AMONG THE WORLD’S top innovating economies, quite a few aren’t getting enough bang for their buck.
That’s the lesson from the latest annual Global Innovation Index release, which measures the most innovative economies and then, separately, calculates an “Innovation Efficiency Ratio.”
Among the top-10 innovators, Switzerland, Germany, Sweden and the Netherlands were the only countries that also ranked in the top-10 for innovation efficiency. The contrast is especially stark for Singapore, which came in at 5 for innovation but 63 for efficiency. On the other hand, Luxembourg is enjoying far more output relative to its input, at No. 2 for efficiency, but No. 15 innovation.
Published annually by Cornell University, INSEAD business school and the World Intellectual Property Organization, the report tallies scores among 126 economies. The efficiency measure is calculated by dividing an economy’s “outputs,” such as patent applications and increases in labor productivity, by “inputs” that include research and development spending and financial market openness. The broader gauge averages input and output scores.
While most economies have a linear relationship between input and output, China “strongly over-performs,” according to the report. China also stood out as the only economy in the top-30 innovators, at No. 17, that isn’t classified as high-income by the World Bank.
Other economies can celebrate rankings that at least show they’re punching above their weight. South Africa, Tunisia and Colombia were “innovation achievers” for the first time this year, having performed at least 10% above peers in their income group. Vietnam, India, Rwanda, Thailand and Bulgaria were among those that repeated in the report’s group of 20 “achievers.”
These out-performing countries have more structured institutional frameworks and “foster a higher integration with international markets,” according to the report. — Bloomberg

IN A FINANCIAL capability survey implemented by the World Bank in 2014 as part of a broader engagement on enhancing financial consumer protection and financial education in the Philippines, a sample of 3,000 adults were asked to answer seven questions dealing with basic calculus and financial concepts (simple interest rates, inflation, compound interest, risk diversification and the main purpose of insurance products) to gauge their financial knowledge and basic numeracy skills.
The results were dismaying. On average, the respondents were able to answer only 3.2 out of the seven financial literacy questions correctly. And 10% of them got six questions right, and only 2% managed to get a perfect score.
“A more worrisome finding is that around a fifth of the surveyed population did not answer more than one question correctly, while still a significant proportion of respondents, one out of 10 adult Filipinos, did not appear to have a sound grasp of any of the basic concepts being tested,” The World Bank said in “Enhancing Financial Capability and Inclusion in the Philippines — A Demand-side Assessment,” which was released in 2015.
Filipino adults also performed poorly in the 2014 Global Financial Literacy Survey by Standard & Poor’s Ratings Services, in which several questions measuring four fundamental concepts for financial decision making — basic numeracy, interest compounding, inflation and risk diversification — were posed to more than 150,000 respondents in 140 countries.
To be deemed financially literate, the respondents needed to correctly answer “at least three out of the four financial concepts.” The survey found that only 25% of adult respondents in the Philippines were financially literate, a figure lower than the global average of 33%.
It’s evident from these surveys that the financial literacy of the Filipinos is lacking, and it should be a cause for great concern. “Financial literacy is a necessary life skill. The simplest human activity requires financing and life brings with it various risks. At the individual level, financial literacy, and its eventual translation into financial capability, enables us to save, prepare for the future, and manage economic/financial shocks,” Pia Bernadette Roman-Tayag, managing director of the Inclusive Finance Advocacy Office and the Financial Consumer Protection Department at Bangko Sentral ng Pilipinas (BSP), told BusinessWorld in an e-mail.
Mario A. Deriquito, President of Banco de Oro Unibank, Inc. Foundation (BDO Foundation), the corporate social responsibility arm of one of the biggest banks in the country, shares the sentiment. “Financial literacy enables people to manage their resources efficiently and responsibly, thereby ensuring a more stable future. Financially literate people have knowledge of financial products and services which enables them to make well-informed decisions,” he said in an e-mail.
Financially learned citizens with the ability to understand, select and use financial services that fit their needs can also be more effective partners of BSP in maintaining stable prices and ensuring a stronger, safer banking and payment systems and can productively contribute to the economy, Ms. Roman-Tayag noted.
Everyone needs financial education, regardless of their social status and age. But there are several groups that require a financial education tailored to their needs, and one of those groups comprises overseas Filipinos (OFs) and their beneficiaries. “OF remittances continue to provide support to the country’s economy as a major driver of domestic demand. The 2017 level of OF personal remittances accounted for 10% of GDP. Yet anecdotal evidence and general public knowledge indicate that many OF families struggle to meet their needs, when the OFs return home,” Ms. Roman-Tayag said.
The unbanked, low-income households, farmers, fisherfolk and micro, small and medium-sized enterprises are also an important financial education target. Ms. Roman-Tayag said they lack not only adequate awareness, but also appreciation and knowledge of formal financial transactions, particularly their benefits and risks. “To effectively on-board them in the formal financial system, and enable them to make prudent financial choices, they would need enhanced financial literacy and improved financial capability,” she added.
There’s one more group that needs a financial education that suits them — the youth. In the 2014 book Financial Education for Youth: The Role of Schools, the Organization for Economic Cooperation and Development notes that incorporating financial education into the formal school curriculum is one of the most efficient and fairest ways to reach a whole generation on a broad scale. “In addition, since the curriculum spans several years and can start as early as kindergarten, it is unique means to inculcate and nurture a sound financial culture and behaviors amongst future adults,” the organization adds.
To enhance the financial literacy of the Filipinos, BSP started an initiative called the Economic and Financial Learning Program (EFLP), which consists of 10 learning programs designed for specific audiences: children, college students, the working sector, investors, overseas Filipinos, and select unbanked sectors.
“We have developed about 46 learning materials, videos and brochures. We continue to share them with participants, with our partners, and on social media platforms,” Ms. Roman-Tayag said. “As of end-2017, we have conducted more than 30,000 learning programs in 79 out of 81 provinces, reaching 2.2 million participants. EFLP participants have rated the programs with an average of 4.7, with 5 as highest possible score. Based on the annual organizational scorecard of the BSP, we have always met targets in terms of program completion and participation rates.”
More recently, the central bank, the Department of Education (DepEd) and BDO Foundation joined forces to develop financial literacy materials for an estimated 24 million students and around 700,000 teaching and non-teaching personnel in more than 47,000 public schools nationwide.
“These materials, consisting of short videos, lesson plans, and discussion guides, are expected to make teaching and learning financial literacy more fun, interesting and engaging. They cover topics such as saving, investing, responsible use of credit, personal budgeting and financial management, and sharing,” Mr. Deriquito said.
“Although it is too early to talk about the project’s impact, BDO Foundation is excited about the project because of DepEd’s commitment to use the materials in regular classroom instruction and in regular teacher training programs, making its rollout rapid and wide-reaching,” he added.
The partnership forged by the three institutions can be a model for the kind of collaboration that the government and the private sector should have to better tackle the financial literacy issue. “BSP provides overall direction through its National Strategy for Financial Inclusion. BSP also contributes to the content and materials development. DepEd, on the other hand, handles the pedagogical aspect by incorporating financial literacy into the curriculum, contributing ideas into the development of the videos, developing the lesson plans and discussion guides, and actually rolling them out within the entire public school system. BDO Foundation, for its part, lends its expertise and financial resources to the project and handles overall project management,” Mr. Deriquito explained.
The National Strategy for Financial Inclusion he mentioned was launched in 2015 to optimize collective efforts toward financial inclusion in the Philippines. It provides a platform for the private sector to support the government in improving the financial literacy of the Filipinos through financial education. A tenet of the initiative is that a well-informed and adequately protected public is critical to realizing financial inclusion.
“We think that financial education, financial inclusion as well as consumer protection should be a collective responsibility. This is an issue which requires all hands on deck,” Ms. Roman-Tayag said. A hand from the media is certainly welcome.
“By simply proliferating financial education messages (e.g. prudent personal finance management), informing the public about their rights as financial consumers, and warning them against financial fraud and scam — the media can already impact the lives of Filipinos. The media may likewise take proactive roles by developing specific programs on financial literacy, for example soap operas, ads or other innovative programs that promote fin-ed messages,” Ms. Roman-Tayag said. — FATV

LAST YEAR, Bitcoin led a motley pack of so-called cryptocurrencies in one of the great booms in market history, soaring over 2,000% to its peak. Since then, it’s led an epic bust that rivals the dot-com era stock market collapse. But there are still plenty of true believers. And as the dust settles, investors and regulators find themselves still grappling with questions first raised when Bitcoin broke into public consciousness five years ago: What exactly is it? How do imitators like Ethereum, Ripple’s XRP and Bitcoin Cash work? Should I buy it? Where do cryptocurrencies fit into the future of money? Here’s a guide for those feeling at sea in these turbulent digital waters.
1. WHAT’S BEEN HAPPENING?
The total market value of all traded cryptocurrencies exploded late last year to peak at about $800 billion in January by one count. Four months later, though, the value of crypto-assets had plunged by about two-thirds, as regulators began to crack down and fear of big losses began to replace fear of missing out. By late June, Bitcoin had fallen by 70% — close to the 78% fall of the Nasdaq Composite Index’s drop when the dot-com bubble burst — while the worth of hundreds of other virtual coins fell close to zero. Even so, the total market value of traded cryptocurrencies still rested above $250 billion, many multiples of what it was a few years ago.
2. IS BITCOIN MONEY?
In a way, yes, though it’s not necessarily a useful form of it. It’s possible to buy or sell some things with Bitcoin but very few people do. Extreme volatility is perhaps the biggest argument against treating cryptocurrencies as you would the dollar or the euro. The hallmark of a reliable currency is that it provides a stable store of value. You wouldn’t want to spend Bitcoin on groceries today if you thought its value might soar tomorrow, or take your salary in Bitcoin if you thought it might plunge.
3. SO WHAT IS IT?
Born out of the bitterness that followed the 2008 financial crisis, Bitcoin and its imitators aren’t bills or coins printed or policed by a government or bank. They’re electronic assets created and monitored by a community of users acting in a decentralized way, following protocols set down by the person or persons who dreamed them up. The “crypto” in the name refers to the encryption techniques used by so-called Bitcoin miners. And all the new currencies revolve around what’s seen as Bitcoin’s real innovation — blockchain, a publicly visible, largely anonymous online ledger that records the calculations miners perform to verify transactions without the need for a central authority.
4. WHY ARE SO MANY PEOPLE DOWN ON BITCOIN?
You mean, why did legendary investor Warren Buffett call it “rat poison squared”? There’s a long list of reasons. Besides the massive price swings, Bitcoin and other cryptocurrencies have been connected with scams, money laundering, tax evasion, cyberthefts, exchange outages, excessive speculation and more. Risks like these may have been easier for regulators to overlook when Bitcoin and its peers sat on the far fringes of finance, but they are moving ever closer to the mainstream. The stakes are much higher now that mom-and-pop investors and Wall Street banks alike are piling in.
5. IS ANYONE OVERSEEING THIS AREA OF FINANCE?
A wide range of regulators are trying to get a handle on cryptocurrencies. Turns out there’s little agreement about what they fundamentally are: currencies, commodities, securities or something entirely new. Thus you’ll see them called crypto-assets, digital tokens, coins or just “crypto.”
6. HOW ARE CRYPTO-ASSETS LIKE COMMODITIES?
The vision behind Bitcoin laid out in a 2008 pseudonymous manifesto promised that no more than 21 million will ever be created. That means it’s sometimes compared with scarce commodities such as gold, whose value is determined solely by what people are willing to pay for it. Crypto-assets have become popular in places where hyperinflation erodes the buying power of the local currency (think Zimbabwe), or where sanctions block purchases (think Venezuela and North Korea).
7. HOW ARE THEY LIKE SECURITIES?
There’s an argument that some crypto-assets have the same characteristics as stocks, such as a share of ownership in a common endeavor and the expectation of making a profit from work done by a company. Much of the focus is on new coins or tokens offered by start-ups through so-called initial coin offerings, or ICOs. While they take different forms, ICOs let companies bypass the venture capital process by selling coins instead of shares. In some cases, the founders say coin buyers are prepaying to use a service that the company will build. In the US, the Securities and Exchange Commission has opened a broad probe into whether entities running ICOs are violating its rules by offering what are really securities, although a top SEC official said that neither Bitcoin nor Etherereum fell into that category. China has banned ICOs entirely. That didn’t stop them from raising more than $10.5 billion worldwide through the first half of 2018.
8. HOW ARE REGULATORS CLAMPING DOWN?
Their approaches have run the gamut, from an exchange-licensing regime in Japan that was recently tightened to a largely hands-off system in Switzerland, though the anonymous and borderless nature of many digital coins makes them tough to control. China, once the world’s most active Bitcoin market, banned crypto-asset exchanges in 2017 and blocked access to overseas trading platforms. The crackdown came during government campaigns to stop money from leaving the country and to reduce financial risk. Most countries, notably the US, have not yet formulated a comprehensive regulatory strategy. But US prosecutors are investigating whether traders have been manipulating the price of digital currencies.
9. HOW CAN I BUY BITCOIN?
There are a bunch of ways, all with different risks. Individuals can buy crypto-assets directly from online exchanges that will trade them for regular currencies like the dollar, the euro or the yen. Most of the exchanges will offer to hold the asset for you in a digital “wallet,” although an alarming number of exchanges have been hacked. You can also hold the asset for yourself, in a digital wallet or in so-called cold storage: for instance, a thumb drive disconnected from the internet. Since December 2017, investors can place a wager on Bitcoin — betting it will either rise or fall — without having to own it directly, via futures contracts traded on two big US exchanges.
10. WHAT’S WALL STREET’S APPROACH?
Until recently, it mostly kept its distance. Now there’s lots of interest if not yet much action. Lenders including JPMorgan, Bank of America and Citigroup have barred customers from using their credit cards to buy cryptocurrencies to avoid the risk associated with these transactions. But Goldman Sachs Group, Inc. planned to begin trading Bitcoin futures on behalf of customers. And everybody in finance is at least dabbling in blockchain, which is seen as an innovative way to handle transactions that could potentially upend a wide range of industries.
11. WHY ARE THERE SO MANY DIGITAL COINS?
There are thousands of Bitcoin rivals, and it’s not clear how many of them are going to prove either legal or useful. Some were developed to overcome what their creators saw as flaws in Bitcoin, such as slow transaction times or high fees. Some of them were outright scams. Die-hard fans of newer currencies think they’ll eventually overtake their bigger cousin. The largest rival is Ethereum, which has a total market value half the size of Bitcoin. These so-called alt-coins are certainly getting more attention: By mid 2018 they accounted for more than half of all the money in crypto-assets, compared with less than a fifth at the start of 2017.
12. WHO ARE THE CRYPTO TRUE BELIEVERS?
Here’s a short list of enthusiasts: Teenagers and hackers drawn by a disdain for authority and the libertarian aspirations behind Bitcoin’s creation. Technology geeks who believe they’re disrupting the marketplace and getting in early on the next chapter in the history of money. Financial firms and central banks that think something important will come out of all this even if Bitcoin withers. And there are also plenty of investors who aren’t true believers but who hope to find one to sell their holdings to if crypto prices soar again. — Bloomberg

IT MIGHT BE the definitive sign that cryptocurrencies have arrived on Wall Street.
CFA Institute, whose grueling three-level program has helped train more than 150,000 financial professionals, is adding topics on cryptocurrencies and blockchain to its Level I and II curriculums for the first time next year. Material for the 2019 exams will be released in August, giving candidates their first opportunity to start logging a recommended 300 hours of study time.
CFA added the topics, part of a new reading called Fintech in Investment Management, after industry participants showed surging interest in surveys and focus groups. The worlds of finance and crypto have become increasingly intertwined after last year’s Bitcoin boom, with regulated futures now trading in Chicago, blue-chip firms like Goldman Sachs Group, Inc. dabbling in digital assets, and scores of Wall Streeters joining crypto-related start-ups.
While digital coins have tumbled in 2018 and the real-world impact of blockchain ventures has thus far been limited, some observers say the technology could ultimately transform swathes of the global financial system.
“We saw the field advancing more quickly than other fields and we also saw it as more durable,” said Stephen Horan, managing director for general education and curriculum at CFA Institute in Charlottesville, Virginia. “This is not a passing fad.”
The CFA material on crypto and blockchain will appear alongside other fintech subjects including artificial intelligence, machine learning, big data and automated trading. More crypto topics, such as the intersection of virtual currencies and economics, may eventually be added to the curriculum, Horan said.
“It will be beneficial for us, since there’s been a huge expansion and adoption of crypto in our investment universe,” said Kayden Lee, 27, a financial economics student at Columbia University who took the CFA Level I exam in June and is interning as a fund analyst in Singapore during his summer break.
“But more importantly the focus is on fintech and blockchain,” Lee said. “How it works to improve, unravel or even disrupt certain sectors.”
The new topics will also make an appearance in the CFA readings on professional ethics, an area that some say is lacking in the crypto world. Many virtual currency projects operate in a legal gray zone, while digital-asset trading venues and initial coin offerings are rife with examples of fraud, market manipulation, money laundering and theft. Bitcoin, the most popular cryptocurrency, has lost more than half its value this year amid growing regulatory scrutiny and a series of exchange hacks.
A record 227,031 people in 91 countries and territories registered to take CFA exams in June, seeking a better understanding of finance, improved job prospects or some combination of the two. A majority of the candidates came from Asia, which also happens to be where much of the world’s virtual currency trading takes place. About 45% of Bitcoin transactions are paired against the Japanese yen, according to CryptoCompare.com, while Korean crypto exchanges are some of the world’s largest.
It’s positive that organizations like CFA are drawing attention to the space, said Darius Sit, a former foreign exchange and bond trader at BNP Paribas SA who’s now managing partner of cryptocurrency trading firm QCP Capital Pte in Singapore. “More education is always good.” — Bloomberg

By Noah Smith
IN THE SEVEN MONTHS since Bitcoin’s price peaked, it has fallen by about two-thirds. But it’s still almost three times more valuable than it was a year ago.
So what does the future hold for the world’s first and still most famous cryptocurrency? I see three basic scenarios:
No. 1. Bitcoin Triumph: Bitcoin replaces the dollar (and probably other fiat currencies as well) as the economy’s main unit of exchange. People buy pizzas, finance their mortgages and pay their rent in Bitcoin.
No. 2. Bitcoin as Gold: Fiat currency remains the main unit of exchange everywhere except in a few extremely dysfunctional economies like Venezuela’s. But Bitcoin’s market capitalization remains substantial, and it rises in value over time, occasionally experiencing large bubbles and crashes.
No. 3. Bitcoin Bust: Bitcoin is abandoned, crashing relative to the dollar and never being useful as a payment method for daily necessities.
One can observe which of these scenarios the world is moving toward by keeping track of two prices: the exchange rate of Bitcoin against the dollar (pictured above), and the dollar inflation rate, which measures the exchange rate of the dollar against a basket of goods and services. If Bitcoin’s price plunges and approaches zero, it’s a clear sign the third scenario is underway. If the dollar crashes against both Bitcoin and real goods and services — that is, if Bitcoin and inflation both go to the moon — it indicates that Bitcoin Triumph is happening. And if Bitcoin rises against the dollar but inflation stays low, it means the middle scenario, Bitcoin as Gold, is in effect.
I have long believed in the middle scenario. Since the total number of Bitcoins that can be created is finite, the currency is inherently deflationary, meaning it has a positive expected return, like gold. Finance theory implies that an asset with a high expected rate of return should also be volatile, which makes it not very useful as money. No one wants to see the value of their paycheck get cut in half between payday and grocery day. But it also seems unlikely that interest in Bitcoin will ever die out, especially given its usefulness in the black-market economy. So my prediction is that Bitcoin will stick around, experiencing repeated bubbles and busts, but slowly gaining in value. That is why I personally still own some Bitcoin.
So far, the Bitcoin as Gold scenario has been borne out by the data. As pictured above, Bitcoin has risen in price even after taking the recent bubble into account. But inflation has been low and steady, showing that people are not abandoning fiat currency either.
So far, this looks very much like gold, which has risen in value despite experiencing a bubble and bust in the early 2010s.
But Bitcoin is only superficially similar to gold. There are powerful arguments for the Bitcoin Bust scenario, in which the cryptocurrency is abandoned. One such argument is made by University of Chicago Booth School of Business economist Eric Budish in a new working paper entitled “The Economic Limits of Bitcoin and the Blockchain.”
All money works via trust — you have to trust that the person paying you in a transaction won’t send you fake money, or somehow take the money back after you give them the goods. Banks, which certify fiat money transactions, have built up a large stock of trust over time, so each new transaction is very cheap to perform — to pay someone a dollar, you just have a widely trusted bank mark your account down by $1, and the other person’s up by $1, and you trust that there will be no funny business involved. But Bitcoin runs on a decentralized network, so there’s no trusted bank — in other words, trust has to be reestablished each time there’s a transaction. The innovation of the blockchain represents a way of doing this via a distributed network of competing players, who get a reward for certifying the transaction faithfully.
But Mr. Budish notes that reestablishing trust every time there’s a transaction can get very expensive. If you devote a huge amount of computing power to dominating the blockchain, you can create fake Bitcoin transactions, thus stealing things from people without paying them. Mr. Budish shows that in order to prevent this from happening, the payoff for the blockchain players has to be high relative to the value of the attack. In other words, the more there is to gain from an attack, the more each Bitcoin transaction costs.
The value of using a Bitcoin attack to steal things is related to the size of the largest Bitcoin transaction you can make, so this means that in order to keep Bitcoin usage costs low, transactions have to be kept small — which makes paying for things cumbersome and slow.
Even worse, you can attack Bitcoin in order to sabotage and destroy it — perhaps so that your own cryptocurrency or fiat currency can gain popularity in its stead. Mr. Budish conjectures that the value of this kind of sabotage could potentially be enormous — comparable, in fact, to the total value of Bitcoins in existence.
And if he’s right, it means that Bitcoin as a whole can never get very valuable. If it does, it either becomes way too expensive to maintain (because it consumes electricity), or it becomes vulnerable to sabotage by a rival. If Mr. Budish is right, it means that Bitcoin’s total value has an upper limit. And once people realize that, they’ll abandon the cryptocurrency, leading to the Bitcoin Bust scenario.
So far, Mr. Budish’s apocalyptic scenario hasn’t come to pass, even though Bitcoin’s market capitalization briefly surged above $300 billion in late 2017. So the danger seems remote for now. But if Bitcoin is going to replace fiat money, its market value will have to reach into the tens of trillions of dollars — more than 100 times higher than anything it has attained so far. The weakness Budish has identified — the inherent cost of repeatedly reestablishing trust under constant thread of sabotage — may make Bitcoin economically unviable. If so, either another cryptocurrency will take its place, or fiat money may continue its reign as the world’s dominant monetary system. — Bloomberg
 
This article does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

THE INITIAL PRICE of bitcoin, set in 2010, was less than 1 cent. Now it’s crossed $19,000. Once seen as the province of nerds, libertarians and drug dealers, bitcoin these days draws millions of dollars from hedge funds. In its latest step toward widespread acceptance, futures trading in bitcoin has begun on two of the largest US exchanges. The recent price surge may be a bubble. Or it could be a belated recognition by the broader financial community that so-called cryptocurrencies — digital forms of money — are going mainstream.
It might be time to nail down what a bitcoin is, and why its price has been going through the roof.
1. WHAT EXACTLY IS BITCOIN?
It’s a form of money that’s remarkable for what it’s not: It’s not currency you can hold in your hand. It’s not recognized by most Main Street stores. It’s not issued or backed by a national government. At their core, bitcoin and its imitators are sets of software protocols in a way that makes it hard to counterfeit or re-use tokens. A bitcoin has value only to the extent that its users agree that it does.
2. WHERE DID THE BITCOIN SYSTEM COME FROM?
The original software was laid out in a white paper in 2008 by a person or group of people using the pseudonym Satoshi Nakamoto, whose identity remains unknown, despite several efforts to assign or claim credit. Online fantasy games had long used virtual currencies.
The key idea behind bitcoin was the blockchain — a publicly visible, largely anonymous online ledger that records bitcoin transactions.
3. HOW DOES THAT WORK?
Think about what happens if you make an online transfer using a bank. It verifies that you have the funds, subtracts that amount from one spot in a giant database it maintains of accounts and balances, and credits it in another. You can see the result if you log on to your account but the transaction is under the bank’s control. You’re trusting the bank to remove the right amount of money, and the bank is also making sure you can’t spend that money again. The blockchain is a database that performs those tracking functions — but without the bank or any other central authority.
4. WHO PERFORMS THE BANK FUNCTION FOR BITCOIN?
It’s done by consensus on a decentralized network. Bitcoin transactions can be made through sites offering electronic “wallets” that upload the data to the network. New transactions are bundled together into a batch and broadcast to the network for verification by so-called bitcoin miners.
5. WHO GETS TO BE A MINER?
Anybody, so long as you have really fast computers, a lot of electricity and a desire to solve puzzles. The transaction data in each batch is encrypted by a formula that can be unlocked only through trial-and-error guessing on a massive scale. The miners put large-scale computing power to work as they compete to be the first to solve it. If a miner’s answer is verified by others, the data is added to a linked chain of blocks of data and the miner is rewarded with newly issued bitcoin.
6. HOW DOES THE SYSTEM PREVENT CHEATING?
Because every block contains data linking to earlier blocks, an attempt to spend the same bitcoin twice would mean revising many links in the chain. Plus, as miners compete, they verify each other’s work each step of the way.
7. WASN’T BITCOIN USED BY DRUG DEALERS?
Yes, back when its primary appeal was its relative anonymity. It was, and still is, used by websites peddling everything from arms to drugs to paid hits. One such $1.2-billion marketplace, Silk Road, was shut down by federal agents in 2013. But others soon took its place. Joseph Stiglitz, a Nobel laureate in economics, said recently That bitcoin “ought to be outlawed” because it’s designed to evade regulation and “doesn’t serve any socially useful function.”
8. WHAT CHANGED?
Bitcoin’s reputation has improved, partly because there are fewer large-scale thefts like the one in 2014 in which bitcoins were stolen from a bitcoin exchange called Mt. Gox. (Security has improved, but it’s still an issue.) And many technology and financial firms grew interested in blockchain as an idea separate from bitcoin.
9. WHAT IS BLOCKCHAIN’S APPEAL?
Enthusiasts see it as a new way of doing all sorts of business. Costs could be lower without a central middleman doing the work of keeping track of transactions, and charging for it. Banks and stock exchanges have invested heavily in developing blockchain technology, while retailers like Wal-Mart Stores, Inc. are experimenting with using blockchain for ensuring food safety. Central banks are even speculating about issuing blockchain-based official currencies. And other forms of blockchain emerged, often using their own cryptocurrencies to facilitate transactions. The most prominent is the etherium blockchain, sometimes described as a platform for so-called smart contracts.
10. WHY HASN’T THE COMPETITION HURT BITCOIN?
As the number of cryptocurrencies and tokens multiply — they now reach into the thousands — bitcoin remains the best-known, time-tested and valuable. That’s led to it being viewed by some as the most predictable venue for people wanting to bet on blockchain’s exponential growth.
11. WHAT EXPLAINS THE SURGE IN BITCOIN’S PRICE?
New investors, and expectations of many more to follow, has increased the price of a bitcoin more than 16-fold so far this year. The last spurt may have been driven by the news that futures trading was in the offing. Cboe Global Markets, Inc. began trading futures contracts tied to bitcoin on Dec. 10, and CME Group, Inc. followed suit on the 17^th, while Nasdaq plans to start next year. The ability to trade on bitcoin’s price without owning it — and to bet that its price will fall — is seen as expanding bitcoin’s appeal to investors. The fact that bitcoin’s software guarantees that there will be a finite supply has added to the fear of missing out for some investors. Coinbase, a bitcoin exchange, was overwhelmed by two to three times its normal traffic on Nov. 29, when bitcoin’s price soared past $11,000.00, making its service temporarily unavailable to some users. New crypto-focused hedge funds are opening up weekly, and already surpass 100. Most of them invest at least part of their funds in bitcoin.
12. IS THIS A BUBBLE?
Possibly. Some people, most notably JPMorgan Chase & Co. Jamie Dimon, call bitcoin a “fraud.” Yet his own bank is considering offering bitcoin futures to clients. Fund manager Mike Novogratz calls cryptocurrencies “the biggest bubble of our lifetimes,” and yet he is starting a $500-million fund to invest in them. Depending on whom you talk to, bitcoin’s value could double again — or it could go down to zero.
13. HOW CAN I BUY BITCOIN OR INVEST IN IT?
There are a bunch of ways, all with different risks. People can buy the coins directly from exchanges like Coinbase. Accredited investors can also invest in vehicles like the Bitcoin Investment Trust, which tracks bitcoin’s price. Now investors can buy or sell bitcoin futures, and soon may be able to buy bitcoin exchange-traded funds, once regulators feel comfortable with the idea. But be warned: Even plenty of people who believe in bitcoin’s future think some wild rides lie ahead. As if in proof, the Nov. 29 surge to over $11,000 was followed by a 20% drop. And yes, you can bet on a crash. — Bloomberg

BILLIONAIRE John Gokongwei, owner of the Philippines’ largest snack maker and budget airline, and a Skype, Inc. founder will invest as much as $200 million over three years to lend to millions of unbanked Filipinos.
The venture, set up last year by Gokongwei’s JG Summit Holdings, Inc. and financial-technology start-up Oriente, seeks to give credit through a digital platform to Filipinos who often resort to loan sharks because they lack access to formal banking services. Its expansion comes as the central bank encourages emerging technologies to spur financial inclusion in a country where more than 70% of adults have no bank accounts.
“The big picture here is how do we liberate and enable under-served Filipinos to have access to funds,” JG Summit President Lance Gokongwei, son of John, said in an interview in Manila on Wednesday.
The platform with Oriente, which was established by a co-founder of Skype and Chinese financial-technology start-up LU.com, rivals a venture of Singapore Telecommunications Ltd.-led Globe Telecom, Inc. and Jack Ma’s Ant Financial as well as Manila-based PLDT, Inc., which is in talks with a possible foreign partner.
The venture is hiring 1,000 people this year mostly to handle verification, loan processing and collection for a targeted half a million borrowers by the end of 2018, said Hamilton Angluben, general manager of the platform, which is called Cashalo.
There are only 41.5 million deposit accounts in the Philippines, even though there are more mobile phones than the 110 million population, and almost 50 million people use Facebook in the country.
“The technological savviness of Filipinos is off the charts,” said Geoffrey Prentice, Oriente co-founder and chief strategy officer. The service will also be attractive because so few people have credit cards, he added.
Bank branches aren’t available in a third of towns and cities in the Philippines, while pawnbrokers and microfinance providers have a wider presence, according to central bank data.
Cashalo users can apply for loans entirely online and those without bank accounts can receive the money in designated convenience stores, pawnshops, and bill payment centers within 24 hours. The service allows customers to borrow as much as 5,000 pesos ($95) for up to 45 days at 2.95% plus a 4% processing fee. That compares with the 20% monthly interest charged by many loan sharks. — Bloomberg

THERE ARE LOTS of opportunities for cryptocurrency to go missing — some inherent to buying internet money, some involving crime. Below, a few common ways of going virtually broke.
NOT REALLY YOUR FAULT
• Phone Porting
Pretty basic: Scammers hijack people’s mobile accounts by calling their carriers and impersonating them. The thieves get their victims’ numbers transferred to new devices and ultimately gain access to crypto accounts.
• 51% Attack
This hasn’t happened yet, but it’s every crypto enthusiast’s greatest fear. If a nefarious syndicate were to gain control of more than half of the Bitcoin network’s computing power, it could tamper with the process of verifying transactions and potentially spend the same Bitcoins twice.
• Ransom Demands
Everyone from local officials to large corporations has fallen victim to ransomware attacks, which often involve hackers holding computer files hostage until the victim pays a fee in crypto. In June 2017 a South Korean web provider paid hackers $1 million in Bitcoin. Although many payments aren’t publicized, it’s the largest ransomware demand known to have been paid.
SORTA YOUR FAULT
• Exchange Issues
It seems as if every week another cryptocurrency exchange says it’s been breached by hackers who’ve run off with customer funds. Investors can also lose money on exchanges because of technology glitches or account holds that freeze funds and prevent buying or selling during significant market movements.
• Fraudulent ICOs
Investors have poured billions of dollars into initial coin offerings, only to find their savings drained. In April two founders of an ICO promoted by boxer Floyd Mayweather were brought up on federal charges of raising more than $25 million for a planned digital currency without registering the offering. (Mayweather wasn’t accused of wrongdoing.)
• Overhyped Stocks
Dozens of struggling businesses used the buzz around crypto to boost their stock market value in late 2017 and early 2018. (Long Island Iced Tea Corp. changed its name to Long Blockchain Corp., but it couldn’t raise the capital to mine crypto.) Traditional investors looking for exposure to the nascent industry bought in, but the gains didn’t last, and some companies got in trouble with regulators.
TOTALLY YOUR FAULT
• Lost Keys
There might be no worse self-inflicted crypto wound than buying Bitcoin low (say, in 2013) and trying to sell high (say, at the end of 2017), then realizing that you lost your private key. D’oh!
• Twitter Scams
Fraudsters on social media have devised a new twist on an age-old con: If you send them one Ether coin, they’ll send you 100 back! Sound too good to be true? It is. Still, scammers have tried to fool people’s followers by making fake accounts (with real names and photos) to lure victims into thinking that they were being offered a great deal from a reputable source.
• Wrong Addresses
Unlike credit card transactions, Bitcoin payments are irreversible. If you send digital tokens somewhere you didn’t mean to, you’re out of luck unless the other party agrees to return your funds. — AFP