Category Archives: Stocks

How Cryptocurrencies Are Very Different From Traditional Banking Systems

The technology on Blockchain is greatly developing as the tech of the future. As the market of crypto is known to be extremely volatile, automated trading softwares are developed to ensure trades are done accordingly matching the real-time market as many individuals and businesses express their interest in cryptocurrency and incorporate cryptocurrency as payment option.

Cryptocurrency is very different from the traditional system of banking wherein money (and probably gold as well) may be stored in a vault as it waits to be withdrawn. Cryptocurrency have already entered the industry of FinTech, and because of this, traditional financial institutions and systems are probably finding it as threat.

Cryptocurrencies – What Are They?

Although cryptocurrencies have been around for almost a decade and all over the news, there are still those who are unaware of it. Cryptocurrencies such as Bitcoin, Litecoin and so much are encrypted virtual coins or digital currencies. One great characteristic of these currencies is its decentralized feature, while most conventional currencies are regulated by a centralized government, hence they can be regulated by an intermediary.

Cryptocurrencies, also known as digital currencies, are made and transacted in environments with an open source, wherein a code controls it and depend on peer-to-peer set-ups. Not a single unit could affect these currencies.

How It Works?

Cryptocurrencies such as Bitcoin operate by keeping all transactions from the origin of the cryoticurrency on a public ledger. The public ledger utilizes cryptographic systems to certify that records are correct and every identity of owners are encrypted.

Each owner or holder of cryptocurrency have a “digital wallet.” The task of the public ledger is to make sure that these digital wallets display an exact and correct spendable balance. Additionally, it verifies transactions making certain that the crypto owner is merely spending their personal balance in their digital wallet.

Cryptocurrencies are made when a “miner” deciphers an intricate computational problem to verify validate a transaction and include it to the ledger. These cryptocurencies do have a threshold, for instance there are 21 million Bitcoins, however you could think of them as completely having been made when it was initially created, denoting that miners are being remunerated with a new portion of that 21 million the minute they solve or verify a transaction. By supporting the currency’s value of as well as consenting to make use of it as money, value is then given to it. So far, the value of numerous of cryptocurrencies has risen steeply. As per NPR, if in 2010 you had bought Bitcoin worth 1000 US dollars, that investment you had made would be about $20 million now.

Options for Getting Financial Assistance either Personal or Business

Every businessperson knows the importance of having easy access to financial services to keep their business afloat. Aside from that, it is vital to be mindful of its types. That way, if you fail for one, there’s a backup where you can go to. On the other hand, what are exactly these types of financial services that can be applied for?

Financial Services Available

First stop will be the Equity Capital. This is otherwise referred to as net worth or book value. This is a figure that is representing the assets of the company minus the liability. There are businesses that are entirely funded with equity capital, which is the cash invested either by the owners shareholders into the company with no offsetting liability.

Despite the fact that it is the more favored capital by majority of businesses as they do not need to pay it back, it is unimaginably expensive. Furthermore, it demands strenuous workload in growing the enterprise if they’re funded in such a way.

Then we have Debt Capital. This kind of capital is the money given as form of loan to business with agreement that it should be paid back in the date discussed. In the meantime, the owner of capital which is usually a bondholder, bank or a wealthy person, they agree to accept interest payments. This is in exchange for making use of their finance.

Think of the interest as cost of rental or the capital needed in expanding your business.

Easy Expansion

For various businesses, debt could be the simplest way in expanding the business. It’s for the reason that it is easier to access and understood by average workers. This is thanks to the widespread homeownership as well as community based nature of the bank.

The profit for business owners is basically the difference between cost of capital and return of capital. For instance, you have borrowed a hundred thousand dollars and paid 10% interest yet, earned 15% after taxes. Your 5% is the profit or equivalent to 5,000 dollars. This would not exist without the business borrowing a debt capital. This may just be ideal when you want to see progression in your cryptocurrency by buying personal tradelines for sale.

Shareholder Finance And Wealth Maximization

In a corporation, who do you think is the owner or the owners? Shareholders are, in fact, the owners of a corporation. They are institutions, businesses, and even individuals who have ownership of the company stocks. Stocks are issued to the market for sale and bought by the public who have the interest to improve their personal finance.

When an individual buys shares of stocks, the person becomes a shareholder of the company (the individual who purchased stocks have the ability to trade it in the market which works much like world oil trade).

Regardless if you are a solo shop owner, you’re the shareholder as a result of your invested affinity for your business. Since shareholders have ownership of the firm, they’re eligible to the earnings of the entire firm.

Shareholder wealth is a suitable target for commercial companies in capitalist societies. Within a capitalist society, individuals have private ownership of various goods and services. Those people have the means of production to generate cash. The profits of companies within the economy are attributed to these individuals.

Shareholder Wealth Maximization

If business managers want to increase the wealth of the company, they actually want to increase the company’s share price. As the share price rises, the company’s value and shareholders will increase.

Company Managers

People generally think that the manager of one company is the owner. This may be true for small businesses or partnerships. In larger businesses, there can be numerous managers and staff, and they really do not own the business. Do they benefit from the business apart from their salary and benefits? If employees are shareholders, they have a tendency to be more concerned about the company.

Therefore, numerous firms motivate employees to turn into shareholders. The fact is, a number of companies offer stocks to employees at discounted prices.

Disputes Involving Managers and Owners

Since the managers of a company are instructed and carefully guided by the BOD (Board of Directors), and for the reason that they don’t profit directly with the company’s target to increase shareholder wealth (unless of course, they’re also investors in the company), clash can occasionally occur between managers and stockholders. This clash is referred to as the agency problem.

Managers act as shareholders’ agents. When there is an agency problem, it’s crucial to resolve the issues as soon as it arises to prevent complications inside the company which could obstruct overall performance.

Responsibility Towards The Society

Could a company try to maximize the wealth of its shareholders and at the same time take on social responsibility? Yes! When they try to raise their stock prices, do they really care about social welfare? Yes again.

Take into account the Great Recession of 2008 and the subprime crisis. At that time, think of the huge banks that released these mortgages, were they socially responsible? Lots of people say no or not really. Whilst they seem to be worried about their portfolio, banks were not really accountable. This portfolio abounds with dangerous assets that ultimately result in the breakdown of many huge banking institutions, as they took the operating risk of numerous financial establishments.

Consequently, their share prices dropped with them. One could surmise to state that they weren’t socially accountable.

Conversely, give some thought to General Motors. Right after nearly failing the Great Recession, they transformed the company around, paid back debts and, manufactured better motor vehicles. Because of this, it eventually increased its share prices. The reason behind is that GM has taken full steps which includes social responsibility instead of taking advantage of for profit. Companies, corporations, or businesses cannot really exist and gain profit over time without becoming socially responsible.

Maximizing Profit

One of the reasons that business firms are increasing their share price instead of seeking other means for profit is due to the concept of risks and rewards. Shareholder maximization takes into careful account risks and the return of investments while the focus of profit maximization is a short term goal in the lines of financial management.