Sybil Attack

Sybil Attack is a type of breach seen in peer-to-peer systems in which a node in the grid operates multiple identities vigorously at the same time and weakens the authority in reputation systems. The focal purpose of this attack is to gain the middle-of-the-road influence in the network to carry out illicit this is with respect to guidelines and regulations set with in the network actions in the system. A single entity- a computer system has the ability to produce and activate multiple identities. To outside viewers, these numerous fake identities seem to be real inimitable identities.

This attack receives its name form a case study about a woman named Sybil Dorsett, who was treated for Dissociative Identity Disorder. If you are interested in understanding more about this particular case, we suggest that you watch the movie based on the same- “Sybil” (2007). A paper called The Sybil Attack was written by John R. Douceur at the Microsoft Research.

How the Bitcoin network prevents sybil attack?

Bitcoin grid uses the Proof of Work (PoW) consensus algorithm to prove the legitimacy of any block that is added to the blockchain. A substantial amount of computing power is essential to do the work which delivers imbursement motivation to the miners to do authentic work which means a bitcoin reward of 12.5 bitcoins for every block mined is given to the miners and no incentive for the defective work. The dealings are authenticated by every node and vetoed as inacceptable if defective transactions are included in the block. A type of sybil attack, called the 51% attack is also virtually impossible in the bitcoin system because of so many miners, it is very tough for a single group to control 51% of the miners.

Ways to prevent sybil attack

Giving different power to different members – This is on the basis of repute systems. Members with dissimilar power levels are given diverse reputation levels.

Cost to create an identity – To avert multiple false identities in the network, we can put a cost for every identity that aims to join the network. A point to note is that it makes more sense to make it infeasible to operate multiple fake identities at the same time rather than creating new identities. Multiple identities can enforce security, anonymity, censorship prevention.

Validation of identities before joining the network –

Direct validation: An already recognized member authenticates the new joiner of the network.

Indirect validation:An established member authenticates some other members who can, in turn, verify other new network joiners. As the members authenticating the new joiners are verified and validated by an established entity, the new joiners are trusted to be honest.

What Does the Stochastic RSI Help You with?

This article is a continuation of the introduction blog written on the Stochastic RSI. The StochRSI was developed by Tushar S. Chande and Stanley Kroll and comprehensive in their book “The New Technical Trader,” first published in 1994. While technical pointers already existed to show overbought and oversold levels, the two developed StochRSI to improve sensitivity and generate a greater number of signals than traditional pointers could do.

The StochRSI deems something to be oversold when the value drops below 0.20, meaning the RSI value is trading at the lower end of its predefined range, and that the short-term direction of the underlying security may be nearing a low a possible move higher. Conversely, a reading above 0.80 suggests the RSI may be reaching extreme highs and could be used to signal a pullback in the underlying security.

Along with identifying overbought/oversold conditions, the StochRSI can be used to identify short-term trends by looking at it in the context of an oscillator with a centerline at 0.50. When the StochRSI is above 0.50, the security may be seen as trending higher and vice versa when it’s below 0.50.

The StochRSI should also be used in conjunction with other technical indicators or chart patterns to maximize effectiveness, especially given the high number of signals that it generates.

In addition, non-momentum oscillators like the accumulation distribution line may be particularly helpful because they don’t overlap in terms of functionality and provide insights from a different perspective.

The Difference Between the Stochastic RSI and the Relative Strength Index (RSI)

They seem similar, but the StochRSI relies on a different formula from what generates RSI values. RSI is a derivative of price. Meanwhile, stochRSI is derivative of RSI itself, or a second derivative of price. One of the key differences is how quickly the indicators move. StochRSI moves very quickly from overbought to oversold, or vice versa, while the RSI is a much slower moving indicator. One isn’t better than the other, StochRSI just moves more (and more quickly) than the RSI.

Limitations of Using the Stochastic RSI

One downside to using the StochRSI is that it tends to be quite volatile, rapidly moving from high to low. Smoothing the StochRSI may help in this regard. Some traders will take a moving average of the StochRSI to reduce the volatility and make the indicator more useful. For example, a 10-day simple moving average of the StochRSI can produce an indicator that’s much smoother and more stable. Most charting platforms allow for applying one type of indicator to another without any personal calculations required.

Also, the StochRSI is the second derivative of price. In other words, its output is two steps away from the actual price of the asset being analyzed, which means at times it may be out of sync with an asset’s market price in real time.

How to Use the MACD Indicator

MACD is an abbreviation for Moving Average Convergence Divergence. This tool is used to recognize moving averages that are representing a new movement, whether it’s bullish or bearish. Our utmost significance in trading is being able to find a trend, because that is where the most money is made.

With an MACD chart, you will usually see three numbers that are used for its settings.

The first is the number of periods that is used to calculate the faster-moving average.
The second is the number of periods that is used in the slower moving average.
And the third is the number of bars that is used to calculate the moving average of the difference between the faster and slower moving averages.

How to Trade Using MACD

Because there are two moving averages with dissimilar “speeds”, the faster one will noticeably be faster to react to price movement than the slower one. When a new trend ensues, the fast line will react first and eventually cross the slower line. When this “crossover” occurs, and the fast line starts to “diverge” or move away from the slower line, it often designates that a new movement has formed.

The fast line crossed under the slow line and properly identified a new downtrend. This is because the difference between the lines at the time of the cross is 0. As the downtrend begins and the fast line deviates away from the slow line, the histogram gets bigger, which is good indication of a strong trend. There is one drawback to MACD. Naturally, moving averages tend to lag behind price. After all, it’s just an average of historical prices.

Since the MACD signifies moving averages of other moving averages and is smoothed out by another moving average, you can imagine that there is quite a bit of lag. However, MACD is still one of the most favoured tools by many traders.

The Future is Now with XcelToken Plus

Recently, the CEO of XcelLab Gyanendra Khadka has announced the release of the upgraded version of the popular XcelToken, with the aim of changing the ecosystem of utility tokens around the world.

“XcelToken Plus” is the upgraded version of XcelToken, which is an ERC20 token on the Ethereum Blockchain Platform, that is painstakingly crafted with the purpose of driving mass adoption of crypto in the mainstream industries at touch our lives, building and fostering a large crypto-community within the hospitality, retail and gaming sectors. For example, travel industry alone is worth over $7 trillion and is growing at over 11% per annum.

XcelLab is proud to announce that XcelToken Plus is now available for trading on 14 well reputed exchange platforms under the ticker name XLAB.

Here’s a list of platforms that one can now use to trade the utility token- XcelToken Plus (XLAB) on:

ABCC – A world-class Digital Assets Exchange, aiming to provide a frictionless, user-centric trading experience.

LIVECOIN – A modern, safe trading platform for accessing cryptocurrency exchange markets with simple interface and low trading fees.

P2PB2B – An advanced cryptocurrency exchange that works for the benefit of its users.

MERCATOX – A modern convenient service for accessing e-currency and cryptocurrency exchange markets.

HOTBIT – A professional digital asset exchange platforms that provide trading services among major digital currencies like Bitcoin, Litecoin and Ethereum for users from all over the world.

LATOKEN – A rapidly growing crypto exchange focusing on liquidity for new tokens.

BITKER – Provides hundreds of trading pairs for global users, safe and easy to use, convenient and reliable digital asset exchange.

COINGEO – Fast, Secure and reliable, make the platform a complete station for traders. XcelToken Plus is a preferred token on this Exchange platform.

PACTBIT: Is a system that allows you to trade at home or office and on Windows-based program provides a secure and Convenient interface.

HIBIT: Financial Security, Asset Separation, 2-Factor Authentication

ECOINEX: A system for protecting your assets with security and transparency.

WEBITRX: Strives to keep your assets grow in security and transparency.

WEBITRXHK: is a system that allows you to trade at your convenience, while providing security and transparency.

BORABIT: Low fees, Strong Trading Aids and Coin Price Comparison by Exchange.

Mr Khadka (CEO) stated that “The utility token; XcelToken Plus, will enable the crypto community to use the token in their day to day transactions, such as mobile recharge, travel and retail – few of the most important spheres that touches our lives on an everyday basis. So, having a token that allows you to transact in these spheres will enable cryptocurrencies to enter the realm of mainstream adoptions in a faster pace.”

Further to his previous statement Mr Khadka, added “… we have a team of dedicated senior developers across USA, Mexico, Nepal, India and Singapore, who are working to ensure, the token and the platforms are built keeping in mind world class standards, to make sure that the crypto-travellers and traders receive best services and offers” And this he says “will help increase the possibility of growing the cryptocurrency community and stabilizing the significance of utility tokens.”

XcelToken Plus, a one of a kind utility token, aside from its tradability, is now adopted into usage on platforms such as:

XcelTrip– An online travel booking platform based on the blockchain technology, aims to disrupt the ever-growing trillion-dollar travel industry, through challenging the monopoly of the ecosystem by giving the power back to the users. XcelTrip, allows travellers to check-in at over 800,000 hotels and book tickets with over 400 airlines. XcelTrip makes sure to give the power of bookings and anonymity to the consumer, the consumer is exempt from paying extra credit card charges and other miscellaneous expenditures.

On this decentralised travel platform, aside from XcelToken Plus, crypto-travellers can also use Ethereum, Bitcoin, Binance coin to book airline tickets and hotels.

Crypto-travellers around the world can either log on to XcelTrip.com or download the XcelTrip app, available on both android and IOS, to book their travels, with amazing cashback offers that run all throughout the year and for those travellers who contribute content and inventory there is a proposition that allows them to earn XcelToken Plus on the XcelTrip platform.

Mr. Raghav, XcelTrip CMO adds “ Crypto community can now book over 800,000 hotels and 400 airlines on XcelTrip.com and earn up to 50% cash back on their booking, this is an offer that is sure to disrupt the travel industry, we are passing on massive benefits to users and community, to kick-start the crypto mass adoption in travel industry. Further, users can use our XcelPay platform for mobile top-up and purchase gift cards from top brands such as amazon, Walmart, target, uber and more.”

XcelPay– A merchant POS, digital payment wallet and crypto payment gateway. XcelPay is integrated into an easy to use, crypto wallet that is enabled for both mobile and tablet use, makes sure that sending and receiving payments in crypto is a secure process.

XcelPay aims to cut out unwanted middle men, bank/card transaction fees, currency conversion fees that produce a damaging effect on the retailer’s and consumer’s margins, making this a shopaholic’s ultimate companion.

Through XcelPay, the users can now top up their mobile phone plans with 900 different carrier services and in 160 countries, with Ethereum and XcelToken Plus.

XcelToken Plus is also a preferred token on Bitnare, a social media platform that allows for the people of the crypto-community to network with each other within the community with a lot of comfort. XcelGames, where the player can collect coins on the game and convert them into XcelToken Plus. The app is available for both IOS and Android devices.

Understanding Ichimoku Kinko Hyo

Ichimoku Kinko Hyo translates as “one look equilibrium chart”. It was designed specifically for quick and easy decision making. Ichimoku Kinko Hyo is a gauge that looks compound to traders with 5 seconds attention spans. Once you know what it does, it makes your crypto trading choices way faster though. Mastering Ichimoku Cloud transaction really brings you one step closer to the actually realistic goal of crypto trading: Creating high-probability verdicts without costing you your whole day inspecting your Trading View charts.

Ichimoku Cloud Lines Explained

The Senkou and The Kumo

“Senkou span” is the name for the borders of the filled cloud, or “Kumo cloud”. The span is filled with green color in case the market is bullish. It will turn red in bearish markets, when the two spans swap.

Senkou lines are major support/resistance areas – they attract the price. Traders set their entries, exits and stops around them – usually leveraging additional information from other indicators.

The TK lines and The TK Cross

The “TK lines”, or Tenken and Kinjun, are the balance lines – fast and slow moving averages.

They are moving averages, so traders will look for their cross when they are looking for a trend reversal. Because of their names, this cross is called “TK cross”.

Nonetheless, TK lines are also important when there is no cross in sight. If the price sticks around them, it signals that the asset is neither overhyped nor underpriced. If the price action travels very far from the TK lines, it signifies the price is way out of balance and a pullback is likely, but it is by itself not a trigger to open a position for the pullback.

In more balanced markets the price stays around these lines and traders watch how it is bouncing off them or crossing them when they are looking for a good entry.

The Chinkou

The “Chinkou” span is a lagging indicator, use it to confirm a trend strength. Chinkou line above the candles means the market is strong. When there is a strong action and the lagging line crosses the candles, it is a sign the trend is weakening and becoming undecided.

Stay tuned for tomorrows blog to understand how to read the Ichimoku Kinko Hyo.

Problems With Game Theory Mechanics in Distributed Systems

We have already understood game theory and its usage in cryptoeconomics, in this blog we will look at the problems that might come with using game theory in a decentralised, distributed system. Lets quickly look at the problems that it might cause:

Despite the incentive structures and game theory mechanics driving honest behavior in the Bitcoin network, there are some important issues that are widely recognized. Centralization of mining as a result of mining pools has led to concerns that the reinforcing Nash Equilibrium of the system can be compromised through a 51% attack.

This is where malicious miners control enough of the network hashing power to fork the blockchain, overriding the coordination game played out by a decentralized network of miners. Due to this, some view incentive mechanisms as not particularly necessary or only necessary as a last resort of cryptocurrency platforms due to the complications in system logic that they create.

The empirical problem laid out by critics is that the success of game theory models in these platforms cannot be determined academically, only through practice. Some of the assumptions made by game theory models in cryptocurrency platforms revolve around a specific threshold of people acting honestly or dishonestly.

Predicating platform security on implied assumptions of human behavior can be risky, especially when there is no precedent for the technology or models being implemented.

Bitcoin as a decentralized network is built on the uncoordinated choice concept where coordination between parties is limited by the size of parties interacting with each other. Centralized mining pools do not follow this concept and therefore create a viable security concern.

Game Theory For Cryptocurrency

To understand how game theory works within the sphere of Cryptocurrency we need to get through the basics first. To know more about game theory and how it’s used in cryptoeconomics keep reading on.

Let’s first get a feel for Game theory. It is essentially the study of logical decision making made by players within the clear parameters of a classification (game, scenario, etc). It uses mathematical models and can be applied to economics, psychology, logic, computer science, distributed systems, and more. Game theory can be seen as a microcosm of human behaviour under set conditions wherein certain inducement structures and mechanisms can lead to predictable and honest behaviour by players.

In a archetypal game theory scenario, there are 3 primary components: Players, Strategies, Outcomes.

Players are the users that make decisions. Strategies are the manoeuvres that players make while simultaneously taking into account possible strategies of other players. The conclusions are the result of the players’ moves inside the system, and with the right incentive mechanisms, can be motivated to a certain route or played out recurrently with similar results.

Game Theory in Cryptocurrencies

Cryptoeconomics can be well-defined as the amalgamation of cryptography, economics, and game theory incentive models merged into distributed blockchain protocols in order to create a secure, stable, and sustainable system.

It is a very new concept, but when you really dig deep into the functionality of cryptocurrency platforms, you will see how important it is to justifying malevolent actors and endorsing honest, trust less behaviour across the network.

The best example to understand the role of game theory and cryptoeconomics in cryptocurrency platforms is Bitcoin. In order for dispersed blockchain networks like Bitcoin to remain secure and have the ability to reach the essential consensus on the blockchain, they need to remain Byzantine Fault Tolerant.

For the system to remain Byzantine Fault Tolerant, the decentralized nodes have to come to a majority agreement on the current state of the blockchain without trusting each other.

This is very difficult to accomplish and is outside of the scope of the employed cryptography, which is used to cryptographically link each block of the blockchain, not determine whether the transactions contained within the blocks are valid or which of 2 competing chains is the valid one.

Bitcoin solves this problem through its Proof-of-Work consensus model. The model works where miners need to solve computationally intensive mathematical problems in order to win the reward for mining the next block.

This solution needs to be verified by the other miners and the inherent cost of the process is electricity, a real-world asset with a financial value. The resulting chain becomes secure and very costly to manipulate or attack. The larger and more decentralized the network becomes, the increased difficulty in accomplishing an internal or external attack.

Incentive structures predicated on game theory mechanisms come into play in order to encourage the players (users and miners) in the system to act honestly. Additionally, some abstract concepts within game theory work subtly in the background.

Starting with miners, the obvious economic incentive stems from the block reward if they solve the next round of mining for the next block. The reward in Bitcoin is currently 12.5 BTC. This is important because since the miners are receiving the reward in Bitcoin, it is in their best interest for the value of Bitcoin to increase and the network to remain valid and secure.

They actively spend resources (electricity) to have a chance to win the block and thus, their efforts will be a sunk cost if they use malicious actions to attack the network and jeopardize the value of the reward. It becomes increasingly more costly to act dishonestly than it does to act honestly within the system.

This creates a positive feedback loop where miners have a consistent positive incentive to maintain the valid blockchain and mitigate against malicious actors, resulting in a secure network.

Miners can act malevolently in a number of ways, counting adding invalid transactions into blocks or mining on top of invalid blocks to gain more BTC. However, this is where game theory mechanics come to the rescue. Invalid blocks will be rejected by the majority of miners in a coordination game format where it is in the best interest financially of miners to remain with the majority and not attempt to create invalid blocks due to the inherent and increasing cost associated with doing so.

The resulting conclusion from this is that the Bitcoin blockchain is constantly in a self-reinforcing Nash Equilibrium state. The system is Byzantine Fault Tolerant due to the majority of miners working in coordination to achieve and maintain the most stable state of the network at all times.

With regards to users, their preference for the longest chain (and the most secure) is a result of a concept known as Bounded Rationality. Essentially, users are acquainted with the main chain and switching chains creates unnecessary complications. Maybe reckless, but most users assume that incentive devices are working correctly to keep miners’ power in check.

Game theory dynamics in cryptocurrencies will endure to develop and should become one of the most captivating concepts within the industry. Their role in security, rationality, and viability cannot be modest and their eventual success or demise within decentralized networks will unfold in real-time as novel platforms go live and incorporate larger numbers of users.

The field of crypto economics is just commencement, with insinuations not solely referred to cryptocurrency platforms, but to the larger progress of game theory process themselves.

Understanding Japanese Candlestick

Pro traders likely analysed price action and investor emotions by using the candlestick charting style. Although modernized in the late 1800s by journalist Charles Dow, the core principles of candlestick charting remain intact today. Both the modern and historical technical analysts who swear by the style regard price action as more important than earnings, news or any other fundamental principles.

In other words, all known information is reflected in the price, which is precisely displayed in the candlestick. A candlestick represents the price activity of an asset during a specified timeframe through the use of four main components: the open, close, high and low.

The “open” of a candlestick represents the price of an asset when the trading period begins whereas the “close” represents the price when the period has concluded. The “high” and the “low” represent the highest and lowest prices achieved during the same trading session.

Every candlestick uses two physical features to display the four main components.

The first feature, known as the body, is the wide midsection of the candlestick and it depicts the open and close during the observation period (most charts will allow you to set the range for the candlesticks)
The close is represented at the top of the body in the green candlestick and at the bottom of the body in the red candle.
On the opposite is true of the open, which forms the bottom of the green candlestick and the top of the red candlestick.
The final two components, the high and low, are represented in the second feature of the candlestick known as the ‘wick.’ Wicks are simply displayed as the thin lines extended above and below the body.

Cryptocurrency traders tend to take advantage of the inherent market volatility by using charts on the intra-day time frames. Each candlestick typically represents one, two, four or 12 hours. (A longer-term trader will likely choose to observe candlesticks that represent a single day, week or month.)

A candlestick becomes “bullish,” typically green, when the current or closing price rises above its opening price. The candlestick becomes “bearish,” typically red, when its current or closing price falls below the opening price.

It’s important to keep in mind that the longer the duration of the candlestick, the more powerful its effect is on the overarching trend.

For instance, a hammer spotted in a one-hour candlestick will have almost no impact on a 6-month long downtrend, whereas if the hammer formed on a 1-week long candlestick, its reversal impact would be much more significant.

Cryptocurrencies: A Solution To Hyperinflation

This blog explores the possibility of Cryptocurrencies as a solution to hyperinflation, if you haven’t read the previous blog on the Introduction to Hyperinflation, please do so.

The invention of cryptocurrency has added a whole new dimension to the digitization of the global economy. It offers an alternative to conventional forms of central bank money or ‘fiat’ currency. It also offers new approaches to setting monetary policy, free from political interference and the damaging consequences of hyperinflation.

Fiat currency is money that is not backed by an underlying asset or commodity but is given the status of legal tender by law. Legal tender is something that a business is obligated to accept as a means of payment. But the fiat itself is inherently worthless. Its value is based on users’ faith that a given nominal amount of currency – the face value – will entitle them to a certain amount of goods or services in exchange.

Put differently, money enables individuals to supply their labor now in exchange for goods and services later. It serves as a form of deferred payment. It is this fundamental use of money – that it permits payment to be deferred – that really makes money, money. Without a means to defer payment, all transactions would have to be conducted via barter.

It’s easy to see how it might be difficult for say, a physician to provide their services as a medical professional, in exchange for payment in groceries, gas, utilities, clothing, and so on, from their patients. The healthcare industry would be brought to a halt pretty quickly under a barter system. Fortunately, we have money to smooth the process.

It is this aspect of money – that it enables deferral of payment – which is key to understanding why monetary stability, or stability of the value of a currency, is crucial for maintaining the integrity of money and the economic systems it underpins.

Without monetary stability the purchasing power of a given nominal amount of money becomes uncertain. And that, in the extreme, might inhibit individuals and businesses from engaging in supplying goods and services altogether.

In regimes with runaway inflation, money ceases to function effectively as a form of deferred payment. A given amount of cash paid in return for work done today may not be worth anything like the same amount of it is not spent until tomorrow. It is no surprise to observe that in recent years in countries that have recent episodes of hyperinflation, citizens have increasingly turned to other currencies, including cryptocurrency, in order to store wealth.

That’s because, in contrast to fiat currency, which a government can print more and more of every day, thereby undermining its value, cryptocurrencies like Bitcoin have a fixed total possible supply. In the case of Bitcoin, there can never be any more than 21 million Bitcoins. This means that the value of a Bitcoin cannot be debased by increasing the number of them in circulation.

It is surely no coincidence that in Venezuela, where the IMF anticipates that price inflation could reach 1,000,000% (that’s not a typo, it really is one million percent) in 2018, cryptocurrency use has been on a dramatic rise.

In Venezuela, Dash, which offers low-cost, near instantaneous, transactions, has now surpassed Bitcoin in terms of adoption. Speaking to Bitcoin Magazine, Jorge Farias, CEO of Cryptobuyer, the first platform to list cryptocurrency against the national currency, the bolivar, Dash now accounts for more transactions on the platform than Bitcoin.

Its use is so widespread, in fact, that there is even now an organization called Dash Venezuela which provides Spanish-speaking support to users. Arguably, this emergent institutionalization of Dash makes it a sort of de facto ‘national’ cryptocurrency for the people of Venezuela.

In Zimbabwe, which suffered a similarly extreme episode of hyperinflation around a decade ago, the Dash-powered money transfer system Kuvacash, has been growing in popularity as a means of making peer-to-peer payments via the cell phone network.

Fiat currency may be the legal tender in countries like Venezuela and Zimbabwe, but that does not mean it is fulfilling the essential function of money. People in these countries cannot rely on their respective governments to provide the monetary stability they need, they have looked to cryptocurrency, which offers them a real choice, and real hope.

Fortunately, in some other developing economies where there is a lack of financial inclusion, the technology underpinning cryptocurrency is being looked at seriously. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) has produced several thoughtful reports on the opportunities and risks presented by cryptocurrency in the Caribbean.

The government of Montserrat has even gone so far as to enter into a Memorandum of Understanding with Barbados-based fintech firm Bitt to create a digital payments platform for the country. Montserrat Premier Donaldson Romeo said, “The people of Montserrat will benefit from increased financial inclusion, and a reduction in their need for cash to make payments for goods and services, or as a means of saving.” The platform will be based on Digital Eastern Caribbean Dollars. Naturally, the currency symbol has an ‘X’ in it (DXCD)!

Understanding Hyperinflation

Introduction

Hyperinflation is a term to define rapid, extreme, and out-of-control price upsurges in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is swiftly intensifying inflation.

Although hyperinflation is a rare event for developed economies, it has occurred many times throughout history in countries such as China, Germany, Russia, Hungary, and Argentina.

Hyperinflation occurs when prices have risen by more than 50% per month over a period of time. For comparative purposes, the U.S. inflation rate as measured by the Consumer Price Index (CPI) is typically less than 2% per year, according to the Bureau of Labor Statistics. The CPI is merely an index of the prices for a selected basket of goods and services. Hyperinflation causes consumers and businesses to need more money to buy products due to higher prices.

Whereas normal inflation is measured in terms of monthly price increases, hyperinflation is measured in terms of exponential daily increases that can approach 5 to 10% a day. Hyperinflation occurs when the inflation rate exceeds 50% for a period of a month.

Imagine the cost of food shopping going from $500 per week to $750 per week the next month, to $1,125 per week the next month and so on. If wages aren’t keeping pace with inflation in an economy, the standard of living for the people goes down because they can’t afford to pay for their basic needs and cost of living expenses.

Hyperinflation can cause a number of consequences for an economy. People may hoard goods, including perishables such as food because of rising prices, which in turn, can create food supply shortages. When prices rise excessively, cash, or savings deposited in banks decreases in value or becomes worthless since the money has far less purchasing power. Consumers’ financial situation deteriorates and can lead to bankruptcy.

Also, people might not deposit their money, financial institutions leading to banks and lenders going out of business. Tax revenues may also fall if consumers and businesses can’t pay, resulting in governments failing to provide basic services.

Venezuela’s Economic crisis

Venezuela has been gripped by economic collapse and political crisis. After years of financial strife, hyperinflation has reached a devastating level, with the IMF estimating that inflation will reach 10 million percent in 2019. The crippling of a once affluent, oil-rich nation was exacerbated by plummeting oil prices in 2014 — its hard currency lost significant value with the onset of the US fracking industry.

Venezuela has the largest known oil reserves in the world and yet the Venezuelan bolívar has tanked, rendering it essentially worthless. In August 2018, Venezuela’s president Nicolas Maduro devalued the currency, removing five zeros off in an effort to instil stability. Professor and Economist Steve Hanke from John Hopkins University called the move a “scam” at the time on Twitter, adding: “Redenomination will be like going under the knife of one of Caracas’s famed plastic surgeons. Appearances change, but, in reality, nothing changes.” Months on, the currency facelift has done nothing to ease an economy in freefall.

Hyperinflation in Zimbabwe

In 2008, Zimbabwe had the second highest incidence of hyperinflation on record. The estimated inflation rate for Nov 2008 was 79,600,000,000%. That is effectively a daily inflation rate of 98.0. Roughly every day, prices would double. It was also a time of real hardship and poverty, with an unemployment rate of close to 80% and a virtual breakdown in normal economic activity. The hyper-inflation was caused by printing money in response to a series of economic shocks.

In tomorrow’s post we will take a look at how cryptocurrencies feature in these types of economic situations.