CRYPTO CURRENCIES AND MON­GO­LIA

The UB Post - - FRONT PAGE - By B.CHINTUSHIG

Crypto currencies are the lat­est craze in the over­lap­ping world of fi­nance and tech­nol­ogy. It is a rel­a­tively new con­cept, dat­ing back to 2009 with the launch of what has be­come a some­what fig­ure of crypto currencies, bit­coin.

Since its in­cep­tion, the con­cept of crypto cur­rency has been di­vi­sive, es­pe­cially amongst econ­o­mists.

On one side, many want the world to em­brace crypto currencies and the free­dom it pro­vides. The op­po­si­tion, how­ever, has been equally vo­cal, cit­ing con­cerns about an eco­nomic bub­ble and more im­por­tantly the dan­gers of an un­reg­u­lated fi­nan­cial sec­tor. At a crit­i­cal junc­ture in the de­vel­op­ment of crypto currencies, how should Mon­go­lia ad­dress this is­sue?

An im­por­tant char­ac­ter­is­tic of crypto currencies is that they are not syn­ony­mous with elec­tronic money. In the modern world, most of our money is in elec­tronic form, stored in the servers of a bank or fi­nan­cial in­sti­tu­tion. Ac­cord­ing to Mon­gol Bank, the flow of 890 bil­lion MNT in tan­gi­ble cur­rency makes up only six per­cent of the money sup­ply in the econ­omy. The rest, while not tan­gi­ble money, is the MNT in elec­tronic form. The cur­rency is backed by the Mongolian gov­ern­ment and as an ex­ten­sion its cen­tral bank, Mon­gol Bank.

Crypto currencies are not backed by gov­ern­ments or fi­nan­cial in­sti­tu­tions. They rely on peer to peer con­nec­tions to con­duct trans­ac­tions. All trans­ac­tions are ac­counted for in a pub­lic ledger, called a block chain, that records trans­ac­tions in a ver­i­fi­able and per­ma­nent way. The pub­lic ledger is a cen­tral­ized registry that can be ac­cessed by all mem­bers, and ev­ery event is reg­is­tered as an un­al­ter­able “block”. This al­lows two users to by­pass a fi­nan­cial in­sti­tu­tion for a much more anony­mous trans­ac­tion. This in it­self has been a ma­jor point of dis­cus­sion about the moral­ity of the tech­nol­ogy and its un­reg­u­lated na­ture. Crit­ics dis­credit the con­cept of crypto currencies by por­tray­ing it as a hot­bed for crim­i­nal ac­tiv­ity. The jury is still out, how­ever, as the tech­nol­ogy has not been around for long enough for any con­crete con­clu­sions on its po­ten­tial ben­e­fits and draw­backs.

China is the largest bit­coin miner in the world, hav­ing mined a re­ported 71 per­cent of to­tal bit­coins. Sim­i­lar to nat­u­ral re­sources such as gold or cop­per, bit­coin has to be “mined”. A bit­coin is mined by solv­ing com­plex math­e­mat­i­cal prob­lems which pro­vides a cer­tain amount of bit­coin to the miner.

In another com­mon char­ac­ter­is­tic with gold, bit­coin is fi­nite and lim­ited. When it was first coded by an au­thor or authors us­ing the name Satoshi Nako­moto, the max­i­mum amount of bit­coin was set at 21 mil­lion. The cur­rent pro­to­col of bit­coin only al­lows 21 mil­lion bit­coins to be mined un­less the pro­to­col is changed to ac­com­mo­date the de­ple­tion. As of Septem­ber, 16.5 mil­lion bit­coins have al­ready been mined, mostly in China.

The bit­coin min­ing process is com­pli­cated and re­quires sig­nif­i­cant re­sources and an abun­dance of en­ergy. China’s cheaper en­ergy prices are a key rea­son why the coun­try is the lead­ing bit­coin miner.

How­ever, the Peo­ple’s Bank of China re­cently has made ini­tial coin of­fer­ings and the crypto mar­ket­place il­le­gal. Chi­nese crack­down on bit­coin and other crypto currencies have raised con­cern that bit­coin min­ing could be ceased al­to­gether in the world’s largest bit­coin mines.

Where Mon­go­lia comes into the equa­tion is that the cur­rent lack of reg­u­la­tion on crypto currencies could at­tract Chi­nese min­ers to re­lo­cate. The world’s largest bit­coin mine is lo­cated just across the bor­der in In­ner Mon­go­lia, China.

Ris­ing crack­downs could push bit­coin min­ing equip­ment out of China and into Mon­go­lia. There is still around four mil­lion bit­coins that have yet to be mined and es­tab­lished bit­coin min­ers could see Mon­go­lia as a land of op­por­tu­nity.

The gov­ern­ment of Mon­go­lia has yet to reach a con­clu­sive ver­dict on crypto currencies. On one hand, its neigh­bor and iron­i­cally the largest miner of bit­coin, has been cau­tious of the con­cept. Mean­while, a close part­ner of Mon­go­lia, Ja­pan has also been open to the idea of dig­i­tal currencies. Ear­lier this year, bit­coin was le­gal­ized as a le­gal pay­ment method in Ja­pan and large re­tail­ers be­gan ac­cept­ing the crypto cur­rency.

Banks in Ja­pan and even cen­tral banks in gov­ern­ments such as In­dia, Es­to­nia, and Saudi Ara­bia are in the process of is­su­ing their own crypto currencies backed by their re­spec­tive na­tional cur­rency. De­spite a dis­trust of non-fiat crypto currencies, cen­tral banks all over the world have been closely ob­serv­ing and even par­tic­i­pat­ing in its de­vel­op­ment.

Even China’s crack­down is not to com­bat the de­vel­op­ment of crypto currencies but it is seen as a move to reign in its de­vel­op­ment and es­tab­lish more con­trol. Ac­cord­ing to Bloomberg, the Peo­ple’s Bank of China has done trial runs of its pro­to­type cryp­tocur­rency, tak­ing it a step closer to be­ing the first ma­jor cen­tral bank to launch its own ver­sion.

How crypto currencies will play out is any­body’s guess at this point. There isn’t a global con­sen­sus and there likely will not be for quite some time. One thing is for sure, how Mon­go­lia han­dles the op­por­tu­nity to re­place some of China’s bit­coin min­ing ac­tiv­i­ties and crypto currencies in gen­eral will be an in­ter­est­ing spec­ta­cle.

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