Inflation and deflation are common economic terms that can be a bit confusing. They aren’t always addressed in school, but they affect our lives in so many ways. While the causes and consequences of inflation and deflation can be complicated, their definitions are surprisingly simple. Here is what you should know about these two terms and their role in a greater economy.
What is inflation?
In the simplest terms, inflation occurs when the price of goods and services goes up over time. It can happen slowly, over decades, or with sudden and devastating effects. Not every economist agrees on the reasons for slow, gradual inflation. It’s often tied to factors like market demand or the availability of certain goods and services.
Inflation in action
A current example is the inflated price of backyard swimming pools, pool filters, and pool maintenance supplies. With COVID-19 precautions closing many local swimming pools, more people than ever decided to put up backyard pools this summer. This increase in demand forced the price of pools and supplies up; another factor was the scarcity of some pool supplies since they have traditionally been manufactured in countries that slowed or shut down production due to COVID. The combination of increased demand with a short supply led to a deep inflation in the cost of these goods.
There’s more to the story, however. When both the cost of goods goes up, and the value of the local fiat goes down, it’s often referred to as “hyper-inflation,” especially when both happen in a short time frame. Unlike standard inflation, which experts aren’t always able to attribute directly to a source, economists tend to agree on the cause of hyperinflation.
The most common cause is a sudden and excessive growth of a country’s money supply. How does this happen? The Fed usually plays a role in making more money available in a strangled economy. Additionally, it’s not uncommon for governments to step in and tinker with interest rates or offer economic cash infusions (stimulus payments) in an attempt to stop the financial bleed that frequently happens with long periods of hyperinflation. Unfortunately, the bandaids for hyperinflation can often make problems worse.
How can you know if we’re in a period of inflation or hyper-inflation?
While the Fed aims for a rate of 2–3% per year inflation, this isn’t always manageable. Venezuela, for example, has seen inflation rates of 200,000% in a single year, an obvious sign of hyperinflation. It doesn’t have to be that severe to be counted, however; experts define anything above a 50% annual inflation rate to be a form of hyperinflation.
What is deflation?
The exact opposite of inflation, deflation, is the decrease in the cost of goods and services. It is usually accompanied by an increase in the value of the fiat. While some see this as a pleasant situation, deflation can be difficult for lenders who rely on climbing interest rates to make money on the cash they lend. Too much deflation or inflation can hurt essential industries. It can also harm consumer confidence over time, as people can get used to seeing prices go lower and actually hold on to their money waiting for the absolute best price. This can further aggravate the deflation cycle, something we saw during the Recession of 2008.
Remember, the role of government, unemployment, natural disasters, and technological advances can impact the cost of products we buy. Further, in the U.S., inflation doesn’t always happen across the board; consumer categories such as food and housing may see inflation over time, while items like electronics or clothing may see deflation during the same period. While consumers can’t always do much to affect inflation or deflation, we can better prepare our investment portfolios to secure our individual economic futures.
When your Loan-to-Value ratio (LTV) exceeds 90.91%, we stabilize your loan by converting all of your volatile assets into stablecoin (USDC).
At this point, you will notice that your USDC wallet reflects the total US Dollar value of your combined portfolio. Each collateral wallet balance will show $0. Don’t panic!
How Do I Convert Back to My Original Assets?
To get your original assets back, you will need to manage your LTV and restore the health of your loan to a safe state (83.33% LTV or lower). To do this, follow these steps.
Navigate to the Loan Status page or click “Manage LTV” in the notification module on the dashboard.
2. Manage your LTV by either depositing more crypto or making a one-time payment in the Manage LTV Module.
3. We recommend curing your LTV to a healthy state (<70%), but as long as you have managed it to 83.3% or below, you will be eligible to convert.
4. Navigate back to the Loan Status Page. You will see that your LTV has dropped, but you are still being held in Stabilization Mode.
5. In the Manage LTV module, you will notice that you are now eligible to convert. Click “Convert Now” to convert back to your original assets or to a mix of any assets we accept as collateral.
6. The convert tool will default to the percentages of your original collateral mix. You may edit this and convert back to a different collateral mix if you’d like.
7. Click “Next” to review the details of your conversion and then click “Convert Now” to confirm. Once confirmed, you will have successfully reverted back to your asset mix of choice.
Still have questions about stabilization?
Please call our support team at +1 (720) 575–2272.
Legal Notice: Please be sure to review your Loan Agreement for additional information. The liquidation or conversion of pledged assets could result in adverse tax consequences. You should consult your tax advisor in order to fully understand the implications associated with pledging digital assets as loan collateral. Notwithstanding a general policy of giving you notice of margin deficiency, we are not obligated to do so. We may convert or liquidate pledged assets in your account without notice to you to ensure that minimum maintenance requirements are satisfied. If Salt Lending sells or converts some or all of your assets, such transactions made on your pledged collateral assets are accepted or rejected in Salt Lending’s sole discretion and may be at prices higher or lower than your initial acquisition cost. In the event of a liquidation or conversion, Salt Lending may choose to sell some or all of your assets to an affiliate of Salt Lending at applicable market rates.
Cryptocurrency is a disruptor. Not only has it changed the way we conduct business, but it has changed the way we think. The most obvious manifestation of how cryptocurrency has disrupted our thought patterns is in the way we think about money — about who issues it, how to transact with it, how to put it to work and how to keep it safe. It also has changed the way we think about our government, our right to privacy and our financial freedom. What’s less obvious is how cryptocurrencies are disrupting the way we think about and participate in asset-based lending. The advent of Bitcoin catalyzed the creation of a myriad of cryptocurrencies, many of which became viewed as assets, yet at the time, there was no way for crypto investors to unlock the value of these assets without selling them. This is the problem SALT’s founders set out to solve in 2016 and in doing so successfully, made asset-based lending as we once knew it a thing of the past.
Creating a New Asset Class
As Bitcoin began to experience wider adoption following its release in 2009, it became clear that some investors were purchasing crypto to trade on a daily basis while others were choosing to invest long-term, viewing Bitcoin more as an asset than as a spendable currency. As more investors adopted this long position and began to think of cryptocurrencies as an asset class in their own right, the term “HODL” emerged in 2013 on a bitcoin-talk forum and has since become one of the most commonly used words in the crypto vernacular. This HODL culture has grown significantly over the years and has evolved to where investors are buying, selling and trading these assets not only for themselves but on behalf of others. This activity has taken the form of crypto portfolios and crypto funds, which offer access to this new asset class for individuals and allow them to diversify their portfolios while eliminating some of the overhead of learning how to purchase and safely hold cryptoassets. By providing a way to collateralize cryptoassets to secure a cash or stablecoin loan, SALT provides opportunities for individuals, businesses and capital providers to build and preserve wealth.
How to Lend Cryptoassets
As the first-ever crypto-backed lender, SALT has developed the technology and processes required to successfully lend against cryptoassets, giving borrowers a way to unlock the value of these assets without selling them. Take Bitcoin for example. It’s one of many cryptoassets we accept as collateral on our platform, yet it makes up more than 80% of the collateral securing our loan book.
What makes Bitcoin a strong form of collateral? The answer lies in Bitcoin’s combined characteristics. Like gold, Bitcoin is scarce, fungible, divisible, transferable and durable. It is also extremely liquid given it is traded on global exchanges every day. Additionally, as a decentralized asset, Bitcoin is highly secure. All of these properties make Bitcoin both a viable asset and a highly efficient form of collateral that has piqued the interest of some of the largest financial institutions in the world.
One thing to note is Bitcoin’s volatile nature, which can pose challenges specifically for the ABL market. However, SALT’s risk management technology effectively manages this volatility. Our technology includes real-time loan-to-value (LTV) monitoring, margin call and liquidation triggers, real-time notifications and the safekeeping of assets through institutional grade custody solutions. For example, our loan-to-value (LTV) monitoring system tracks the prices of assets 24 hours a day, 365 days a year, providing borrowers with the ability to monitor the health of their loan in real-time. If, during periods of heightened volatility, a borrower’s collateral declines in value and their LTV breaches our margin call threshold, we protect the borrower by issuing a margin call that prompts them to take action to restore the health of their loan. Actions borrowers may take include paying down principal or depositing additional collateral to recalibrate their LTV to an appropriate level (70%). If no action is taken and asset prices continue to decline, SALT has the ability and the right to liquidate collateral assets to preserve lender capital. The overcollateralized nature of our loans combined with our risk management technology and ability to liquidate assets enables us to protect the lender, and as a result, we’ve experienced zero losses of principal to date.
Choosing a Crypto-Backed Lender
SALT’s business model is attractive to crypto investors (e.g. traders and asset managers) and businesses (e.g. mining operations and exchanges) for a few reasons. First, we provide access to liquidity, offering loans ranging from $5,000 to the millions. Typical use cases include businesses seeking working capital to fund operational costs and large capital expenditures, or investors seeking leverage, diversification or risk management. Second, since our model is asset-based and requires overcollateralization, we do not rely on a borrower’s credit profile and can fund loans within 24 to 48 hours, assuming the borrower meets our strict AML/KYC requirements. Third, customers know their assets are safely and securely held with institutional-grade custody providers for the duration of their loan. Fourth, our loan process is straightforward and customizable. We allow borrowers to lend against a single cryptoasset or a portfolio of cryptoassets and offer flexible loan terms, including durations ranging from three to 12 months, LTVs up to 60% for individual loans or up to 70% for business loans, and competitive interest rates ranging from 5% to 12% depending on the borrower’s jurisdiction, loan amount and LTV. While we are no longer the only crypto-backed lender in the world, we are one of the few that incorporate a human element into our business model. Unlike completely automated lenders, SALT offers both phone and online support, and assigns each customer a loan support specialist at the time of loan origination. These human touches positively impact a borrower’s experience with the platform; they know that by choosing SALT, they will always have the option to speak with someone about their financial needs.
The Evolution of the Crypto Market and Tokenization
Since SALT’s founding in 2016, the crypto lending market has grown exponentially. According to a report from Credmark, the crypto lending market reached $8 billion in total lifetime loan originations as of Q4/19 and has since surpassed $10 billion following Q1/20. These numbers not only indicate the growing demand for liquidity among crypto holders but also the growing interest among capital providers to get involved in the crypto market. For example, we’ve witnessed an influx of both crypto native (BitGo Prime and Genesis Capital) and traditional financial institutions (Silvergate) that provide leverage and liquidity vehicles at the institutional level.
Another thing to consider regarding the evolution of the crypto market is that as the world becomes tokenized, the very definition of the term “crypto market” is changing. With the emergence of companies like Paxos and Harbor, we’re beginning to see increased tokenization of real-world assets like gold and real estate. At SALT we already accept Pax Gold (a gold-backed cryptoasset) as collateral on our platform and our vision for the future goes well beyond our current collateral scope.
The Role of Alternative Investments
As crypto becomes more widely accepted, a growing number of people are assessing their own risk profiles and determining the best way for them to participate in the crypto market. For those with lower risk profiles, the market has evolved in recent years to offer individuals or businesses indirect exposure to this new asset class. As previously mentioned, crypto portfolios and crypto funds are part of this evolution along with alternative investment companies like Cadence (portfolio company of Coinbase Ventures). Cadence is a securitization platform for private credit that grants access to exclusive high yield, short term investments traditionally reserved for institutions. In February 2020, we partnered with Cadence to offer prospective investors the opportunity to gain exposure to cash flows associated with a portfolio of underlying loans collateralized by cryptoassets. The first note of $500,000 was oversubscribed in five days and we have since worked with Cadence to issue $2.9 million in notes to investors to date. As more companies like Cadence provide structure, liquidity and indirect exposure to alternative asset classes like crypto, we expect to see even greater demand from investors seeking attractive risk adjusted returns.
Opportunities for Institutional Investors
There’s no doubt cryptocurrency has changed the way we think about asset-based lending. It has formed a new asset class and also has catalyzed the trend of broader tokenization — a trend that will inevitably expand the universe of collateral options and have a meaningful impact on the ABL industry. If you’re a decision maker at an institution and are interested in learning more, email [email protected] to discuss opportunities to build and preserve wealth in this rapidly evolving industry.
From business closures to event cancellations and stay-at-home orders, the coronavirus pandemic has had its way with the United States. Millions are unemployed, and millions of small businesses struggle to stay afloat in the punishing economic downturn.
The Federal Reserve, or “the Fed,” has been making headlines as it tries to limit the pandemic’s economic damage, including by lending $2.3 trillion that the government called for in its relief package, dubbed the CARES Act. This action has left many Americans wondering where the Fed got so much money, what the Federal Reserve can and can’t do, and what power the Fed has over our nation’s economy.
What Is the Federal Reserve, anyway?
It’s essential to define what the Fed is to understand its role in our economy. The Federal Reserve is America’s central banking system. Before the Federal Reserve, people panicked their bank would fail when a neighboring one closed its doors. Hordes of customers would run to withdraw their money, ultimately causing those banks to go belly up, too.
After a particularly terrible panic in 1907, Congress stepped in to create the Federal Reserve in 1913 through the Federal Reserve Act. The initial goal was to avoid these bank runs and provide banks with emergency funding. But today, the Federal Reserve System takes other measures to ensure the health and stability of the economy and a secure banking system.
How does the federal reserve work?
The Federal Reserve Act created a decentralized bank that functions without government financing or approval but still protects both public and private interests as a mixed organization.
It has three key entities:
1. Board of Governors
At the heart of the Fed is the Board of Governors, made up of seven officials appointed by the government and confirmed by the Senate. It acts as an independent federal agency, and its job is to direct the monetary policy — the money supply and interest rates. Its goal is to make sure we maintain a stable economy.
2. Reserve Banks
There are 12 Federal Reserve Banks spread throughout the U.S., each one having nine directors. Six directors are elected by commercial banks and three by the Board of Governors, protecting interests from both parties.
Reserve Banks are structured similarly to private corporations. They oversee member banks and carry out the monetary policy in their region. Reserve Banks act independently, but the Board of Governors supervises their actions.
These banks also have other vital roles like distributing currency to other banks, placing money into circulation, acting as a bank and fiscal agent for the U.S. government, and providing critical information about their local, national, and international economies to the Federal Open Market Committee.
3. Federal Open Market Committee (FOMC):
The FOMC is a committee comprising the Board of Governors, the Federal Reserve Bank of New York President, and four members from the other 11 Reserve Banks, who serve for one-year terms.
The FOMC’s primary role is to determine whether the Federal Reserve should buy or sell government bonds, known as Open Market Operations (OMO), to maintain the economy’s stability. It also establishes a target federal funds rate, which is the interest rate banks charge one another for overnight loans.
Where does the Federal Reserve fit into the government?
The role of the Federal Reserve within the government can seem confusing since it has public and private aspects. The Fed is accountable both to Congress and the public and maintains transparency in all its operations.
Ultimately, the Fed is a product of the government because it was created by an act of Congress, which still oversees the whole system and can amend the Federal Reserve Act at any time.
But Congress created the Fed to work autonomously and to be shielded from political pressures by using a privatized structure for the Reserve Banks. It also keeps a hands-off approach by letting the three entities carry out their core responsibilities independently of the federal government.
Can anyone override Federal Reserve decisions?
There isn’t a formal legal power that can supersede the Fed’s monetary policy decisions. Still, the Federal Reserve Act allows the Treasury to “supervise and control” the Fed where jurisdictions overlap.
But the Treasury hasn’t needed to do this because a system of checks and balances keeps the Fed’s operations transparent and answerable to the public and Congress. Just because the Fed can influence the economy, doesn’t mean it doesn’t have to follow the rules.
Independent public accounting firms audit Reserve Banks annually. The Board of Governors also gets audited by its Office of Inspector General and an outside auditor. The Board of Governors annually publishes the results on its website.
The House of Representatives and the Senate hold the Fed accountable by requiring it to report twice a year on its monetary policy and economic decisions. Fed officials also deliver speeches throughout the year to the public so that everyone understands the reasoning for its decisions and actions.
Does the Federal Reserve print money?
If you’re a Bitcoiner, or you spend a decent amount of time on Twitter, you’ve most likely seen the “money printer go brrrr” meme that went viral in March of this year. It cropped up in response to the Fed’s announcement on March 12, 2020, that it would offer $1.5 trillion in short-term loans to banks to help combat “unusual disruptions” in financial markets as a result of the coronavirus. The meme, while more of a social commentary than an accurate depiction of the Fed’s responsibilities, expresses frustration regarding the government’s role in inflation and the devaluation of the US Dollar — as evidenced by the meme’s numerous likes and shares, many Americans share this same sense of frustration. While the meme is accurate in many ways, it unintentionally brings to light the common misconception that the Fed prints money. In reality, printing money is the responsibility of the U.S. Treasury. The Bureau of Engraving and Printing prints paper currency, while the U.S. Mint makes coins. The Treasury oversees both offices.
While it doesn’t print money in the literal sense, the Fed does buy cash as needed from the Bureau at cost to put into circulation, but the monetary base in circulation and at central banks typically stays the same.
The Fed manages the money supply by creating and destroying money. It swaps old, ragged bills for fresh ones or adds and deducts from digital balances. But it also manipulates the amount of money in circulation. The FOMC decides on whether to add or remove cash from the economy by buying or selling government bonds and other securities. This influences the amount banks will lend out and keep on deposit, which then affects interest rates.
That being said, where the misconception holds some truth is in the way the Fed puts more money into circulation; the Fed can’t print money, but it does have the power to essentially create money out of thin air. As a banker’s bank, it does so by making “large asset purchases on the open market and adding newly created electronic dollars to the reserves of banks.” In exchange, the Fed receives large amounts of bonds including US Treasury securities, mortgage‐backed securities, corporate debt and other assets. Rather than paying for these bonds in cash or gold bars, the Fed instead credits the account of the bank selling the bonds so that digital money moves from one place into the other.
The process is like taking out a personal loan of $10,000 at the bank. The bank doesn’t give you a suitcase full of cash. What you get is a credit that shows up as some numbers on a screen, reflecting your new account balance.
Because the Fed operates digitally, it can create money with a few keystrokes and use it to purchase assets or lend money. On a televised interview with “60 Minutes,” Former Fed Chairman Ben Bernanke said, “To lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed. So it’s much more akin, although not exactly the same . . . to printing money, than it is to borrowing.”
The Fed did this when it promised to lend Americans $2.3trillion, as called for in the CARES Act for economic relief and stability across the nation for those who were struggling because of the pandemic.
What can the Federal Reserve do or not do?
If the Fed can make money but not print it, what other actions is it able to take or is prohibited from taking?
What can the Federal Reserve do?
The Fed is an emergency lender for banks in financial distress, so it can lend money to failing banks to keep them afloat. But the Fed’s core responsibility is to manage the money supply, which has far-reaching effects on regulating the financial market.
It’s permitted to use four main tricks to change the amount of money in the economy:
1. Changing the reserve requirement
The Fed dictates what percent of deposits banks have to keep on hold. It usually ranges from zero to 10 percent and is currently set at zero because of COVID-19. The more banks have to keep on reserve, the less there is to go out into the market.
2. Changing interest rates on reserves
The Fed pays commercial banks interest rates on their required and excess reserves, a rule that went into effect in 2008. When the Federal Reserve wants to speed up the economy, it lowers the interest rate so that banks have less of an incentive to hold on to money.
3. Changing the discount rate
The Fed encourages and discourages banks from borrowing money from it by raising or lowering its lending interest rates. When the discount rate is low, banks borrow more to lend to each other and the public.
4. Conducting open market operations
The FOMC decides how many bonds to buy or sell. When it wants more money in the market, it buys these bonds from banks to put more money into their account. When it wants to slow down the economy, it sells the bonds to take away bank money.
This is the Fed’s most common tactic to influence the economy. For example, from 2008 to 2009, it bought over a trillion dollars of government bonds to inject money into the stumbling financial market. This lowered interest rates on short-term loans to almost zero percent.
But the recession went too deep. So, the Fed did something it hadn’t done before. It started buying long-term assets from banks in a process that’s known as quantitative easing (QE), boosting the money supply further and stimulating lending and investment.
What can’t the Federal Reserve do?
The Fed can only indirectly influence the nation’s economy. This means it does not have the power to take any of the following actions:
Set the federal funds rate
The federal funds rate is the amount of interest banks charge to lend their excess cash reserves overnight to each other. Banks frequently do this to meet the Fed’s reserve requirement.
While the Fed can’t set this number directly, the FOMC sets a target federal funds rate depending on what direction it wants the economy to go. Then, it works within what it’s permitted to do to influence banks and reach the benchmark rate.
Set the prime rate
Banks use the prime interest rate for commercial and consumer borrowing for things like credit cards and personal, car, and home equity loans. Banks often set the prime rate based on the Fed’s target federal funds rate.
Hike up mortgage and student loan rates
Mortgages and student loans are long-term assets whose rates are determined more by market-driven factors than FOMC decisions.
That said, the Fed purchased mortgage-backed securities to lower long-term rates on mortgages in 2008 so that banks wouldn’t need to borrow from each other to meet the reserve requirement. But these actions still affect federal funds rates significantly more than mortgage and student loan interest rates.
Use taxpayer money to fund its operations
The Fed doesn’t get any funding from taxpayers because its money comes from interest accruals on government securities and treasuries purchased through its OMO. There are other sources, too, such as foreign currency investments. After paying its expenses, the Fed turns any extra money over to the U.S. Treasury because it’s not operated for profit.
What’s the potential impact of the Federal Reserve’s powers on the economy?
Although the Fed can only work behind the scenes to stabilize the economy, it exerts a massive influence on its operations.
For example, the Fed can speed up or ease the economy by manipulating the money supply to increase or decrease consumer spending. It starts by influencing bank lending rates through selling and buying government bonds.
When banks have more excess reserves, there’s more to lend to the public, so interest rates are lower. Lower interest rates encourage people to borrow money, which is then spent on goods and services. More consumer spending generally means a better economy, while “even a small downturn in consumer spending damages the economy” and can even lead to a recession. Below is how the Fed’s actions impact specific aspects of the economy.
The Fed uses a trickle-down effect to influence interest rates. Remember, they can’t set federal funds or prime interest rates, but they can bend them to their will through OMO.
The Fed buying back government bonds from banks leaves more money for banks to play with while selling them means banks have to be more cautious about lending out their reserves. The economics of supply and demand shows excess cash in the market will drive down the interest rates banks charge to each other and the public, while a lack of money has the opposite effect.
The Fed also raises or lowers the discount rate and reserve requirements to change the interest rates commercial banks ultimately offer customers.
Inflation and deflation
When federal funds rates drop because of the Fed’s actions, prime rates usually drop with them. Consumers then borrow money for business and personal purposes to take advantage of lower interest rates. With greater amounts of money in their pockets, people spend more on goods and services, creating a spike in demand.
The larger demand pushes wages and costs higher to meet the production necessary to keep up with supply, causing a ripple effect. Prices increase across sectors, leading to reduced purchasing power. This is inflation and explains why a dollar today is worth less than a dollar last year.
Some annual inflation is good. It’s a sign the economy is doing well because consumers are spending. The Fed has a target core inflation rate of two percent. When inflation goes above or below the benchmark amount, the Fed steps in and works within its limits to move the needle toward inflation or deflation.
Although directing the U.S. monetary policy for the nation’s economic benefit is a crucial part of the Fed’s job, it also has foreign concerns.
Financial crises within our borders often have a global impact. The 2008 recession strained international markets because many countries have at least some assets and liabilities dominated by the dollar, causing them to sometimes borrow and lend in dollars.
To address the dollar scarcity, the Fed started swapping currencies with foreign economies in dire need of U.S. currency — over 583 billion dollars’ worth — at a predictable and fixed rate to keep struggling foreign banks afloat and prevent their economies from plummeting.
The Federal Reserve: A system of the People, by the People, and for the People?
The Federal Reserve’s power and influence over our economy leaves many asking if it’s an unconstitutional entity. Though Congress takes a laissez-faire approach to the Federal Reserve, the system teeters between public and private domains.
The effect of its present monetary policy decisions on the future economy could determine which direction future reform sways. It could also decide if the century-old institution modernizes into a structure more accurately reflecting the concerns and voice of the people, and one maintaining greater transparency while ensuring the long-term economic stability of the nation.
As cybercriminals are becoming more sophisticated, their attacks are becoming increasingly challenging to defend against. Two of today’s most concerning types of cyberattacks for cryptoasset owners are phishing and SIM swapping. Phishing accounts for 90% of all social engineering incidents and 81% of all cyber-espionage types of attacks, while SIM swapping, although less common, can cause equally devastating effects. Cryptocurrency holders in particular, are attractive to black hat hackers and are uniquely vulnerable to phishing and SIM swapping attacks — here’s what you need to know to protect yourself.
Protecting against phishing attacks
Phishing is a socially-engineered cyberattack that is primarily used to obtain sensitive information including as usernames, passwords, bank/credit card details, or public and private keys to cryptocurrency wallets. The vast majority of phishing is done through email but it can also come through texts/SMS, social media, and chat services. Disguised as a trusted entity, the perpetrator tricks you into opening a message containing a malicious link or attachment. The links will typically then lead you to copycat sites resembling webpages of banks, payment processors, or online crypto-wallets. These sites are designed to trick you into entering your usernames and passwords.
There are also phishing scams that specifically target cryptocurrency holders. In most instances, the attackers masquerade as some of the more popular online wallet services (e.g. Blockchain.info or Coinbase) and prompt you to give up your credentials. In other scams, emails may include seemingly relevant attachments containing malware that infects your device and stealthily scans its files, searching for private keys to a cryptocurrency wallet.
As a general rule of thumb, if you get an email you weren’t expecting, and if something — anything smells “phishy,” disregard it entirely. Additionally:
Consider anything that comes into your spam folder a red flag
Be aware of email spoofing, which is when an attacker makes an email look like it came from a legitimate sender. For example, an email can look like it came from whitehouse.gov but it will likely (not always) go into spam since the address is spoofed.
Attackers can also make look-alike domains using a Cyrillic character that looks identical but isn’t. Those may show up in your inbox (not spam).
Always check the authenticity of any URLs included in the email and beware of URL redirects.
Avoid reacting impulsively to any calls to action (downloading attachment files or replying with any sensitive information). Keep in mind that phishing attacks are designed to make you feel a sense of urgency to respond.
Preventing SIM swapping
SIM swapping is a type of account takeover attack whereby the perpetrator breaks the two-factor authentication (2FA) security protocol by hijacking your telephone number. The attack usually starts with social engineering; scammers gather your personal details (e.g. full name, address, phone number) and call your mobile phone provider pretending to be you. Using various social engineering techniques, they then convince the wireless carrier employee to port your phone number to the attacker’s subscriber identification module (SIM).
After they’ve successfully hijacked your phone number, usually just by asking for a password reset, the attackers can break into any of your accounts — email, bank/online wallet account, and others that require a call or SMS 2FA. If your phone suddenly becomes unable to make or receive calls, you may be a victim of a SIM swapping attack and should take immediate action.
To avoid becoming another SIM swapping statistic, refrain from using your phone number with 2FA where the second factor is a call or SMS-enabled authentication. In fact, if you can, avoid giving your phone number to your email or other service providers entirely. Authentication apps like Google Authenticator or Authy are a much safer alternative, as they’re tied to your physical device instead of your phone number.
If you must provide a phone number to access a specific service, contact your cell phone provider about extra layers of security for preventing number porting. Some carriers provide additional layers of security. Also, make your standard pin something random and store that pin in a secure place like a password keeper.
Safeguard your crypto assets and personal information
Ownership over cryptoassets is established solely through digital signatures (public and private keys). Couple that with the irreversible nature of blockchain transactions and you get a potential recipe for disaster. If an attacker gets ahold of your keys or your recovery phrase, whether that’s through tricking you into abdicating them yourself (phishing) or by forcefully porting your phone number and breaking the 2FA of your online wallet (SIM swapping), the result will always be the same: your funds will be lost forever.
For these reasons, taking the precautionary steps to protect your accounts, your online identity, and, ultimately, your cryptocurrency holdings, is worth the extra effort.
We want to thank everyone who watched & participated in Bitcoin Magazine’s Halving live-stream celebration with us last month. To address some of the questions that came up from the event including questions regarding the SALT token, our CPO Rob Odell sat down with one of their team members for a follow-up video. You can learn more about the changes we’ve made to the SALT token from our blog post, New Changes Add Value for SALT Supporters.
Get $50 in bitcoin for you & your friend when they take out a crypto-backed loan. To learn how you can refer your friends, check out our blog post Pass the SALT, Grow Your Wallet.
Black Lives Matter
As operations at SALT carry on, it is not lost on us, as a company nor as individuals, that Black Americans continue to fight for racial justice. Until racism is eradicated completely, we are committed to hearing, learning from, and supporting our Black customers & communities in this fight for a more inclusive world. As we reflect internally on the immediate changes SALT can make to support this mission, we have proactively chosen to make Juneteenth a company holiday to honor the significance of June 19, 1865.
While the world’s fiat currencies suffer from inflation as governments print more money to manage the COVID-19 crisis, Bitcoin, by design, is becoming more deflationary with each block confirmation. This is because Bitcoin creator Satoshi Nakamoto intended for Bitcoin to be the antithesis of government-controlled fiat currencies: “The root problem with conventional currency is all the trust that’s required to make it work,” wrote Satoshi in a post on the P2P Foundation Forum, “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.” In the post, dated February 11, 2009, Satoshi announces the creation of Bitcoin (along with a link to the earlier published white paper) and details its characteristics that make it anything but conventional. Among these characteristics is the fact that “everything is based on crypto proof instead of trust.”
In creating Bitcoin as a decentralized, trustless system, Satoshi ensured that it could not fall victim to the “breaches of trust” and inflation experienced throughout the history of fiat currencies. Unlike fiat currencies that are controlled and manipulated by governments and central authorities, Bitcoin follows a strict set of rules that have been embedded into its codebase or “monetary policy” since its inception. These rules include a hard supply limit of 21 million coins, the last of which will be mined around the year 2140. Currently, more than 87 percent of the 21 million bitcoin have been mined, meaning there are approximately 3 million remaining coins to be mined over the course of the next 120 years. The speed at which new bitcoin is mined and distributed is controlled by 30 precoded “halving” or “halvening” events (our Twitter followers prefer “halving”, so we’ll go with that from now on) that will take place every 210,000 blocks or about every four years until the last bitcoin is mined. In 2008 the block reward for miners was 50 newly minted bitcoin for each validated block. Following the first halving event in 2012, the block reward reduced by 50 percent to 25 bitcoin per validated block and then reduced by another 50 percent to 12.5 bitcoin following the second halving event in 2016. 2020 marks the year for the third halving event in which the block reward will be reduced to 6.25 bitcoin per validated block.
While we don’t know the exact date of the halving event (more on this below), we know it is fast approaching and is set to occur sometime this month. There’s been a lot of anticipatory chatter about the halving as people question and speculate on how it will (or will not) impact everything from the price of bitcoin to profitability and participation of miners in the network.
We’ve compiled what we consider to be the best available resources for understanding the Bitcoin 2020 Halving event and answering some of the most common questions around it.
When will the halving occur?
The answer to this question is contingent on the speed at which new blocks are created. Given the average block time is around 10 minutes and a halving event takes place every 210,000 blocks, the halving is estimated to occur on or around May 11. While there are various countdown resources that estimate within a day of one another, our favorites are the Bitcoin Halving Countdown from CoinMarketCap and the Bitcoin Clock, which “uses data from BTC.com to get the average block time for the past two months. It then uses this block time (currently 10.3125 minutes between blocks as of March 25, 2020) to estimate the halving date.”
Tell me more about the halving. What is it exactly? What is the intention behind it?
Whether you’re new to crypto or you’ve been in the game for years, we can all use a bit of a refresher when it comes to the halving event. If you’re new to crypto, we recommend starting with this video from We Use Coins regarding the need for Bitcoin and this video from CryptoCasey, which provides a straightforward explanation of blockchain technology, mining, and the upcoming bitcoin halving event. For a more humorous take on the benefits of “the currency of the future,” check out this video from Cameralla Comedy.
Running short on time? Try this episode of the 4-Minute Crypto Show, which offers a speedy, yet thorough explanation of halving events.
If you’re already familiar with the crypto basics and want more detail on the halving, this article from CoinDesk is an excellent resource. Not only does it include an illustrative explainer video that breaks down and simplifies the process, but the article also dives into:
the economic reasoning behind Satoshi’s decision to build the halving events into Bitcoin’s code
how Bitcoin’s monetary policy differs from that of modern financial systems where central banks control the money supply
the email in which Satoshi Nakamoto shares his thoughts on Bitcoin’s monetary policy and how it may play out in the future
how the halving event will impact miners
the history of bitcoin halving events and theories around how the 2020 event will impact the price of the asset
Interested in learning more about the economics behind Bitcoin’s monetary policy? Take a look at this article from The Block’s Mike Orcutt or this guide from Block Geeks that provides a crash course on supply and demand, inflation, deflation, and market cap as it relates to bitcoin, as well as how incentivization for miners fits into the equation. Or if you really want to get into it, Bitcoin Magazine’s Peter C. Earle explains why the 2020 halving is particularly important. He calls out the difference between the old and modern definitions of inflation, noting that in the context of the modern definition which refers to “an increase in general price levels within an economy,” the fact that “with increasing value one bitcoin buys more over time, it is indisputably deflationary.”
“What’s noteworthy about this point, Earle writes, “is that, upon this particular halving, Bitcoin ‘inflating’ at a roughly 1.8 percent rate annually will nominally — and by then, quite possibly in real terms — be ‘inflating’ at a rate lower than both the Federal Reserve target of 2 percent per year and current, CPI-based estimates of real U.S. inflation of 1.9 percent annually.”
Tell me more about the miners. How will it impact who is currently mining and who will continue to profit? Will the halving result in mining eventually becoming monopolized?
Andreas Antonopoulos tackles these questions in this short video clip and notes that we don’t need to be concerned about the monopolization of mining because the amount of profit a miner generates is not contingent on the size of their mining facility but on the smoothness of their mining operation. So while there are multiple factors that play into whether a mining operation is profitable, larger operations do not necessarily have an advantage over smaller ones. Rather, it’s all about efficiency. “Halving will increase competition in mining,” he says, and in general it will be the least efficient miners that become less profitable.
Similarly, in an interview with Anthony Pompliano the CEO of Blockware Solutions Matt D’Souza states, “The efficient miner should not fear the halving, they should welcome it.” Why? D’Souza notes that “once we go through halving the miners’ revenue is going to get slashed in half” and we’re going to experience what he considers to be “a healthy cleanse of the network.” He predicts that if the bitcoin price is still at $8k or lower going into the halving, we may experience “extreme miner capitulation” where we may see up to 40 percent of the network shutting off due to high energy costs and reliance on outdated mining equipment. He notes that as these inefficient miners begin to pull out of the network following the halving, there will be an adjustment period from May to July as the network undergoes these changes. At that point, difficulty will kick in and margins will improve for those miners who are still in the game. “Mining is about survivability,” says D’Souza, “You just need to survive. If you survive, difficulty will adjust in the future and it’s going to improve your margins because the people that are inefficient… their bitcoin is going to go to you.”
What happens to miners once all of the bitcoin has been mined and there are no more block rewards?
After the final halving event takes place and the 21 millionth bitcoin is mined sometime in 2140 miners will no longer receive block rewards, but they will still collect transaction fees just as they do currently. While we don’t know for sure how miners will react once we reach this point, according to Adam Barone in his article published on Investopedia, “Even when the last bitcoin has been produced, miners will likely continue to actively and competitively participate and validate new transactions. The reason is that every bitcoin transaction has a small transaction fee attached to it. These fees, while today representing a few hundred dollars per block, could potentially rise to many thousands of dollars or more per block as the number of transactions on the blockchain grows and as the price of a bitcoin rises. Ultimately, it will function like a closed economy where transaction fees are assessed much like taxes.”
What about the bitcoin price? How will it be impacted by the halving event?
The short answer is that there is no shortage of predictions.*
To quote Antonopoulos regarding his thoughts on price predictions: “I think it’s mostly irresponsible to make predictions about price. It’s the same as astrology and reading tea leaves.” While we agree with him on this sentiment, many people in the cryptosphere have openly made predictions about what will happen to the price of bitcoin following the 2020 halving. So, if you’re one for speculation or you just find it fun to read about people’s theories and want to be aware of what some of the most well-known people in the industry are saying, here are a few links for you to check out:
For the previous halvings, it was fairly common for people to throw watch parties to celebrate the halving event. Now with current social distancing measures in place, in-person parties are being replaced by live streams. Our pick for how to watch and celebrate the 2020 Halving is Bitcoin Magazine’s 21-hour Live Stream for which they’ll be sharing updates across their social channels regarding exact timing, but you can track their countdown here.
*This content is meant to educate and inform but should not be taken as financial or investment advice. Trading and investing in cryptocurrencies (also called digital or virtual currencies, cryptoassets, altcoins and so on) involves substantial risk of loss and is not suitable for every investor.
While neobanks initially emerged in response to the barriers presented by traditional banks, they have become viable businesses in their own right by offering products, services, and a level of convenience that traditional banks have been slow to adopt.
Traditional Banks Slow To Respond To Evolving Customer Preferences
Though most traditional banks have worked to add new features and services, overall they have been slow to respond to evolving customer preferences. Take mobile apps for example. Most major banks today offer a mobile app that enables customers to conduct some of their banking via their phones. But these platforms often act and feel like digital extensions of their monolithic physical branches, clumsily ported onto your phone, and unable to harness the immense power that smartphones and internet-connectivity offers.
As frustrating as it is, this lack of innovation on the part of traditional banks makes sense if you consider their history. For decades, the biggest banks in the world functioned within the structure of an oligopoly and it wasn’t until fairly recently that they ever needed to worry about new kinds of competition.
While this lack of innovation has reduced the appeal of big banks among customers and has created space for the emergence of neobanks, it is not the only contributing factor to this shift in customer perspective. Unethical behavior by banks has come to the forefront in the past decade as many of the world’s biggest traditional banks have embroiled themselves in scandals and the details of those scandals have been broadcast to the public.
To name just a few, Deutsche Bank has been linked to moneylaundering, Wells Fargo paid a $185 million fine for creating millions of accounts on behalf of customers without their knowledge, and the financial crisis of 2007–2008 reads like a murderer’s row of the biggest names in the global banking industry. Additionally, repeated regulatory attempts by world governments to rein in unethical banking practices have merely resulted in newer, more creative ways for banks to break the rules in pursuit of profits.
Now consider some of the advantages that neobanks such as PayPal, Square, Alipay, Monzo, Wealthfront, Robinhood and Simple offer.
It starts with greater convenience. By offering a way for customers to bank from the palm of their hand, neobanks are able to avoid incurring the real estate and operational costs associated with maintaining and operating physical branches. These cost savings can then be passed along to customers in the form of lower interest rates on loans.
Beyond offering lower rates, neobanks also focus on making loans more accessible. They bring with them far less bureaucracy than traditional banks offer, enabling customers to get faster loan approval. This has also been the narrow focus for my company SALT, where digital asset-backed lending has enabled us to provide our customers with access to cash and offer competitive interest rates without having to take their credit scores into account.
Unlike traditional banks, neobanks have boomed in the time of smartphones, building their platforms with a mobile-first approach. This completely digital environment produces a user-friendly interface, driven by cutting-edge APIs.
Neobanks’ systems tend to be both highly automated and scalable. They offer open infrastructures with the idea that other creative applications can be built on top of their basic banking platform to improve their offerings. This also means they can adapt quite rapidly to a fast-changing industry. It’s far more likely to see one of these newcomers start to offer cryptoasset services before any traditional institution.
While big banks seek to own as many pieces of a customer’s financial existence as possible, neobanks understand that choice is the future of finance. By offering customers the opportunity to choose from an array of creative banking solutions, neobanks are completely disrupting the banking industry. While some companies are offering microlending, others are offering commission-free stock trading, undercutting the costs of even the lowest-price discount brokers.
Combine these offerings with FDIC-insured savings accounts, checking accounts with debit cards, ATM access, credit cards, and mobile-first features such as mobile check deposits, and customers have nearly every banking service they need in one place.
Even with all of these advances, neobanks still constitute a small percentage of the overall banking and financial services space, leaving plenty of room for significant growth. How that growth manifests itself remains an open question.
That question is this: Will fintech companies overtake traditional banks, or just add competition?
The answer will likely depend largely on how quickly and extensively traditional banks evolve. Historically, they’ve been slow to change, and haven’t paid the price for that intransigence. That’s because over the years, most banking customers have been fairly inert, accepting higher interest rates on loans, recursively punitive overdraft fees, and monthly account maintenance fees because they haven’t found better alternatives that they can trust.
The current COVID-19 pandemic could force change, both among banking service consumers and the industry itself. Visits to physical bank branches were already an inconvenience to customers before the outbreak of COVID-19. Now that banks are inevitably having to focus on their digital service offerings, even traditional banking customers will get to experience fully digital banking. How well their bank performs in this aspect will determine whether a customer remains loyal to their bank following the crisis, or chooses to make the switch to a neobank that can better meet their needs.
As more customers seek better banking alternatives, the younger generation will be able to teach traditional banking customers about the benefits of neobanks. From there, it won’t take much due diligence before more people realize that neobanks offer smoother platforms, better interest rates, and more flexibility than traditional banks.
If that happens and traditional banks’ market share starts to erode at a faster pace, traditional banks will be faced with the classic build-or-buy dilemma. Will they hire the best, more forward-thinking engineers to catch up to neobanks’ superior technology and user interfaces? Will they seek to acquire leading fintech companies as a way to protect themselves? Or will they remain complacent, and let fintech upstarts pass them by?
Fintech companies’ ability to grab market share will entail overcoming significant challenges, beyond just traditional banks’ huge edge in brand recognition.
Stock-trading app Robinhood suffered multiple shutdowns as financial markets crashed in early March. Chime, a leading branchless U.S. bank, has experienced multiple outages over the past year, with the company’s five million users unable to see their balances and intermittently unable to use their debit cards. Above all other banking features, customers want to know that they can access their money when necessary, so these kinds of setbacks must subside if fintech contenders want to make serious headway.
Meanwhile, regulatory complexity within countries and across regions is contributing to “winner take most” outcomes for fintech disruptors. Neobanks need to invest more in regional compliance to gain traction, rather than trying to launch globally on day one.
The landscape is changing rapidly for neobanks, and it will keep changing. Venture capital-backed startups will try to grab a big piece of the consumer banking world, but they’ll face plenty of competition. We might also see fintech firms partner and bundle services in an effort to compete head-on with the big banks.
Ultimately, the future of banking could simply come down to consumer awareness. Take my brother-in-law for example. After recently receiving a check from his grandfather, he sent it home to his parents so they could deposit it into his bank account. Although he’s highly educated and technologically savvy, he had no idea that he could deposit the check in a matter of seconds with a mobile banking app. Instances like this demonstrate that there’s still ways to go in terms of shifting consumers’ mindsets to challenge traditional banking.
It’s something that people don’t really think about, unless they work in the industry, or need to get a mortgage or some other major service from their bank.
Just as disruption has changed consumer habits in so many other industries, it will eventually do so in banking. Neobanks are better positioned to integrate with top data transfer network providers like Plaid, as they think about service through a lens that is different from that of traditional banks. As consumers become more aware of alternative banking options, they will catch on to the advantages of neobanks and inevitably make the switch, choosing to abandon their traditional bank in the process.
For the banking industry, change is already here. And more change is coming.
About the Author
Rob Odell is Co-President & Chief Product Officer at SALT where he is responsible for developing the strategic direction of the company and managing the product and marketing teams. Rob has been a Bitcoin believer since 2013 after being introduced to it by a Bali-based coffee roaster selling his beans for Bitcoin. SALT allows borrowers to use their cryptoassets as collateral to secure cash or stablecoin loans.
After identifying and evaluating new ways to add value for SALT Membership Unit (“SALT”) supporters, we’re excited to announce that we’re 1. now accepting SALT as collateral for a cash or stablecoin loan and 2. switching from a staking model to a redemption model.
How will this work when the price of SALT varies across exchanges?
Since Binance and Bittrex delisted SALT in February and May respectively, we’ve been searching for a valid third-party pricing source by which to value SALT. We define valid exchange pricing as the trading price on an unmanipulated market where the trading volume is high enough that a sufficient number of buyers and sellers can establish a price at which to transact. We determined that Binance and Bittrex were the only two exchanges to offer a sufficient market for SALT to provide validity in the previous year. To mitigate this change in pricing validity, we have taken the 60-day moving average from Coinmarketcap.com, using the 60 days prior to the delisting announcement by Bittrex. Using this pricing mechanism, we are recognizing a price of $0.15 per SALT on our platform. If, in the future, SALT is listed on an exchange with adequate trading volume, accessibility, and market depth to provide us with price validity, we will immediately recognize such third-party pricing.
What does this mean if I’ve already staked SALT to secure a loan?
If you currently have a loan with us and you staked SALT to get a reduced interest rate, your SALT will automatically be recognized as collateral in your collateral wallet and your interest rate will remain the same.
What else can I do with my SALT?
We are moving from a staking model to a redemption model. This means that while you can still use your SALT to secure a lower APR on your crypto-backed loan, the new redemption program will allow you to redeem your SALT rather than stake it. The reason we’ve switched to this new model is to offer you value for your SALT upfront. From now on, you can redeem your SALT to reduce your interest rate for lower monthly payments (go to saltlending.com for loan terms and options). The amount of SALT required to do so depends upon the size of your loan.
What if I don’t own SALT?
If you don’t own SALT, these changes will not impact you. Our goal with switching to a redemption model and adding SALT as a collateral type is to reward early supporters of SALT by offering them additional ways to use their SALT tokens the way they were intended to be used — to engage with our lending platform.
Salt Lending LLC: Salt Master Fund II, LLC – NMLS 1711910
This website contains depictions that are a summary of the process for obtaining a loan and provided for illustrative purposes only. For example a one year $10,000 loan with a rate of 6.00% APR would have 12 scheduled monthly payments of $861. There is no down payment required. Annual percentage rates (APRs) through the website vary. The use or access of the website or platform does not guarantee the availability of any current and/or future offer, promotion, terms, loan, or return. Additional terms, conditions, requirements, suitability, and screenings, among other restrictions, may apply at the sole discretion of Salt. Salt Lending LLC’s loans are issued pursuant to private agreements. You should review the representations and warranties described in the loan agreement.
Available rates and terms are subject to change and may vary based on loan amount, qualifications, and collateral profile. Other terms, conditions, and restrictions may apply.
Individual US citizen borrowers must be a permanent resident and at least 18 years old (or local age of majority).
Valid bank account and social security number/FEIN are required. Borrowing against collateral entails risk and may not be appropriate for your needs. Not FDIC-insured; investments may lose value; no Salt or bank guarantee. Salt does not provide legal and/or tax advice. Please consult your advisor.