor markup--p-anchor" data-href="https://twitter.com/jeremy_p_batch" href="https://twitter.com/jeremy_p_batch" rel="noopener" target="_blank"> me</a> on Twitter or comment below, and I will try my best to help you.</div>
Jeremy Batchelderhttp://www.blogger.com/profile/17155407078701928502noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-38483483495362632512018-08-21T20:45:00.000-07:002018-08-21T20:52:28.663-07:00A Systems Design Analysis of Ethereum<div class="MsoNormal">
<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>On July 30, 2015 Vitalik Buterin, a cryptography researcher, published the Ethereum White Paper. The Ethereum White Paper outlined a blockchain implementation that was Turing complete and stateful, two attributes that the first blockchain implementation Bitcoin did not have.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn1" name="_ftnref1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[1]</span></span><!--[endif]--></span></span></a> In this paper, I will provide an overview of Ethereum and blockchain technology, as well as a system design analysis of Ethereum.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>The difference between traditional distributed database systems and blockchains is that participants in a blockchain network are assumed to be bad actors, whereas distributed database systems require trust amongst the nodes. Attempts to develop Byzantine Fault Tolerant distributed database systems such as Byzantine Paxos require multi-stage messaging processes that are not scalable for internet size deployment.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[2]</span></span><!--[endif]--></span></span></a> <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">At the most basic level, a blockchain is a linked list data structure. In Ethereum, each node within this list has a variety of parameters, including the hash of the previous node in the list and three tree data structures.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[3]</span></span><!--[endif]--></span></span></a> These trees store the state of the Ethereum blockchain, a list of transactions, and a receipt log. The state of Ethereum is made up of accounts: externally owned accounts and internal accounts known as smart contracts. External accounts hold balances of the native cryptocurrency Ether, while smart contracts hold code. To add code to a smart contract or execute a contract’s function, a transaction that originates from an external account is sent. When a transaction is processed, a state change occurs. The third tree data structure stores event logs. Just decentralized databases have logs, Ethereum smart contracts will emit events that write to a log after performing some action. <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>In order to maintain this data structure in a decentralized manner, an incentive scheme for validators is required. The validators of transactions in Ethereum are known as miners. When a transaction is sent to the network, it is stored in a pool of unconfirmed transactions. Miners will choose a set of transactions from this pool to validate. Validating a transaction involves running each transaction and ensuring that the transaction adheres to the rules of the Ethereum protocol. After validation, the miners will hash a group of transactions together into a block. If the resulting hash is lower than a required level, the miner can share this block with the rest of the network. <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">This process of validation is known as Proof-of-Work. Requiring miners to produce a hash that is lower than a certain value ensures network security because miners must spend computational power and electricity to produce these calculations. Miners will conduct these actions in exchange for the opportunity to earn a monetary reward.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>Other nodes in the network will run these shared transactions, which is a non-computationally expensive process. The transactions will either be accepted, if they adhere to Ethereum’s protocol, or rejected. Other nodes in the network have an incentive to accept the first valid transactions they receive because they will be interested in building off them as the next node in the linked list.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>Another way to think of Ethereum is as an incentive scheme. Simply put, miners who validate transactions are awarded a reward by validating transactions. Some miners may attempt to publish transactions that fraudulent i.e. sending a transaction from an account that does not have a large enough balance. When this transaction is propagated throughout the network, other nodes will see that the transaction does not abide by the Ethereum protocol and will not build off of it in their linked list. These malicious transactions will end up being a waste of work for the malicious miner because they will not receive a reward for these transactions.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><b>System Analysis: Forward Compatibility Vs Backward Compatibility <o:p></o:p></b></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>With any distributed systems, versioning and managing upgrades can be difficult. Since Ethereum is a decentralized network, software upgrades are very difficult. There are two different ways to upgrade blockchain software: soft forks and hard forks. <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Soft forks occur when backward compatible upgrades are made to the protocol. This means that the new protocol is more restricted than the legacy protocol.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[4]</span></span><!--[endif]--></span></span></a> Nodes that have upgraded their software will see that the new blocks conform to the new consensus protocol. Old nodes will also see that these new blocks conform to the legacy protocol since the new protocol is a subset of the old protocol. If the majority of nodes have upgraded to the new software and an old miner submits a block, this block will be viewed as invalid by the network because it does not adhere to the stricter protocol. Miners who have not upgraded their software will have an economic incentive to do so, as their blocks will not be accepted by the network.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[5]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Hard forks expand the existing protocol rules. During a hard fork, nodes that upgrade their software and nodes that do not upgrade their software will operate on two different chains. Legacy nodes will view the newly mined blocks as invalid because they correlate to a different consensus protocol and vice versa.<o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Soft forks are viewed as less dangerous to a network, as a chain split is less probable. In the case that a majority of miners do not upgrade their software and a majority of nodes do, a chain split will occur. In this situation, nodes will most likely be forced to downgrade their software. <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Within the cryptocurrency community, soft forks have developed mixed opinions. Individuals such as Mike Hearn, a Bitcoin core developer, view soft forks as trickery. He argues that the forward compatibility of soft forks really just tricks legacy nodes into thinking updated transactions still follow the legacy protocol when they are actually different in nature.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[6]</span></span><!--[endif]--></span></span></a> <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Vitalik Buterin and Jeff Garzik, a Bitcoin core developer, believe that soft forks do not let users opt into the new consensus rules.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn7" name="_ftnref7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[7]</span></span><!--[endif]--></span></span></a> In a blog post, Vitalik states, “</span><span style="background: #fdfdfd; color: #111111;">[W]hat matters is not whether or not individual users have to perform the simple bureaucratic step of clicking a “download” button, but rather whether or not the user is <i>coerced into accepting a change in protocol rules</i> that they would rather not accept.”<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn8" name="_ftnref8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="background: rgb(253 , 253 , 253); color: #111111; font-family: "calibri" , sans-serif; font-size: xx-small;">[8]</span></span><!--[endif]--></span></span></a> Vitalik argues that within the blockchain space, individuals think that soft forks are less coercive because the individual does not need to actively upgrade their software. Instead, Vitalik argues that by being passive in a soft fork an individual accepts the new protocol changes, which they may be unaware of. Bitcoin core developer Eric Lombrozo offers a differing opinion. He states that the Bitcoin Improvement Process (BIP) that implements soft forks is community driven and individuals always have the choice to run different software if they are not pleased with the current iteration of the software.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn9" name="_ftnref9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="background: rgb(253 , 253 , 253); color: #111111; font-family: "calibri" , sans-serif; font-size: xx-small;">[9]</span></span><!--[endif]--></span></span></a></span><span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Historically, hard forks have been more contentious to implement than soft forks. This is due to the fact that chain splits diminish the network effects of a particular blockchain and hard forks tend to evolve around contested governance and philosophical issues. For example, Ethereum conducted a hard fork in the summer of 2016 after a hacker exploited a bug in an Ethereum application that took $50 million dollars from users.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn10" name="_ftnref10" style="mso-footnote-id: ftn10;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[10]</span></span><!--[endif]--></span></span></a> This hard fork resulted in a chain split producing Ethereum and Ethereum Classic, the blockchain that did not return the lost funds to users. This hard fork decision raised questions amongst community members about the immutability of blockchain systems and the governance processes for decentralized networks. <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">Andrew Poelstra, a Bitcoin developer and employee at Blockstream, wrote an email thread arguing that hard forks increase the cost to maintain a node, which will lead to centralization. The reasoning for this statement is that hard forks will require individuals to actively monitor their software, which they might choose to outsource.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn11" name="_ftnref11" style="mso-footnote-id: ftn11;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[11]</span></span><!--[endif]--></span></span></a> Others argue that forking allows a network to iterate faster and solve governance issues that a subsection of the community may have with the current network.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn12" name="_ftnref12" style="mso-footnote-id: ftn12;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[12]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-spacerun: yes;"> </span>Apart from the diminishing network effects of splitting a network and determining who gets to use the original network name, legacy blocks remain valid on the new hard forked chain. This opens up the Replay Attack Problem. A replay attack occurs when an individual sends a transaction on the original chain at the time of a hard fork. Since this transaction will be valid with respect to both chains, this transaction can be broadcast to the new chain. The original sender may not know about this transaction that has been maliciously broadcast, which will result in the same state change.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn13" name="_ftnref13" style="mso-footnote-id: ftn13;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[13]</span></span><!--[endif]--></span></span></a> <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><b>Naming</b>:<o:p></o:p></span><br />
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>Right now, each type of account is identified by a unique 40-character hexadecimal representation. In an attempt to make these account names human readable and easier to interact with, a group of developers has begun working on the Ethereum Name Service (ENS). The ENS acts as a decentralized DNS system. <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">The ENS is made up of three Ethereum smart contracts: the registrar, the ENS registry, and the resolver. Nick Johnson, the lead engineer for the ENS system, stated that by breaking up the services of a DNS into three simple pieces, upgradability and forward compatibility are easier to maintain throughout the ENS.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn14" name="_ftnref14" style="mso-footnote-id: ftn14;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: xx-small;">[14]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;">The ENS registry is a contract that maps the hash of a name to the name’s owner’s address and the address of the specified resolution contract. The registry will return the address of the resolution contract, which will then return the address of the object the owner has mapped the given name too. The registrar is responsible for assigning owners to top-level domain names.<span style="font-size: xx-small;"><a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn15" name="_ftnref15" style="mso-footnote-id: ftn15;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif;">[15]</span></span><!--[endif]--></span></span></a> </span>(Currently, a multisignature account of the lead developers is the owner of the .eth TLD within the ENS registry contract.) <o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>The current implementation of the ENS is very primitive. For example, names can only be registered under the .eth TLD, and no name shorter than 7 characters can be registered. This is because there is no effective dispute resolution system for names within the registrar contract. J. Maurelian, an ENS contributor, wrote in a Medium article, </span><span style="background: white; letter-spacing: -.05pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">“Who should control a name like <span style="mso-bidi-font-weight: bold;">microsoft.eth</span>, <span style="mso-bidi-font-weight: bold;"> bankofamerica.eth</span>, or <span style="mso-bidi-font-weight: bold;">vitalik.eth</span>? How should a registrar allocate these names?”<span class="MsoFootnoteReference"> 15</span> The developers have effectively kicked the can down the road by waiting until a full registrar with dispute resolution has been implemented so more desirable names can be owned.<o:p></o:p></span></div>
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<span style="background: white; letter-spacing: -.05pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Within the ENS registry, a hash of the desired name is registered to the corresponding owner. This allows any type of foreign characters and upper and lowercase characters to be used in a .eth name.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn16" name="_ftnref16" style="mso-footnote-id: ftn16;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="background: white; font-family: "calibri" , sans-serif; font-size: xx-small; letter-spacing: -0.05pt;">[16]</span></span><!--[endif]--></span></span></a> Similar to the DNS, owners of a given .eth namespace are allowed to operate on any subdomains of that name.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn17" name="_ftnref17" style="mso-footnote-id: ftn17;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="background: white; font-family: "calibri" , sans-serif; font-size: xx-small; letter-spacing: -0.05pt;">[17]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
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<span style="background: white; letter-spacing: -.05pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"><b>Compiler Versioning:<o:p></o:p></b></span></div>
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<span style="background: white; letter-spacing: -.05pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span><o:p></o:p></span></div>
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<span style="background: white; letter-spacing: -.05pt; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"><span style="mso-tab-count: 1;"> </span>All Solidity code, the programming language for Ethereum, requires that the source code includes a compiler version. As explained in the Solidity specs, “</span><span style="background: #fcfcfc; color: #404040;">Source files can (and should) be annotated with a so-called version pragma to reject being compiled with future compiler versions that might introduce incompatible changes.”<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn18" name="_ftnref18" style="mso-footnote-id: ftn18;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="background: rgb(252 , 252 , 252); color: #404040; font-family: "calibri" , sans-serif; font-size: xx-small;">[18]</span></span><!--[endif]--></span></span></a> The most current version of the compiler is 0.4.12. Any code written with a compiler version 0.4.0 or greater will be compilable with 0.4.12. When version 0.5.x is introduced, code with earlier compiler versions will not remain forward compatible. <o:p></o:p></span></div>
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<span style="background: #fcfcfc; color: #404040;">From a development perspective, compiler versioning is inconvenient because individuals have to have multiple versions of the compiler installed. Legacy source code may not remain supported far into the future, as individuals will remove those compilers from their systems. While researching this paper, I came across a Github comment section where individuals wanted the compiler version to be included in the binary of the Solidity code. The rationale is that any individual would then be able to validate the given smart contract code.<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftn19" name="_ftnref19" style="mso-footnote-id: ftn19;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="background: rgb(252 , 252 , 252); color: #404040; font-family: "calibri" , sans-serif; font-size: xx-small;">[19]</span></span><!--[endif]--></span></span></a><o:p></o:p></span></div>
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<span style="mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"><span style="mso-tab-count: 1;"> </span>While Ethereum is a truly decentralized database, many of the same system design problems of centralized systems exist within its implementation. While it is still in the early days for blockchain implementations, blockchains enable systems to be built that do not require permission, centralized points of control or trust.<o:p></o:p></span></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref1" name="_ftn1" style="mso-footnote-id: ftn1;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[1]</span></span><!--[endif]--></span></span></a> https://github.com/ethereum/wiki/wiki/White-Paper<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[2]</span></span><!--[endif]--></span></span></a> https://www.quora.com/Why-would-you-use-blockchain-over-a-distributed-consensus-protocol-like-Paxos-or-Raft<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[3]</span></span><!--[endif]--></span></span></a> https://github.com/ethereum/wiki/wiki/White-Paper#merkle-trees<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[4]</span></span><!--[endif]--></span></span></a> https://lightco.in/2017/07/30/bitcoin-fork-split/<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[5]</span></span><!--[endif]--></span></span></a> https://www.coindesk.com/information/hard-fork-vs-soft-fork/<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref6" name="_ftn6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[6]</span></span><!--[endif]--></span></span></a> https://medium.com/@octskyward/on-consensus-and-forks-c6a050c792e7<o:p></o:p></div>
</div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref7" name="_ftn7" style="mso-footnote-id: ftn7;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[7]</span></span><!--[endif]--></span></span></a> https://bitcoinmagazine.com/articles/understanding-soft-forks-a-core-developer-s-view-on-network-monopoly-1474990034/<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref8" name="_ftn8" style="mso-footnote-id: ftn8;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[8]</span></span><!--[endif]--></span></span></a> https://vitalik.ca/general/2017/03/14/forks_and_markets.html<o:p></o:p></div>
</div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref9" name="_ftn9" style="mso-footnote-id: ftn9;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[9]</span></span><!--[endif]--></span></span></a> https://bitcoinmagazine.com/articles/understanding-soft-forks-a-core-developer-s-view-on-network-monopoly-1474990034/<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref10" name="_ftn10" style="mso-footnote-id: ftn10;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[10]</span></span><!--[endif]--></span></span></a> https://www.coindesk.com/ethereum-executes-blockchain-hard-fork-return-dao-investor-funds/<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref11" name="_ftn11" style="mso-footnote-id: ftn11;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[11]</span></span><!--[endif]--></span></span></a> https://lists.launchpad.net/mimblewimble/msg00249.html<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref12" name="_ftn12" style="mso-footnote-id: ftn12;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[12]</span></span><!--[endif]--></span></span></a> http://unchained.forbes.libsynpro.com/unconfirmeds-first-episode-olaf-carlson-wee-of-polychain-capital-on-governance<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref13" name="_ftn13" style="mso-footnote-id: ftn13;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[13]</span></span><!--[endif]--></span></span></a> https://cointelegraph.com/news/if-hard-fork-happens-chain-backed-by-majority-of-miners-will-likely-win<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref14" name="_ftn14" style="mso-footnote-id: ftn14;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[14]</span></span><!--[endif]--></span></span></a> https://www.youtube.com/watch?v=pLDDbCZXvTE<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref15" name="_ftn15" style="mso-footnote-id: ftn15;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[15]</span></span><!--[endif]--></span></span></a> https://medium.com/the-ethereum-name-service/explaining-the-ethereum-namespace-auction-241bec6ef751<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref16" name="_ftn16" style="mso-footnote-id: ftn16;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[16]</span></span><!--[endif]--></span></span></a> https://docs.ens.domains/en/latest/faq.html<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref17" name="_ftn17" style="mso-footnote-id: ftn17;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[17]</span></span><!--[endif]--></span></span></a> https://docs.ens.domains/en/latest/userguide.html<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref18" name="_ftn18" style="mso-footnote-id: ftn18;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[18]</span></span><!--[endif]--></span></span></a> https://solidity.readthedocs.io/en/develop/layout-of-source-files.html#version-pragma<o:p></o:p></div>
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<a href="https://www.blogger.com/blogger.g?blogID=6799886115132042587#_ftnref19" name="_ftn19" style="mso-footnote-id: ftn19;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "calibri" , sans-serif; font-size: 10.0pt;">[19]</span></span><!--[endif]--></span></span></a> https://github.com/ethereum/solidity/issues/529<o:p></o:p></div>
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Jeremy Batchelderhttp://www.blogger.com/profile/17155407078701928502noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-37496906697056551252018-03-22T20:00:00.000-07:002018-08-21T21:00:46.350-07:00I have moved to MediumFor my most recent articles, please look at my <a href="https://medium.com/@jeremypalybatchelder" target="_blank">Medium</a> page or see below<br />
<br />
<br />
1) <a href="https://medium.com/rough-draft-ventures/how-rdv-venture-fellows-think-about-early-stage-startups-181c2743cdc6">How RDV Venture Fellows Think About Early Stage Startups</a><br />
An article about how to analyze early stage startups<br />
2) <a href="https://keepingstock.net/equity-crowdfunding-w-o-the-blockchain-13e62f0bf27c">Equity Crowdfunding w/o "The Blockchain"</a><br />
You don't need a blockchain to crowdfund<br />
3) <a href="https://medium.com/adventures-in-consumer-technology/the-future-of-problem-solving-e37a791d1203">The Future of Problem Solving</a><br />
An article about how bounties/contractors will change the way we solve problems in companies<br />
4) <a href="https://medium.com/adventures-in-consumer-technology/how-do-payments-work-cd01b098cc3a">How Do Payments Work?</a><br />
A research paper about how payment networks such as the ACH, wires, and credit cards work<br />
5) <a href="https://theascent.pub/when-was-the-last-time-you-sweat-through-your-jeans-26e766142cf5">When Was the Last Time You Sweat Through Your Jeans</a><br />
An article about my experience working as an irrigator on a cattle ranchAnonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-28275236850030934092017-07-17T13:10:00.002-07:002017-07-17T13:10:33.095-07:00Intro 2.0 to Smart Contracts (Very High Level)<div class="graf graf--p graf--leading" id="ff40" name="ff40" style="--margin-top-multiplier: 0; background-color: white; color: rgba(0, 0, 0, 0.8); font-family: medium-content-serif-font, Georgia, Cambria, "Times New Roman", Times, serif; font-size: 21px; letter-spacing: -0.003em; line-height: 1.58;">
<span style="letter-spacing: -0.003em;">I read an old blog post this morning called Intro to Smart Contracts. After spending the last year learning about blockchain technology, I realized that this article brought no value to anyone that read it. I apologize to the 14 people that did.</span></div>
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The point of this article is to actually explain what smart contracts are at a very high level.</div>
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When you buy Ether or Bitcoin, the coins that you buy are sent to a unique address. With Bitcoin, no coins are actually held at this address. The address acts as a unique identifier, like a bank account number, that allows the total of the transactions to and from this address to be calculated. Bitcoin can be thought of as a ledger that records the deposits and withdrawals from accounts. When you send a transaction via the Bitcoin network, your old balance is reduced by some amount and another account’s balance is increased by this amount. But no physical value is ever <a class="markup--anchor markup--p-anchor" data-href="http://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money" href="http://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money" rel="nofollow noopener" style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0.44); background-color: transparent; background-image: linear-gradient(rgba(0, 0, 0, 0.6) 50%, rgba(0, 0, 0, 0) 50%); background-position: 0px 1.07em; background-repeat: repeat-x; background-size: 2px 0.1em; text-decoration-line: none;" target="_blank">moved</a>.</div>
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Ethereum works a bit differently. Ethereum stores a number of coins you own at an address in something called a smart contract. The ability to store information at these addresses is called the Ethereum State. Whereas Bitcoin only stores transactions that have been sent in the Bitcoin blockchain, any type of data can be stored in the Ethereum state and thereby the Ethereum blockchain. The information that is stored could range from the amount of Ether you have to the type of life insurance you own.</div>
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A smart contract is an address that holds computer code. Transactions can be sent to this address that will trigger specific functions. For example, a user could program and deploy a smart contract that holds the name of a person. When a transaction is sent to this function with a name, the state of the smart contract will be changed so that it now stores the name that was sent to it. Another person could send a different transaction to this smart contract that will return the name that is stored in this smart contract. While this is a very boring example of what smart contracts can do, smart contracts enable Ethereum to operate as a universal computer. Due to the decentralized nature of Ethereum, there are smart contracts that anyone can send transactions to. (You can also create smart contracts that only execute functions when certain people send transactions to it).</div>
<div class="graf graf--p graf-after--p" id="12a1" name="12a1" style="--baseline-multiplier: 0.179; background-color: white; color: rgba(0, 0, 0, 0.8); font-family: medium-content-serif-font, Georgia, Cambria, "Times New Roman", Times, serif; font-size: 21px; letter-spacing: -0.003em; line-height: 1.58; margin-top: 29px;">
<a class="markup--anchor markup--p-anchor" data-href="https://www.youtube.com/watch?v=49wHQoJxYPo&t=1s" href="https://www.youtube.com/watch?v=49wHQoJxYPo&t=1s" rel="nofollow noopener" style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0.44); background-color: transparent; background-image: linear-gradient(rgba(0, 0, 0, 0.6) 50%, rgba(0, 0, 0, 0) 50%); background-position: 0px 1.07em; background-repeat: repeat-x; background-size: 2px 0.1em; text-decoration-line: none;" target="_blank">Slock.it</a> is using the functionality that smart contracts enable in some very cool use cases. They are developing a mini Ethereum computer that allows physical objects such as bike locks, door locks, or electric charging stations to be operated by a smart contract. You can send the bike lock a transaction with a specified amount of Ether that would allow you to use it for a duration of time. This is different than a Hubway station because the only infrastructure that would be required is a blockchain enabled bike lock.</div>
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In my previous article, I stated that smart contracts use conditional statements like a contract in a bet. While smart contracts execute certain functions if a transaction containing some data is sent, smart contracts aren’t only used to write conditional contracts. Many of the use cases regarding conditional contracts, such as the Patriots winning, are difficult to implement on Ethereum. The reason for this is that the Patriots winning is an off chain event, and the Ethereum blockchain needs to be notified of this event somehow. There must be a certified off chain authority that can inform the smart contract of this condition when it occurs. Every node in the blockchain needs to receive this same exact information so that consensus can be reached. <a class="markup--anchor markup--p-anchor" data-href="https://www.youtube.com/watch?v=v19KtrFqAjo" href="https://www.youtube.com/watch?v=v19KtrFqAjo" rel="nofollow noopener" style="-webkit-tap-highlight-color: rgba(0, 0, 0, 0.44); background-color: transparent; background-image: linear-gradient(rgba(0, 0, 0, 0.6) 50%, rgba(0, 0, 0, 0) 50%); background-position: 0px 1.07em; background-repeat: repeat-x; background-size: 2px 0.1em; text-decoration-line: none;" target="_blank">Gnosis</a>, a prediction market platform, has developed a solution to this hurdle, but it requires a certified off chain person informing the blockchain what the outcome of the result was.</div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-20263657911461912992016-09-06T08:43:00.000-07:002016-09-06T08:43:59.294-07:00Transferring Assets via Blockchain Technology<div class="MsoNormal">
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<span style="font-family: Times;">Another
feature that has generated lots of excitement within the Blockchain 2.0 realm is
the ability to transfer assets using the blockchain. While bitcoins have
provided people with the ability to send money through the Internet, without the
fees of middlemen such as banks, the ability to transfer assets through the
blockchain would allow people to trade their houses, cars, or shares of stock
without using traditional middlemen such as realtors, stock brokers, or auto
salesman. This would also mean that assets would transfer immediately after
they were purchased, which would prevent incidents like </span><a href="http://thebiglead.com/2016/01/14/as-kobe-ticket-debacle-shows-stubhub-other-outlets-should-be-1000-liable-when-they-screw-up/"><span style="font-family: Times;">this</span></a><span style="font-family: Times;"> from
occurring. Colored coins and Counterparty are two technologies that I found
that seemed to be the most talked about among Bitcoin and blockchain forums. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times;">Colored
coins function as regular Bitcoin transactions. To create a colored coin that
represents some asset, all one has to do is take a bitcoin and add metadata to this
“coin.” This added data would represent some asset such as one share of Ford or
a house in Florida.<sup>1</sup> (Bitcoins do not actually exist because Bitcoin
is really just a ledger of inputs and outputs into somebody’s Bitcoin wallet.
When computers check to see if an account has enough bitcoins, they are just
searching for previous inputs into that account. Adding data to a bitcoin is
really adding data to some bitcoin transaction in which all parts of that
transaction are colored with this added data.<sup>2</sup>) This new coin
functions just like a regular bitcoin transaction. </span><a href="http://digiconomist.net/adding-metadata-blockchain-part-1"><span style="font-family: Times;">Here</span></a><span style="font-family: Times;"> is a
link if you want to learn how to add this metadata to create a colored coin. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times;">There
are some companies such as Overstock.com that have received SEC approval to
issue their publicly traded stock as colored coins.<sup>1</sup> Most colored
coins are not backed by a legal contract and are based on trust that the other
party has the physical asset to back their colored coin. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times;"><span style="mso-tab-count: 1;"> </span><span style="mso-spacerun: yes;"> </span>From scrolling
through Reddit and Quora forums, it seems that many people are opposed to
colored coins because they believe they will cause blockchain bloat. Blockchain
bloat is classified as transactions within the Bitcoin blockchain that are not
used for currency transactions, like colored coins.<sup>3</sup> While the added
data to Bitcoin transactions will increase the amount of information being
processed on the network, which could slow processing speeds down, miners who
process colored coin transactions are still receiving a processing fee from
these transactions.<sup>4</sup> This view that blockchain bloat is akin to
email spam is held among some purists that believe that the Bitcoin blockchain
should be kept for only pure Bitcoin transactions. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times;">Another
downside of using colored coins is that if one sends a colored coin to an address
that does not have colored coin capabilities, the colored coin will be lost
forever. There are specific computers within the blockchain that can understand
which bitcoin transactions are colored coins. This is how colored coin wallets
operate as well.<sup>4</sup> <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times;"><span style="mso-tab-count: 1;"> </span>In an article by Richard Gendal, he discusses how the
exchange process of colored coins works. When someone agrees to buy a colored coin
from another party, there needs to be a system in which the buyer is guaranteed
that they will receive this asset coin when they send their money. Colored coin
technology ensures this by having the seller put their asset coin into a escrow
account of sorts, which functions outside the blockchain.<sup>5</sup> This goes
against Bitcoin ideology because there is now a third party that the individual
must put their faith in. The problem with trusting a third party is that if
this company failed while holding someone’s assets, those assets could be lost.
<o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times;">Counterparty,
a competing technology to colored coins, uses a bid/ask system to complete the
exchange process. A seller will make an ask price, and a buyer will make a bid
price. When these two offers are matched, the seller is required to honor the
price they said they would sell the shares at, and the buyer must honor the
price they stated they would pay for the shares. Like stock exchanges,
Counterparty locks these assets into place until the offer has expired. Coded
into the protocol is an automatic exchange system that forgoes a party outside
of the blockchain. But Richard Gendal states that the problem with this system
is that all these bid/ask prices are stored in the blockchain, meaning that
temporary transactions are stored permanently.<sup>5<o:p></o:p></sup></span></div>
<div class="MsoNormal">
<span style="font-family: Times;"><span style="mso-tab-count: 1;"> </span>Unlike Colored Coins, Counterparty uses its own currency
to digitize assets onto the blockchain. This native currency is called XCP. XCP
came into existence when individuals sent bitcoins to a Bitcoin wallet in
return for XCP. The bitcoins that were sent to this wallet were destroyed, so that
Counterparty and the creation of XCP would not be viewed as a get rich quick
scheme.<sup>12</sup> The Counterparty website likens this to the process of
mining bitcoin as “</span><span style="background: white; font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Bitcoin
miners also destroy one resource [Energy] to get another [Bitcoins].”</span><span style="font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times;"><span style="mso-spacerun: yes;"> </span><span style="mso-tab-count: 1;"> </span>While
Counterparty has its own currency, the transactions within Counterparty are
merged onto the traditional blockchain network. There is special computer code
that recognizes Counterparty transactions and establishes an independent
Counterpary ledger. Since the same nodes that mine bitcoin process Counterparty
transactions, there is a bitcoin fee for every transaction within Counterparty.
Besides the bitcoin transaction fee, it costs 0.5 XCP to create an asset token.
This 0.5 XCP that is used to create an asset token is burned (See issuance
strategy above), causing XCP to be deflationary.<sup>7</sup> <o:p></o:p></span></div>
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<span style="background: white; font-family: Times; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Bibliography:<o:p></o:p></span></div>
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<span style="font-family: Times;">1) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Digiconomist. "Adding Metadata to
the Blockchain, Part 1 - Digiconomist." Digiconomist. 2015. Accessed
August 09, 2016. http://digiconomist.net/adding-metadata-blockchain-part-1. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times;">2) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">"How Do Bitcoin Transactions Work?
- CoinDesk." CoinDesk.
http://www.coindesk.com/information/how-do-bitcoin-transactions-work/. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times;">3) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Wagner, Andrew. "Ensuring Network
Scalibility: How to Fight Blockchain Bloat." Bitcoin Magazine. 2014.
https://bitcoinmagazine.com/articles/how-to-ensure-network-scalibility-fighting-blockchain-bloat-1415304056.
<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times;">4) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">"Beginners." Coloredcoins.
2015. Accessed August 03, 2016. http://coloredcoins.org/inner-page-3-1/. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Times;">5) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">Brown, Richard Gendal. "A
Decentralized Securities Trading and Settlement System Is Being Built Hidden in
Plain Sight." Richard Gendal Brown. 2014. Accessed August 02, 2016.
https://gendal.me/2014/06/10/a-decentralized-securities-trading-and-settlement-system-is-being-built-hidden-in-plain-sight/.
<o:p></o:p></span></div>
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<div class="MsoNormal">
<span style="font-family: Times;">6) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">"Why Proof-of-Burn."
Counterparty. March 23, 2014. Accessed August 06, 2016.
http://counterparty.io/news/why-proof-of-burn/. <o:p></o:p></span></div>
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<span style="font-family: Times;">7) </span><span style="font-family: Times; font-size: 10.0pt; mso-bidi-font-family: "Times New Roman"; mso-fareast-font-family: "Times New Roman";">"Assets." Counterparty.
Accessed August 05, 2016. http://counterparty.io/docs/assets/. <o:p></o:p></span></div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-58270228186905115312016-08-11T16:39:00.000-07:002016-08-11T16:39:21.145-07:00Intro to Smart Contracts<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">I first became interested in smart contracts after reading the book <span style="background-color: white; line-height: 18.2px;"><i>The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order. </i> The book doesn't explain how smart contracts work well, but I was fascinated by the future Blockchain 2.0 technology. </span><i> </i></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times, Times New Roman, serif;">Smart
contracts function like regular contracts that are created when two people make
a bet or a customer takes out a loan from a bank. There is some variable term,
such as if the patriots win or if you fail to make your interest payments, and
a consequence, then you owe your friend ten dollars or the bank can take
ownership of your house. But what’s unique about smart contracts is that they
are based on the blockchain. The essence of the blockchain is that it creates a
way to establish trust among untrusted parties. First, the blockchain creates a
system in which there is no central authority that controls the servers that data
is stored on because the blockchain is run off of thousands of independent
computers around the globe. This means that nobody can corrupt stored data or
change the terms of a contract without the other party knowing, since each
computer’s ledger must agree with the other computers’ ledgers in the
blockchain. Second, the blockchain publishes a public ledger of all
transactions that have taken place within its network. This allows people to
verify that a person actually posses the assets they claim to have. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times, Times New Roman, serif;">Smart
contracts could be very beneficial to underprivileged groups such as the
unbanked. Unbanked people are not able to receive service by traditional
financial institutions such as banks. This means that they are restricted in
their ability to get loans and other forms of capital. By using smart
contracts, the unbanked could digitize their assets* and post them as
collateral to loans that individuals make to them. When the smart contract is
being established, the person receiving the loan would place their asset token
into an independent escrow account that is controlled by the smart contract
code. The loan provider would do the same with the money being loaned, and this
money would be sent to the customer. But if the customer failed to deposit
their monthly interest payment into an escrow account managed by the smart
contract code, this could trigger the escrow account to move the asset token
into the loan provider’s account. Smart contracts on the blockchain provide a
secure and unbiased way for people to enter into agreements, contracts, or
bets. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times, Times New Roman, serif;">Many
people use the example of a bank being able to take control of a borrower’s
home if they neglect to pay their loan payments as a great use case of smart
contracts. People believe that this would greatly reduce litigation costs and
efforts because the code would automatically process the change in ownership of
the house. But if this change in ownership of the owner’s house takes so much
time and effort to conduct after the customer defaults in the traditional
system, I believe using smart contracts would just shift the workload of this
litigation process to the front end when the contract is being created. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: Times, Times New Roman, serif;">The
Bitcoin blockchain cannot support smart contracts due to the fact that it does
not allow<span style="background: white;"> “computer language to
carry out a wider array of more precise instruction” beyond Bitcoin
transactions, which is known as Turing completeness.<sup>1 </sup></span>Firms such as
Ethereum are developing a blockchain that contains these Turing completeness
capabilities that would allow for the programmability of programs like smart
contracts.<sup>2</sup> <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;"><a href="http://coincenter.org/entry/what-are-smart-contracts-and-what-can-we-do-with-them">Here</a> is a
link to an interesting article on why the absolutism of smart contracts is an
undesirable feature.<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">*See next post for
description of asset tokens on the blockchain<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-family: Times, Times New Roman, serif;">1) DeRose, Chris. "'Smart Contracts'
Are the Future of Blockchain." American Banker RSS. 2016. Accessed August
06, 2016.
http://www.americanbanker.com/bankthink/smart-contracts-are-the-future-of-blockchain-1078705-1.html.
<o:p></o:p></span></div>
<div class="MsoNormal">
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<span style="font-family: Times, Times New Roman, serif;">2) DonaldMcIntyre. "What Is Ethereum?
How Does It Work? • /r/ethereum." Reddit. Accessed August 07, 2016.
https://www.reddit.com/r/ethereum/comments/3krr3s/what_is_ethereum_how_does_it_work/.
</span><span style="font-family: Times; font-size: 10pt;"><o:p></o:p></span></div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-66538653247208712242016-08-10T17:38:00.000-07:002016-08-11T16:24:43.492-07:00Book Review: The Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global Economic Order <div class="MsoNormal">
<span style="font-family: "times";">I recently finished a book
called <i style="mso-bidi-font-style: normal;">The Age of Cryptocurrency: How
Bitcoin and Digital Money Are Challenging the Global Economic Order</i> by
Michael Casey and Paul Vigna. This book gives a complete overview of Bitcoin as
a technology (the blockchain) and as a currency (BTC). It covers a very wide
range of topics from the white paper published by Satoshi Nakamoto and his
unknown identity to the regulatory hurdles that Bitcoin entrepreneurs have
faced. (I have </span><a href="http://www.coindesk.com/information/how-bitcoin-mining-works/"><span style="font-family: "times";">linked</span></a><span style="font-family: "times";"> a
website that I believe does a very good job of describing how blockchain
technology works). The authors of this book emphasize the future implications
of Bitcoin’s blockchain technology, which they refer to as the Blockchain 2.0. The
Blockchain 2.0 is an umbrella term for all applications that are using Bitcoin’s
core technology, the blockchain, in ways that go beyond transferring money. There
were two main applications of the Blockchain 2.0 that the authors mentioned:
smart contracts and asset transfers. I did not understand how these blockchain
applications worked, after reading this book, and hope to explain them in
following posts. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "times";"><span style="mso-tab-count: 1;"> </span>The authors approached the challenge of explaining what
Bitcoin is by first attacking the underlying question, “What is Money?” According
to the authors, there are two contrasting views to this question. The ideology
of metallism is founded on the belief that money has have some underlying
value, think the Gold Standard, while chartalism is founded on the ideas that
currency is an intricate network of trust and has value due to its
characteristic as a medium of exchange.<sup>1<o:p></o:p></sup></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="font-family: "times";">I
really enjoyed the author’s description of the Yapese monetary system. It is a great example of chartalist
theory of currency, as well as an analogy for Bitcoin. The Yapese currency is
based upon large round stones known as <i style="mso-bidi-font-style: normal;">fei</i>.
Since these objects are so massive, it is very inefficient to transfer them to
the new owner after each transaction, so they usually remain in the possession
of the previous owner. But even while the physical stone may not move into
possession of the new owner, the new owner is recognized as possessing the
value of the stone. <sup>1 </sup>This example does a great job of illuminating
how money is based upon a system of trust that other people will accept it as a
unit of exchange and how Bitcoin is based on a public ledger where people
acknowledge each other’s credits and debits, even though there is no physical
asset. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: "times";"><span style="mso-tab-count: 1;"> </span>While I don’t believe the authors do a great job of
describing how the technology behind the blockchain and Bitcoin works, this
book is a fascinating and informative read. I had very limited knowledge about
Bitcoin and did not even know that the blockchain existed before reading this.
Now, I am intrigued by both of these technologies and believe they will have a
large impact on the future of financial networks. I also think Bitcoin is a
fascinating experiment to think about in terms of a new monetary system. Bitcoin
is deflationary and has no central bank, unlike most every other currency that
we use today, and I am curious how this will impact monetary economics. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
<br /></div>
<div class="MsoNormal">
<span style="font-family: "times";">1) </span><span style="font-family: "times"; font-size: 10.0pt;">Vigna, Paul, and Michael Casey. <i>The
Age of Cryptocurrency: How Bitcoin and Digital Money Are Challenging the Global
Economic Order</i>. New York: St. Martins Pr. <o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
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Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-26890167022486482572014-11-07T16:33:00.000-08:002014-11-08T07:17:57.339-08:00What is Quantitative Easing and was it successful? <style>
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During the 2008- 2009 Great
Recession, the Federal Reserve tried to create stability within financial
markets and spur economic activity. To do this, the Federal Reserve lowered
interest rates. But as the Federal Funds rate neared zero, interest rates remained
high due to fears of insolvency within companies and illiquidity within financial
markets. To solve this divergence in interest rate spreads, the Federal Reserve
pursued unconventional monetary policy such as Quantitative Easing. </div>
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<span style="mso-spacerun: yes;"> </span>Quantitative Easing works by the Federal
Reserve purchasing assets, such as Mortgage-Backed Securities, long-term bonds,
or treasuries, from banks in return for cash. This results in the bank holding
excess reserves that can be loaned out to create economic activity. (When the
bank’s supply of money increases, interest rates go down because banks want to
be able to loan out their money to make a profit.) Quantitative Easing also
allowed the Federal Reserve to create liquidity within financial markets, which
freed up investors capital. <span style="mso-spacerun: yes;"> </span></div>
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Last week, the chair of The Federal
Reserve Janet Yellen declared the end of Quantitative Easing, as the economy
has improved and unemployment figures have lowered. Though the economy has
improved and interest rates have been at near zero levels for the last four
years, Quantitative Easing has become a controversial issue. Some people
believe that this program has created a bubble in equity markets, and that it
will lead to high inflation and a jump in interest rates after the program has
been ended. The S&P 500 has returned over 130% since the start of QE1. Quantitative
Easing may have helped make stocks an appealing choice to investors because businesses
are able to take advantage of the low interest rates and bonds were had very
small returns, but it is hard to say if Quantitative Easing has created a
bubble in the equities market. The Fed has expanded its balance sheet by almost
$3.6 trillion dollars through monthly asset purchases, but QE should be looked
at as an asset swap rather than an inflationary program. (See link at bottom
for more info) The last criticism, interest rates will jump after this program
has ended, may become true, but the Fed has said that it will keep interest
rates at similarly levels after the end of QE. </div>
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Quantitative Easing has not created
economic wonders by creating a fast growing economy, but it may have helped
make the Great Recession less damaging. Yet, there are still many economic side
affects that may come of Quantitative Easing. </div>
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During the Great Depression, the
Federal Reserve failed to pump liquidity into the system and help failing
financial institutions. This led to a deflationary spiral and economic
collapse. During the Great Recession, the Federal Reserve did many
controversial things, but it fulfilled its duty of trying to create liquidity
and stability within financial markets. </div>
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<br /></div>
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Here is the link mentioned above: <a href="http://pragcap.com/mechanics-qe-transaction">http://pragcap.com/mechanics-qe-transaction</a></div>
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<br /></div>
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I am still unsure whether Quantitative Easing was a
successful program. Please comment below on what you think or any information
that has led you to view it in a certain way</div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-85806183880090452992014-10-21T15:30:00.000-07:002014-10-22T15:12:00.620-07:00The Rise of MOOCs<style>
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<div class="MsoNormal">
In an <a href="http://smallmoneybigworld.blogspot.com/2014/07/book-review-third-industrial-revolution.html" target="_blank">article</a> I posted a few months ago, I tried to explain changes
that are affecting our world, from the way we get information to how we create
energy. The Internet has been one of the largest contributors to these changes,
allowing people to communicate and share ideas with each other from across the
globe. </div>
<div class="MsoNormal" style="text-indent: .5in;">
In the field of education, the Internet
has brought innovation by providing billions of people with the ability to
explore any topic they desire, independent of their age or socioeconomic
class. One creation that has stemmed from the Internet are Massive Open Online
Courses or MOOCs. These are online classes that are taught by professors,
available to anyone free of charge. Through university initiatives and
startup companies such as Udacity, Coursera, and edX, colleges are able to
distribute their courses to online audiences. </div>
<div class="MsoNormal" style="text-indent: .5in;">
Finding a way to make MOOCs profitable
has become a problem for these universities and companies. Udacity has partnered
with large companies such as AT&T and Google to provide training for employees,
while Cousera offers certificates of completion for a fee. Some universities
have begun using online courses to teach supplemental programs to students. Harvard
has begun using online classes to teach credit or degree classes through the Harvard
Extension School, and Harvard Business School has begun offering online degrees
through HBX. In 2013, Wharton was the first business school to publish MOOC
versions of its first year MBA classes.</div>
<div class="MsoNormal" style="text-indent: .5in;">
This summer, I was able to participate
in a MOOC offered by Harvard called CS50. CS50 is an introductory to computer
science class. Through filmed lectures, supplemental videos, and online
coursework, I was able to participate in a class that was similar to what
undergraduates at Harvard were taking. The CS50 staff has incorporated online chat groups, forums, and videos into the online class to allow students to interact
with one another online, but there is still a large aspect of social interaction that is lost. </div>
<div class="MsoNormal" style="text-indent: .5in;">
Though, I believe MOOCs are a great
way to learn additional knowledge or refresh skills, I do not think that they are
a replacement to a college education, yet. Peer interaction, study groups, and extra-help
sessions are not very accessible when participating in a MOOC. <a href="https://www.insidehighered.com/news/2013/12/18/san-jose-state-u-resurrects-scaled-back-online-course-experiment-mooc-provider" target="_blank">San Jose State University recently found that their students who were taught via online courses received lower test scores than those who were taught in a classroom. </a>Online lectures do provide students with valuable resources, as
teachers are able to “flip” their classroom and students can watch lectures that
they may have missed or not understood. In the future, I believe that more
students will begin replacing college classes with MOOCs if universities
are able to recreate an experience that is similar to what students in a physical classroom atmosphere experience. </div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-26012897967608225602014-09-21T07:47:00.000-07:002014-09-21T07:47:30.850-07:00What is Monetary Policy?<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="text-indent: .5in;">
The Federal Reserve was created in
1913 through the Federal Reserve Act.<span style="mso-spacerun: yes;">
</span>The purpose of the Federal Reserve, or central bank, is to provide the
country with a safe, liquid, and stable monetary system. The Federal Reserve
does this by manipulating the Federal Funds Rate and changing the monetary
supply.. </div>
<div class="MsoNormal" style="text-indent: .5in;">
In times of financial panic, the
central bank tries to keep financial markets liquid and prevent the monetary
supply from tightening. To keep the monetary supply from decreasing, the Fed
can lower interest rates. When interests are low, individuals and businesses
are more likely to borrow money, because it is cheaper. When businesses and
individuals take out loans, they have money to spend, which can create economic
growth.</div>
<div class="MsoNormal" style="text-indent: .5in;">
<span style="mso-spacerun: yes;"> </span>In the recent collapse, the Fed took many
unprecedented measures to create loose monetary conditions. They created
multiple programs that bought toxic assets from investors, which created liquidity
within markets. (If a market is liquid, the asset can be converted to cash
easily. This allows people to sell assets in return for cash, rather than being
stuck with assets that they couldn’t sell.) Another program called Quantitative
Easing was created to lower interest rates and increase the monetary supply.
This was achieved by buying Treasury Securities.</div>
<div class="MsoNormal">
<span style="mso-tab-count: 1;"> </span>The Fed influences
the money supply and interest rates by setting a target for the Federal Funds
Rate. To reach this target, the Fed will either buy or sell large quantities of
Treasury Securities. When the Fed sells Treasury Securities, they deduct the
total cost the purchasing bank bought from that bank’s reserves. This bank is
then required to borrow money from other banks so they have enough money to
meet their required reserves. (The rate at which banks loan each other reserve
money is called the Federal Funds Rate, which influences almost every interest
rate.) The Federal Funds Rate will rise because there is more demand for
borrowed reserves. The opposite occurs when the Fed sells Treasury Securities;
interest rates decrease and the monetary supply increases. The Fed credits the
bank’s account allowing the bank to lend out more of their deposits.<span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Treasury Securities, such as bonds, bills or notes, are debt
obligations issued by the US government. They a very liquid asset and are
considered riskless because investors do not believe that the United States will
default on their loans. </div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-16180802446065430902014-08-23T15:23:00.000-07:002014-08-23T15:23:26.505-07:00Why I am Bullish on Ford 2/2<style>
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<div class="MsoNormal">
Metrics and Valuation <span style="font-size: 8.0pt;">(All data came from Morningstar Inc) </span><span style="font-size: 9.0pt;"></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is the second part of my analysis of Ford Motor Inc (F)</div>
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<br /></div>
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<b style="mso-bidi-font-weight: normal;">Valuation</b>:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Price/Earnings: PE ratio gives you the amount of money you are spending for $1.00 of a company’s earning. A high PE ratio means that the stock is expansive relative to its earnings and may be overvalued. Growth companies tend to have high PE ratios because investors are expecting large earnings growth in the future, even if the current earnings do not justify such a high price. The PEG ratio takes the growth rate into consideration. Any stock with a PEG ratio <1 is considered to be undervalued. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I tend to look at companies that have a PE ratio of 13.00 or below, but it can change dependent on the industry and company. Ford’s PE is 9.07 compared to the S&P 500 PE of 19.39. I believe that Ford is undervalued at this price. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Price/Book: PB ratio is the Price of the stock/Shareholders Equity. This is another valuation that can help investors find undervalued companies. There are some shortcomings to this metric because Shareholders Equity can be easily manipulated. If a company has a low PB ratio (<2.0 I think) then either the company is undervalued or may have financial problems. </div>
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<br /></div>
<div class="MsoNormal">
Ford has a PB ratio of 2.5, which I think is still a semi undervalued rating. </div>
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<br /></div>
<div class="MsoNormal">
<b style="mso-bidi-font-weight: normal;">Metrics</b>:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Return-On-Equity(Net Income/Shareholder’s Equity): ROE is a metric that tells you how efficiently the company is using shareholder’s money. I usually look for an ROE greater than or equal to 18%. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ford had an ROE of 33.81& in 2013, which means that Ford returned 0.3381 dollars in profit for every shareholder dollar invested. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Return-On-Invested Capital: ROIC is a measurement that shows the rate of return that the company is making off invested capital, such as common equity, preferred shares, and long term bonds. If the cost of capital is greater than the return on invested capital, the company is losing value and vice-versa. The equation for ROIC is: Net Profit after Taxes/Operating Capital</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Operating Capital=Average Stockholder Equity + Average Debt Liability </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ford has an ROIC of 6.08% for 2013, while General Motors had an ROIC of 6.42%. Although I usually look for an ROIC between 15%-20%, automobile manufacturers tended to have an average ROIC ratio around 4% for fiscal year 2013. </div>
<div class="MsoNormal">
<br /></div>
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Dept/Equity: This ratio helps investors determine if the company is actively issuing debt or issuing new shares of stock to raise capital. Ford currently has a debt/equity ratio of 2.9. Though this ratio is high compared to a computer company, auto manufacturers require lots of capital due to the capital-intensive nature of the business. These companies tend to have Debt/Equity ratios above 2. </div>
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<br /></div>
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When conducting financial research, it is important to learn about the financials of other companies within the same sector. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I believe that Ford is undervalued and has very strong growth potential domestically and abroad. China and Africa are two large markets that Ford has just begun to grow in. Ford is also developing innovative solutions to create more fuel-efficient cars. This is very important that a company of this size is still able to make such large changes. Ford is creating value for its shareholders, and I believe that it will continue to.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Disclaimer: I am just a kid with no proper financial training. This report will not guarantee investing success. </div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-44233791814792344752014-08-19T15:21:00.000-07:002014-08-19T15:26:44.681-07:00Why I am Bullish on Ford<style>
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<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This will be a multiple part analysis of the Ford Motor
Company Inc. Ford’s ticker symbol is F. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b>Income Sheet</b>:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Here is a chart of the company’s Income Sheet. The Income Sheet
is one part of the Financial Statement. The income sheet shows the amount of
revenue earned by the company for a specific period of time. It also
incorporates the costs that the company has incurred to earn its revenue. </div>
<div class="MsoNormal">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjymjcckfXO3wAaxW5OxFNeNl09tdAspZL1C2PEg4_EU704K7G65BYYWpDKodv_NOAdXt9F-pb-mGzRFIYKn3N4wY3yd-SiFis_Zu4oELbkEs0PIx3YL-Q1d0fG1iEHT62i5P4RemXdyUkn/s1600/Screen+Shot+2014-08-19+at+6.23.46+PM.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjymjcckfXO3wAaxW5OxFNeNl09tdAspZL1C2PEg4_EU704K7G65BYYWpDKodv_NOAdXt9F-pb-mGzRFIYKn3N4wY3yd-SiFis_Zu4oELbkEs0PIx3YL-Q1d0fG1iEHT62i5P4RemXdyUkn/s1600/Screen+Shot+2014-08-19+at+6.23.46+PM.png" height="134" width="320" /></a><span style="font-size: 8.0pt;"> </span><br />
<br />
<br />
<br />
<br />
<span style="font-size: 8.0pt;">Morningstar Inc</span></div>
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<br /></div>
<div class="MsoNormal">
<br />
<br />
<br />
<br />
Revenue growth for Ford(F) over the last three years has
averaged 4.4%, compared to General Motors’ (GM) 4.66. The significant decrease
in revenue in 2012 was due to the incredibly weak car market in Europe and poor
economic conditions in the United States, which resulted in losses for many
auto manufacturers. Ford took an active approach to the European crisis. The
company closed factories and began to build cars that appealed to the consumer’s
taste in the area, a lesson that they used to turn around their North American
unit. <span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Earnings-per-share rose 23.94% in fiscal year 2013,
signaling that Ford has been able to make a come back from a challenging 2012.
As well, in the first quarter of 2014, Ford reported its first profit in its
European segment in three years. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A worrying concern is Ford’s shrinking margins. In 2014,
Ford will launch 23 new models globally, which is one of the most aggressive
plans in the history of auto manufacturers. This new line of products has
resulted in lower margins, due to costs from research and development, redesigning
factories, and special advertisements. But Ford’s dedication to innovating and
creating new products that consumers will buy is evident in its lofty goals and
actions, such as building F-150s out of aluminum which will save approximately
700 pounds per vehicle. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b>Area Growth: </b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the second Quarter of 2014, Ford’s market share in South
Africa increased 1.9% since 2011 to 10.3%. Ford has also had record growth in
China. Ford controls 4.6% of the market share, compared to just 2.7% in 2011. As
Ford’s market share has grown, the company has surpassed its rival, Toyota
Motor Inc, in the number of car sold in China. Though Ford has been successful
in many foreign markets, they are expecting larger losses in South America than
in previous years. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ford has exhibited strong growth in these two countries,
which have large amounts of growth potential within their car markets. I
believe Ford will continue to grow in these foreign markets because of their
new product lineup. <span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<b>
</b><br />
<div class="MsoNormal">
<b>Balance Sheet:</b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The balance sheet of a company shows the current financial
position of a company, such as how much debt does the company have or how many
assets does the company hold. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Shareholder’s Equity=Assets-Liabilities</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Shareholder’s Equity- The amount of money that would be left
if a company sold all of its assets and paid off all of its liabilities. The
amount of money a company keeps after paying for its expenses, taxes, and
dividends or stock buy-backs is called retained earnings. Retained earnings and
the money a company earns from selling stock are two main components of
shareholder’s equity. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Assets- Include items that the company holds that are of
value: Physical plants or stores, machinery, products, and supplies. Intangible
Assets are items that do not have a definite monetary value, such as brand
recognition, the company’s relationship between their employees, customer
loyalty, and trademarks and patents. <span style="mso-spacerun: yes;"> </span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Liabilities- The amount of money the company owes to other
people. This includes expenses such as the payroll to employees or loans that
it owes to a bank. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Here is a link to Ford’s Balance Sheet <a href="http://www.marketwatch.com/investing/stock/f/financials/balance-sheet">http://www.marketwatch.com/investing/stock/f/financials/balance-sheet</a></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Ford has significantly decreased the amount of debt the
company holds in the last five years. This also means that the company will be
spending less on debt interest payments. </div>
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<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsmH9HBA95pJMz_hup9r1K4M1kzEcPbryxZxbyoU2_0knZf81lyhQrZDyJVQuvKalzk0KrbibP3X6M5XRNYXL3zQitlBPQmI3_wynKETjjrx3yKnhP6AtELazXv7GWbByTaEDNCMnLctnZ/s1600/Screen+Shot+2014-08-16+at+4.16.03+PM.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsmH9HBA95pJMz_hup9r1K4M1kzEcPbryxZxbyoU2_0knZf81lyhQrZDyJVQuvKalzk0KrbibP3X6M5XRNYXL3zQitlBPQmI3_wynKETjjrx3yKnhP6AtELazXv7GWbByTaEDNCMnLctnZ/s1600/Screen+Shot+2014-08-16+at+4.16.03+PM.png" height="17" width="640" /></a></div>
<span style="font-size: xx-small;">Marketwatch</span></div>
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<br /></div>
<div class="MsoNormal">
Ford’s total amount of liabilities has risen but at a
smaller rate than their asset, resulting in Shareholder Equity to increase.
Ford has not had a large increase in the amount of shares outstanding, meaning
retained earnings have increased. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Disclaimer: I am just a kid with no proper financial
training. This report will not guarantee investing success. </div>
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-41201518009820369722014-07-31T22:18:00.000-07:002014-07-31T22:18:53.473-07:00Growth Stocks Vs. Value Stocks Growth vs. Value:<br />
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Growth companies are companies that are expected to or have experienced periods of high growth, such as technology companies or smaller companies that have increased revenue and profits at very high rates. <br />
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Value companies, such as Blue Chip companies, are very large and diversified, with revenue and earnings growing at a stable rate. For example, Proctor & Gamble would be considered a value company, whereas, Tesla would be considered a growth company. <br />
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Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-45323618019439858302014-07-31T15:42:00.001-07:002014-07-31T15:42:07.861-07:00Investing Vs. TradingLong-term Investing vs. Short-term Trading: <br />
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There is a large difference between investing and trading. As Warren Buffett says, when you buy a share of stock think of it as if you are buying the whole company. Is this investment so great that you would like to own the whole company? Investing is a long-term approach that uses analyses of the company's financials, such as the balance sheet. Aside from looking at the financials, an investor should always research the risk and growth potentials of a company and the current management of the company. <br />
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Long-term investing is an approach that focuses on the fundamentals of a company and not the price movement of a stock. Long-term investing can be less risky, dependent on what you are invested in, while also having lower brokerage fees, since you are not buying and selling as much. <br />
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Trading on the other hand is short-term. Rather than purchasing a stock because of the company’s fundamentals, trading places a focus on the movement of a stock’s price within a short time period, from a day to a month. Market trends, trading volatility, stock volume, moving averages, and technical analyses are some fundamental tools used to determine short-term trading opportunities. Short-term traders commonly use alternative investment tools, such as stock shorts and derivatives. <br />
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Short-term traders can range from day traders who buy and then liquidate all positions at the close of the market to traders that purchase companies for a few weeks. Short-term trading can also be risky because you are buying into market trends, not investing in the fundamentals of the company. This means that if you have a short-term investment horizon and a stock experiences volatility, (Large movements in the price of the stock) your investment horizon does not allow the stock the opportunity to regain losses. Stocks tend to move in a cyclical nature, moving up and down, like a roller coaster. Short-term investing can also be costlier due to a larger amount of brokerage fees. <br />
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Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-33676062549425885932014-07-18T18:09:00.001-07:002014-07-19T15:12:48.155-07:00Book Review: The Third Industrial Revolution by Jeremy RifkinThe Third Industrial Revolution, by Jeremy Rifkin, is one of the most intriguing books that I have ever read. In this book, Jeremy Rifkin describes the revolutionary economic and social changes that are occurring due to a new information system, the Internet, and a new energy system, renewable energy, merging. These changes are coined The Third Industrial Revolution. <br />
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The Internet has created a new way of sharing and creating information that has never been scene before. People are able to instantly interact with each other around the globe, access an infinite amount of information on any desirable topic, and influence society no matter how poor or young they may be. The Internet will increasingly make our world more efficient and interconnected by allowing devices to communicate with one another, such home appliances or medical records, furthering the use of efficient manufacturing processes, such as 3-D, and developing a smart grid for energy. The Internet has also fostered a way of thinking that democratizes power and fosters creative disruption. The Internet has allowed everyone the opportunity and ability to develop and create what they wish, transferring the power from the select to the masses. Anyone who has access to the Internet has the ability to take Harvard classes online, start a movement, build an app, or rent a couch in a stranger’s apartment for the night. The Internet has become a platform for disruption within every part of our lives, by allowing anyone to explore and redefine the limits <br />
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Renewable energies will become more proliferous as improved storage mechanisms are developed, reigning over fossil fuels. The shift to renewable energies in conjuncture with the Internet will allow for a monumental shift in the way our society produces energy. For example, each home will have the capacity to become a small power plant, generating enough electricity to power itself and sell to other homes through virtual markets. Energy monitoring programs will enable appliances within a home to be switched on and off remotely, according to the energy demands of the grid, and turn off unused lights or lower the heat when the home is vacant. <br />
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The Third Industrial Revolution is lateralizing power among the world. The Internet has already changed and democratized many industries, such as the hotel and wedding dress industry by embracing human’s desire to share. Renewable energies will empower the homeowners by allowing them to produce their own energy, ending our society’s reliance on large and monopolistic energy companies. These changes are all around us, in every possible form. <br />
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I highly recommend reading The Third Industrial Revolution, as it has changed my view on current changes within our world and opened my eyes to the possibility of the future. <br />
Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-21746449034671241362014-07-09T07:27:00.002-07:002014-07-11T10:28:00.888-07:00The Basics of StocksA share of stock is a small piece of ownership in a company, just like a piece of pie. By owning a piece of a company, you are entitled to a share of the profits, through dividends, and voting rights on substantial changes in the corporation. As a shareholder of a public company, you do not hold any legal obligation to the company. This means that you cannot be held liable if a company’s product results in deaths or injuries, or be sued if a company that you hold stock in is sued. <br />
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A company that has shares of stock and is traded on a public exchange such as the New York Stock Exchange, or the NASDAQ, is called a public company. Private companies may have shares of stock, but they are not traded on a public market. For example, Ford Motor Inc. is considered a public company while the local ice cream shop in your town is probably a private company. The stock exchanges create a place to buy and sell shares of stock, which creates a more efficient market by increasing the liquidity of assets. <br />
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If you buy a share of stock in XYZ Corporation at $10 and it rises to $15 in a week, the stock has appreciated $5. This does not mean you have made a profit. You can only make a profit from dividends and the money that you receive after you have sold the stock. When you sell your stock of XYZ Corporation, at $15, then you will have made a $5 profit. If you held onto your share of XYZ Corporation for another week and the price decreased to $5 and you sold it, you would have lost $5. The price of the stock will appreciate, as more people want to own the stock, usually because the business is growing and becoming more profitable and vice versa.<br />
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The laws of supply and demand fundamentally determine the price of a share of stock. There are a finite number of shares, meaning that stocks that are in higher demand will be more valuable. The opposite also holds true. If a company is under performing, the demand for the stock will decrease and so will the price. Just because the price of a stock is low does not mean that the company is a poor investment, maybe the company just missed their quarterly earnings or a tsunami in Asia disrupted their supply chain. The company may still have sound fundamentals and a strong management team. There are a lot of factors that go into play to determine the price of a stock. When buying a stock there is always one idea that is necessary to keep in mind, there is always someone that thinks it’s time to sell and someone that thinks it’s time to buy. <br />
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Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-17426231581322258232014-07-01T15:51:00.001-07:002014-07-01T15:53:00.709-07:00Time Value of MoneyTime Value of Money is a concept that is essential to investing. Time Value of Money or TVM states that money in the present is worth more than the same amount in the future, because that money can be invested and earn a return. For example, if you were to receive $100 today, or in two years, you would choose to receive $100 today. Why? If treasury bills have a theoretical yield of 4%, then the $100 that is received today could be invested and earn $8 over two years. (Interest is not compounded in Treasury Bills) This mean that $100 today is worth $108 in two years. Anonymoushttp://www.blogger.com/profile/11870416872691003909noreply@blogger.comtag:blogger.com,1999:blog-6799886115132042587.post-18084737476858879212014-06-28T21:29:00.000-07:002014-06-28T21:29:40.373-07:00The Wonders of Compound InterestExponential functions are incredibly powerful and are very important to understand. Compound interest, an example of an exponential function, plays an important role in investing. Albert Einstein once said, “Compound interest is the eighth wonder of the world.” <br />
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There are two types of interest, compound interest and simple interest. When one receives interest only on the principal amount invested, or the original investment, this is called simple interest. For example, if I buy bond ABC for $1,000 that has an interest rate of 10%, I would receive $100 or 10% of $1000 each year until the bond matures. If the same bond had annually compounded interest, I would receive interest on the principal amount plus previous interest payments. For example, I would receive an interest payment of $100 for the first year, but in the second year I would receive an interest payment of $110 or 10% of $1100. (Principal amount + First Year Interest Payment) In the third year, I would receive $121, or 10% of $1210. (Principal amount + First Year Interest Payment + Second Year Interest Payment) An additional $31 over three years may not seem like a big difference, but if this bond matured in 100 years, my original investment would be worth $137,806.34 compared to $11,000 if it was not compounded annually. <br />
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Compound Interest Formula: A=P(1+r/n)nt <br />
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A= Total amount of money accumulated after n years<br />
P= Principal Investment (Initial amount of money invested or borrowed)<br />
r= Interest Rate<br />
n= Amount of times interest is compounded per year<br />
t= Number of years the principal investment is invested for<br />
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Simple Interest Formula: A=P(1+rt) <br />
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A= Total amount of money accumulated after n years<br />
P= Principal Investment (Initial amount of money invested or borrowed)<br />
r= Interest rate<br />
t= Number of years the principal investment is invested for <br />
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Compound interest is also important within the stock market. The S&P 500, which is an index of 500 of the largest publicly traded companies by market capitalization, had an annualized return of 10.26% for the last 25 years with reinvested dividends. If someone were to have invested $1,000 in the S&P 500 25 years ago, it would now be worth $11, 493. In this calculation, interest was compounded annually. Starting to invest at a young age, even with a small amount of money, can result in large profits due to compound interest. <br />
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To leave you with a final thought on compounded interest here is a story: <br />
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There is a story about an Emperor of China who was so excited about the game of chess that he offered the inventor of the game one wish. The inventor replied that he wanted one grain of rice on the first square of the chess board, two grains on the second square, four on the third and so on through the 64th square. The unwitting emperor agreed to the modest request. But two to the 64th power is 18 million trillion grains of rice - more than enough to cover the entire surface of the earth. The Emperor, realizing that he had been duped, had the inventor of the game beheaded.<br />
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Data for S&P 500 annualized returns: http://financeandinvestments.blogspot.com/2014/02/historical-annual-returns-for-s-500.html <br />
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