Criminal mindedness

One fundamental and often ignored view within economics is that humans have the propensity to display irrational behaviour in the decision-making processes.

Based on this notion, one can conclude that we have a fundamental tendency to act corruptly and be generally criminally-inclined except maybe the virtuous few.

How advanced our economy or society is, depends on what measures or incentives we enforce to deter or punish criminals.

In most cases, we find that in countries where punishment is severe (e.g. in Central Europe or Nigeria), the criminals end up moving to less strict countries.

The economics of crime, especially violent crime experienced in countries like South Africa and Brazil, is something that requires adept research if anything is to be done.

In the US, studies were conducted to access the impact of legalized abortion on the level of crime. This was discussed in detail in a best-selling book by Levitt and Dubner’s called Freakonomics.

The study found that legalizing abortion (seen by many as legalized killing equivalent to death sentences) reduces the level of drug abuse and subsequently other criminal activity.

The real problem

Perhaps there is no relevance here but for instance, abortion is legal in South Africa yet a high crime rate prevails. So, what’s the problem then?

Part of the problem lies in the fact that the incentives/benefits of committing crime far outweigh the “costs” and chances of being caught and convicted by the judiciary.

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John Nash through his renowned works (well at least amongst economists), devised what he called “game theory” or “the prisoner’s dilemma”.

Cheating occurs through degrees of severity from a classroom test or examination all the way to the plotting and execution of murder or indirectly killing individuals by selling users addictive drugs.

Then you have your white-collar crime such as insider trading, corporate espionage (unlawfully acquiring recipes, formulas, and technologies from rival companies).

Or simply ‘cooking the books’ or siphoning off profits from a company’s coffers.

Nash’s rationale for such cheating behaviour boils down to the attitude of: ‘if I don’t, someone else will, and leave me with the short end of the stick – so given the option, I’ll always cheat’.

His explanation is one ‘formally proven’ reason for human ‘irrational’ behaviour – or rather, could we say it is rational if the outcome is to favour the decision-maker in the short or long term? This is instinct is innate in human behaviour of not such a few.

Crime and law enforcement

Back to the subject of crime: higher than usual levels has often been blamed on the poverty caused by poor and exclusionary fiscal, social and monetary policies.

There are of course more layers and underlying factors unique to the history of political climate and resource allocation.

Further studies (such as that in the Freakonomics book) need to be carried out such as the potential effects of police presence in deterring crime in the diagram below:

Police officers per 100,000 population by regions and sub-regions (medians)

Crime deterrant

Source: www.unodc.org

Also, highly recommended if you are a law enforcer, economist, government official, or student, is a book entitled Economics of Crime by Erling Eide, Paul H Rubin & Joanna M Shepherd.

This book covers the theory of public enforcement including probability and severity, fines and imprisonment, repeat offenders, incentives of enforcers, enforcement costs and enforcement errors.

It might shed some light as to how criminally-inclined people can be dealt with once and for all. Because as we know – whatever government is doing to fight crime now is clearly not really working!

“When crimes are left alone long enough to fester, a second economy is borne.”

The proceeds from a ‘secondary’ economy because of criminal activity never benefit society. Even though people like Pablo Escobar were seen by locals (in his Colombian town) as philanthropists, their assistance came at a price. Such contributions which are naturally tax-free generally are referred to in economics as ‘social ills‘.

A third market is formed – one comprised of the need to feel secure.

Dealing with the scourge

But fighting fire with fire (with more guns & police who are sometimes corrupt themselves) will not alone solve the problem.

Criminals simply become more aggressive when met with a more confrontational approach as seen in South Africa. The Jeppestown (Johannesburg) shoot-out in 2006 for example, left several police officers and criminals dead.

It’s time to get ’smarter’ about crime and look to the accuracy and conclusive study of human behaviour and the use of incentives.

As crimes continue to ravage communities, cities and countries, we can question why government officials have relatives who own or have stakes in security companies.

It basically places less of an ‘incentive’ for officials to do much about crime.

So, conceivably, those with such vested interests in the third economy would need to be weeded out of the system for crime to be curbed.

That would be the first major step in order to bring about some rationality to society.
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For investment gains or for purpose?

As much as institutions, risk-averse, or simply skeptical people have downplayed the new digital currency revolution – it still, a decade after coming to public light, remained resilient.

Bitcoin now gets a regular mention in daily news and stock market reports. It is also being traded by several established investors and even included by fund managers as (naturally) high-risk portfolio instruments.

We all by now, have heard the old rhetoric of high volatility and use for criminal activity when it comes to Bitcoin and its crypto-family.

Billionaires Warren Buffet and Bill Gates were two of the most recent financial ‘institutions’ to weigh-into this by publicly lambasting Bitcoin – with Buffet equating the cryptocurrency to rat poison!

Such views back the ‘rationale’ for crypto’s inability to take over fiat money or become a major form of currency.

Be it may, the digital currency, however, does have its unbeatable benefits and functions: ones that are difficult for even the most hardcore anti-crypto audience to ignore.

Here are three functional attributes and trends that the digital revolution has created since coming to the mainstream:

1. Financial emancipation.

Bitcoin and ‘altcoin’ investing have created a new wave of financial investors.

These are retired bankers; naturally the ‘millennials’ – who instinctively jump on-board a new discovery that has creative destruction-like tendencies; and then the plumber, bartender and the average man on the street.

Its ease of access, use and potential to turn a few dollars, euros or local currency into hundreds, thousands or millions more, makes it a high appeal for those who typically would be excluded from owning an investment portfolio.

Based on their returns many have taken to social media (via groups, profiles and communities) to share their success stories. But this is also a reason to heed caution when taking counsel from anyone claiming to be an expert in cryptocurrency investment.

It is new and while volatility is not new to trading – it is constantly on a rollercoaster ride making it hard for even seasoned trading experts to predict using traditional market analysis tools.

New analysis tools

A recent development termed Hodl Waves attempts to track and predict Bitcoin movements via complex usage history – comparing behavioural patterns of what people do when they have the coins and when they choose to reinvest them.

Cryptocurrencies have nevertheless, got more people thinking about making profits, looking into tax implications and anything financial for that matter!

Crypto investors are now constantly planning for their future while matching their ‘block’folio performance to capital gains not only from rival coins but also against traditional (lower yielding) investment instruments.

N26 Bank
N26 Bank

Blockchain technology has also spurred a new path of careers and industries as more companies globally, for instance, look to acquire the lucrative Crypto exchange license to operate.

These cryptocurrency exchanges require people to service clients in various levels.

From account managers, technical advisors, software programmers, to customer service agents and the accompanying social media marketers needed to promote the various exchanges.

Governments as well will benefit from their operations and while there are still discrepancies in most countries about how to tax individuals, fiscal authorities will get a lion’s share of income from taxing these exchanges.

2. The way money is transferred.

We all have undergone the painful stress of waiting for funds to clear so your rent gets paid or waiting to receive money from abroad for an emergency.

But the standard “3 to 5 working days” in which most (if not all) banks guarantee for something as simple as an inter-bank transfer is simply not good enough especially when there are public holidays involved.

With cryptocurrency, the aim is to be not only the most secure form of funds transfer – but the fastest.

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Converting cryptocurrency back to fiat money, however, remains the only potential bottleneck as it would require institutions to adopt or directly accept payments in the cryptocurrency to avoid one going through another step to receive goods and services.

Cryptocurrencies nevertheless still cut down transfer time significantly compared to traditional electronic fund transfers of fiat monies – which becomes even more of a logistical quagmire of time wasting and high costs if you must switch currencies before the transfer can be made.

To reiterate, all of this can and be avoided once more and more companies accept payment in one or more types of cryptocurrency.

The onus is thus on the creators of the digital coin or token to prove that their digital currency is reliable enough and readily available to be used as a form of legal tender.

There are several reports nevertheless of known, well-established financial institutions and companies using currencies like Bitcoin, Ripple, Verge for fund transfers or even direct exchange for services.

The New York Stock Exchange (NYSE) this year plans to list Bitcoin (as an EFT) on its bourse and is filing for permission from the SEC regulators.

3. The third and final point to consider.

One that cannot be omitted, is the reduced costs associated with dealing with money you have (hopefully) earned form hard work.

Even inheritances are gained because of the toils of the giver’s hard work. So, it wouldn’t be fair for a group of a few companies headed by executives to siphon it from you all in the name of ‘providing you with a service’.

We all pay for Internet use (and the security software associated), for smartphones and computers.

We, therefore, have the technology to make transactions ourselves without having to rely on others to charge us for things we can do ourselves.

The financial institutions have long preyed on people’s ignorance, obedience, and unquestioning trust while they brazenly burn cash dabbling in equally questionable high-risk investments like derivatives and futures.

A new wave arises
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It is only a matter a time before the banking institutions and big companies get on board to benefit from the high-level encryption and speed provided by digital currency.

They would even if it meant creating their own blockchain and not bowing down to the pressures and potential competition that these altcoins pose to their modus operandi.

To conclude, the ‘wait and see’ mantra all that we can exercise when predicting the future of digital currency.

But for now, it is a bright one considering the three points mentioned above.

There are, however, concerns on how secure the encryption can remain with the advent of quantum computing.  This ground-breaking tech has the potential to make calculations at millions of speeds faster and thus able to crack the toughest data encryption.

Regulation, however, while feared by hardcore decentralization pushers, would be required in some form to keep Crypto prices stable. This is in addition of helping to manage the daunting task of keeping cryptocurrencies away from criminal exploitation.