Eugene's blog

Saturday 12 August 2017

Bitcoin is the currency of the future

August 12, 2017  

Bitcoin is developing and spreading faster than one can imagine. Even though some people don't think a lot about this invention, it is extremely important to learn as much as possible about this new currency, because there is more than just a very high chance that it will be the currency of the future: it has a few very serious advantages over the current currencies. In this article, I will try to explain briefly what Bitcoin is, why it has future, and what advantages it has over the currency we know right now.

History

The history of Bitcoin started in November 2008 when it was the peak of the economic crisis when everyone was thinking how to save money that they had in banks. It was the best time for a mysterious person (or even a group of people) with a pseudonym Satoshi Nakamoto to post a paper to a cryptography mailing list titled Bitcoin: A Peer-to-Peer Electronic Cash System because it was the time when people were ready for new financial ideas. This paper detailed methods of using a peer-to-peer network to generate what was described as a system for electronic transactions without relying on trust. 
The bitcoin network started to work in January 2009 with the release of the first Bitcoin client and the issuance of the first bitcoins. After that, a long a difficult process of approving the new digital currency began. It hasn't been approved that much yet, only Japan accepted Bitcoin as an official currency, but it is impossible to stop bitcoins due to its advantages over ordinary currencies. 

Advantages

Bitcoins have some major advantages over international currencies like dollar and euro. The major reason for creating Bitcoin was the centralization of currencies: the dollar is the "world's reserve currency" but still there are a lot of countries where you will not be able to use dollars to buy anything so this money that you have would be useless since you can't spend it. A decentralized currency is the first truly international money since gold. As a result, it could potentially become larger than national currencies.

 Some people can say that this digital currency has no material value and therefore is unreliable. It is a very strange statement, because if people think about the gold standard, where each monetary unit of currency is based on a fixed quantity of gold, then those people don't really understand what happens in reality. If it had been true, then central banks would not have been able to print additional money, which they pretty regularly do.

Gold Standard nowadays

The money supply in the US is basically guaranteed by the government's ability to keep the value of money relatively stable and nothing more. After August 15, 1971, President Nixon stopped the previously agreed conversion of the dollar into gold at a fixed exchange rate of $35 per ounce. From that time not only doesn't the US monetary authorities simply guarantee the exchange of paper money for gold but also they don't even promise that their gold reserve will cover, for example, 20% of the paper dollars emitted by them. Even Switzerland does not guarantee anything like that -- a constitutional norm of a hundred years ago, which required a 40% coverage of the emitted francs with gold, has already gone down almost twenty years into history.

 The money that is now in circulation, is not fundamentally backed up with anything. So, it makes sense to talk about the "strength" and "reliability" of a particular currency only by implying the actions of the monetary authorities of the countries concerned. The purchasing power of currencies and their rates relative to each other depend not on the amount of gold at the disposal of governments and central banks, but on the actions they do and decisions they make.

Bitcoin "Standard"

For those people, who don't believe governments and banks, Bitcoin is a great alternative. There are only 21 million bitcoins that can ever be mined (what it is and how it works I will explain in my next article), regardless of the Earth’s population and its corresponding demand for Bitcoins. Once all 21 million have been mined, there will never be any new Bitcoins (unless a change to the protocol is made to increase the supply), which can be called a digital Gold Standard.

Peer-to-peer payments

When a person buys anything with a plastic bank card, s/he doesn't send money straight to another person: fits, the bank takes the money and "promises" that it will be delivered to the bank account of the other person. For each operation, the bank takes some fee, which is usually about $.3. Moreover, it takes a bank a little while to send money to another bank's account, not mentioning huge fees for transferring, which can reach dozens of dollars. 

 On the other hand, Bitcoins allow a person to send money straight to another person's wallet without any trusted 3rd parties at any given time. There is no central authority in the world that can possibly control anyone's money flow.

Security

Bitcoin wallets and transactions are extremely safe. Nobody can charge any fees without you knowing it. If you do everything in the right way, nobody will be able to access and use your wallet, especially if you use a personal hardware for your digital signature. Moreover, Bitcoin wallet can be backed up and securely encrypted for even more protection.

 But Bitcoin secures not only your finances and transactions but also your identity. The only information which is needed for any transaction is the id of your wallet and your private digital signature, which allows you to be absolutely anonymous.

Transparency

The whole system is very transparent: everyone can see all approved transactions (without any personal information) and have their own copy of it so everyone can verify that the transaction has occurred. Because there are so many people who keep the information about transactions and the fact that Bitcoin is cryptographically secure, Bitcoin protocol cannot be manipulated by any person, organization, or government.

Conclusion

So, at the end, we have a very interesting and perspective new currency which eliminates a lot of problems and disadvantages of national currencies. It definitely has its future and nobody will be able to stop its development. In my opinion, Bitcoin will grow and develop, so it is a very interesting project to invest in, or at least to keep a close look at.


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Monday 7 August 2017

Financial crisis of 2007–2008

August 07, 2017  

The financial crisis of 2007–2008, also known as the global financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It was triggered by the subprime mortgage crisis in the US and transformed into an international banking crisis. In this article, I will try to explain in layman's terms why this crisis happened and what were the consequences of it. 

Community Reinvestment Act

The main cause of the crisis is supposed to be the Community Reinvestment Act, which is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. In other words, this act encouraged banks to give subprime mortgages to borrowers with low credit ratings (usually subprime borrowers were defined as having FICO scores below 640). Because of high default risk associated with these mortgages, they have very high-interest rates. One form of subprime mortgages is an adjustable rate mortgage (ARM). It is a 30-year mortgage with a low-interest rate during the first few years (~5%), after which they reset to a higher rate (~7%).

The monetary policy of the Federal Reserve Bank

Because of the attacks on the World Trade Center and dot-com bust on September 11, federal reserve chairman Alan Greenspan lowers interest rates to only 1% to keep the economy strong, which is an extremely low-interest rate. 

This decision had one very unpleasant consequence: traditionally investors go to US Federal Reserve to buy treasury bills (T-Bills), believing that they are the safest investments, but after lowering the interest rates to only 1%, investors didn't want to invest their money with such a low return on their investments. So, they started to look for another investment opportunities.

 On the other hand, it means that banks on Wall St. can borrow from the federal reserve for only 1%. So, there is an abundance of cheap credit. Banks came up with an idea how to use this cheap credit to their advantage: they would connect investors with home owners through mortgages. This causes banks to go crazy with leverage.

Leverage

Leverage is borrowing money to amplify the outcome of a deal. Here's a simple example of how it works.

 Let's imagine that a person has $10,000. In a normal deal, this person buys a product (let's assume for simplicity that it is a box) for $10,000, then sells this box to someone else for $11,000, which gives him $1,000 profit. But using leverage, the person with $10,000 would go borrow $990,000 with 1% interest (so, this person must return $999,900 (~$1,000,000) instead of $990,000). This borrowing plus initial $10,000 gives him $1,000,000 in hand. Then he buys 100 boxes with this $1,000,000 and sells them to someone else for $1,100,000. Then he pays back $990,000 + 1% interest, which leaves him with $90,000 profit. This is a major way how banks make their money.

Financial scheme


A family wants a house, so they save for a down payment and contact a mortgage broker. The mortgage broker connects the family to a lender (mortgage lender), who gives them a mortgage (money and a mortgage agreement). The family buys a house and becomes home owners, which is great for them, because housing prices have been rising practically forever.

 One day a lender gets a call from an investment banker, who wants to buy a mortgage. The lender sells it to him for a very nice fee. This investor borrows millions of dollars and buys thousands of these mortgages. He combines all these mortgages into one product — a box of mortgages. Every month he gets payments from home owners from all the mortgages in this box. After that this box is divided into 3 slices: safe, okay, risky. Then he puts these slices back into the box, which now is called a Collateralized debt obligation (CDO). The riskier the slice is, the higher rate of return it has: safe -- 4%, okay -- 7%, risky -- 10%. To make the safe slice even safer, the bank ensures it even more for a small fee, called Credit Default Swap. After that the return rate of the safe slice is 3%.

 Investment banker can sell safe slice only to investors who want only safe investments, okay slices — to another investors, and risky slice to hedge funds and risk takers. The implicit guarantee by the US federal government, that these securities have a low risk, created a moral hazard and contributed to a glut of risky lending.

 The Investment banker makes millions and investors have found a good investment for their money, much better than 1% treasury bills.

Greed

Because the scheme works perfectly, investors want more mortgage-backed securities. The investment banker calls up the lender, wanting more mortgages. The lender calls the broker wanting more home owners, but the broker can’t find anyone: everyone who is qualified for a mortgage already has one. 

 And here comes the biggest mistake that lending institutions made: they decided that houses will always increase in their value. It led them to an idea that when a home owner defaults on his mortgage, the lender gets his house, which has increased in value. Since they are covered if home owners default, lenders can start adding risk to new mortgages: no down payment, no proof of income, etc.

 So, instead of lending to responsible home owners, called prime mortgages, they started to lend to less responsible, which are sub-prime mortgages. This was the turning point.


The percentage of low-quality subprime mortgages rose from 8% to approximately 20% from 2004 to 2006. Vast majority of these subprime mortgages, over 90% in 2006, were adjustable-rate mortgages. High mortgage approval rates led to a large pool of homebuyers, which drove up housing prices. Because of this appreciation in value, a lot of homeowners ought to borrow against their homes. Moderate lending standards and rising real estate prices led to the growth of the real estate bubble.

When U.S. home prices declined steeply after peaking in mid-2006, it became more difficult for borrowers to refinance their loans. And if a few persons default, there is nothing bad, the investment banker forecloses their houses and just puts them up for sale and fully returns his money and even more, because housing prices are rising. But because adjustable-rate mortgages began to reset at higher interest rates (causing higher monthly payments), the amount of delinquencies increased, and more and more of banker's monthly payments turn into houses and after a while there are so many houses for sale on the market, that there is more supply than demand which makes prices of houses plummet.

 This creates an interesting problem for home owners who are still paying their mortgages. As all houses in their neighborhoods go up for sail, the value of their houses goes down and they start wondering why they are paying $300,000 for their mortgages when their houses are now worth only $90,000. They decide that it doesn’t make sense to continue paying and they forsake their houses stop paying for them.

 Now, the investment banker holds a lot of worthless houses. Investors don’t buy this CDO anymore. But he is not the only one who is struggling, investors has already bought thousands of these CDOs. 

 Lending institutions don't give mortgages anymore, which makes brokers lose their jobs. At the same time, lenders can't sell mortgages which have already been given, because investment banker can't sell his CDOs. The whole financial system is frozen. Everybody starts going bankrupt, but that’s not all. The investor calls up the home owner and tells him that his investments are worthless. Now you can see, how the crisis flows in a cycle.

Consequences


Several banks and financial institutions merged with other institutions or were simply bought out. The collapse of large financial institutions was prevented by the bailout of banks by national governments, stock markets still dropped worldwide. The crisis played a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading to the Great Recession of 2008-2012, with nearly 9 million jobs lost during 2008 and 2009, roughly 6% of the workforce, and contributing to the European sovereign-debt crisis. One estimate of lost output from the crisis comes to “at least 40% of 2007 gross domestic product”. U.S. housing prices fell nearly 30% on average and the U.S. stock market fell approximately 50% by early 2009. 



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Thursday 3 August 2017

Why realism deserves more attention than popular nowadays abstractionism?

August 03, 2017  

Painting is a type of art which not everyone can understand. So far, painting is the only type of classical art that I am interested in. I don't have any education in this field, so everything that you will read in this article is solely my opinion. I will try to explain my point of view as clear as possible and use as many examples of paintings as possible, hoping that it will make you interested in this fascinating world of art.

 In my opinion, paintings are created to perform the following functions: cognitive, aesthetic, religious, ideological, philosophical, socio-educational or documentary. Using easier words, paintings are created for the following purposes:
Of course, all these purposes intersect each other and every painting can have multiple purposes, so most of the time it is quite difficult to highlight the main idea of a painting, or if it even exists.

 There are great amounts of styles of painting (which can be combined with one another and, as a consequence, additional merged styles are produced), but here are a few most popular ones:
  • Photorealism. Photorealism is a style which often seems more real than reality. The finest details are drawn because nothing is insignificant or unimportant to be included in the painting. Photorealistic paintings look more like a sharply focused photograph, rather than anything else.
  • Realism. This art style is one that most people treat as "real art". From a little distance the painting looks real, but if you get closer, you will realize that it is an illusion, created with a skillful use of paint.
  • Painterly. This is a style or technique that can be either realistic or abstract and is characterized by an evident brush work and texture in the paint.
  • Impressionism. This is a style of painting which emphasizes an artist's immediate impression of a moment or scene, which makes it look more like a draft or unfinished painting.
  • Expressionism / Fauvism. Unrealistic colors and painting without using perspective techniques are the unique elements of the style. Artists choose colors to show emotions or to make an emotional impact, rather than create a realistic looking painting.
  • Abstraction. Abstraction is about painting the essence of a subject or your interpretation of the subject rather than the visible realistic details, while still retaining an echo of whatever it is that prompted the initial idea.
  • Abstract. Pure abstract art doesn't try to look like anything from the "real world," it is an art style that is intentionally non-representational. The subject or point of the painting is the colors used, the textures in the artwork, the materials used to create it.
Now, when you have basic knowledge about painting styles, I must clarify a little the topic of the article. In the title, I used words "realism" and "abstractionism", which is not correct, because by "realism" I meant a combination of the following styles: photorealism, realism, painterly, impressionism, and the rest of listed styles were supposed to be combined into "abstractionism".

Abstractionism

Of all the arts, abstract painting is the most difficult. It demands that you know how to draw well, that you have a heightened sensitivity for composition and for colors, and that you be a true poet. This last is essential.
Wassily Kandinsky

Convergence, by Jackson Pollock
Untitled VIII, by Willem de Kooning

This is exactly a kind of statement with which I can't agree. As for me, you don't need to draw well in order to be able to create an abstract painting. The paintings above look like they were "drawn" by little children messing up with paint. But both of these painting cost dozens of millions of dollars, whereas beautiful works of, for example, Richard Macneil and Ester Roi (listed below), have no value at all comparing to these paintings.

 My biggest concern about the abstract art is that it's quite difficult to give an estimate to a painting if it doesn't have any image, logic, or explanation behind this painting. Hence, in my opinion, if you can explain why each line, object, and pattern look the way they look, then I consider it as a real art. For me, it means that a painting has a concrete structure. Otherwise, the whole painting appeared by a coincidence and not by a thorough planning.

 It doesn't mean that a painting can't have any random objects, lines, or dots. The most important thing is that the artist must know what all these objects mean and why s/he represented it this way.

Abstract Emotions, by Steve K
Mixed Emotions, by Modern Art Prints
Abstraction 1, by Andrade Anghel

I totally agree that abstract is a very powerful style, very impressive one. Moreover, sometimes abstract is the only style which can express emotions and ideas that an artist tries to express in a painting. The two top paintings which illustrate emotions are perfect examples of abstract art with meanings. Each masterpiece looks like a thorougly planned painting. Ripples and overlapping of those ripples can be a representation of a thinking process from the artist's point of view. At the same time, the diffusion of gases can be a representation of "Mixed emotions". Everyone can understand these paintings in different ways, but what makes it "real art", in my opinion, is that artists can explain their paintings and why they decided to create them in such ways.

Emotional paintings


Study for «The Eiffel Tower and the cyclist»
Times Square Lights, by Jeremy Mann
Paris Flower Shop, by Richard Macneil
Paintings can show deepest emotions and colors of life: romance, mystery, and energy. They can open something very common in a totally new way. And to do so, skilled artists don’t need to use unrealistic colors or distortion of perspective. Here are works of five very talented artists who managed to illustrate the beauty of life, share emotions, and even tell a story. The listed paintings are created using the following styles: realism, painterly, and impressionism. Maybe in some works (works of Jeremy Mann and Kal Gajoum) nuances are missing, but overall view is very clear, understandable, and conveys emotions and beauty.
Untitled, by Zdzisław Beksiński
Untitled, by Zdzisław Beksiński

Another artist who tries to express his emotions through paintings is Zdzisław Beksiński, who went through the World War 2 when he was a child. All this horror and fear which he saw when he was a kid, he tries to convey with his paintings. His style of works is very unusual, which makes his paintings look impressive and frightening at the same time.

Beauty of the world

Beneath the Blue, by Ester Roi 
Preludio, by Ester Roi
Six Roses, by Ester Roi
Awakening, by Ester Roi
Photorealism, realism, and impressionism are very good at illustrating the true beauty of nature. A perfect example of an artist who uses the photorealistic style in her paintings is Ester Roi. Over the past few years, Ester has been observing how water changes the appearance of objects: hard lines become flexible, warm colors become cool, realism turns into abstraction and ordinary becomes unusual. To convey this effect, she combines drawing and painting in her works, using multi-colored wax crayons and a special board that melts paraffin when heated. This unusual technique allowed her to achieve incredible realism in her paintings.

Without a doubt, the paintings which are listed above are fascinating and in a way look more realistic than the real life. But still, there are a lot of other even more beautiful paintings. One of my favorite paintings is The ninth wave, by Ivan Aivazovsky.
The Ninth Wave, by Ivan Aivazovsky
It depicts a sea after a night storm and people facing death attempting to save themselves by clinging to debris from a wrecked ship. The painting has warm tones, which reduce the sea's apparent menacing overtones and a chance for the people to survive seems plausible. This painting shows the destructive side, and beauty of nature.
The purpose of realistic styles is, in my opinion, to show true colors and emotions of a particularly chosen frozen moment in time. Depending on an artist, s/he can illustrate the tiniest details of every object in the painting (as Ester Roi does in her works), not to concentrate on unnecessary details and give just the most important information (the same as what we see with our eyes), or it's also possible for an artist just to set up an environment or a shape without adding a lot of information except colors which play the most important role in this kind of paintings giving the viewer the emotional background of an event, situation, or object (what impressionists do in their works in general, and Gajoum Kal illustrates in his paintings in particular).

As you can see, there are a lot of really beautiful paintings that show the magic and power of nature. Some of those paintings can even tell a story behind some event that happened or only would happen. So, realistic styles can be used in various types of paintings, including historical and religious works.

Historical paintings

The first and main purpose of realism was to illustrate some historical or simply important event. Artists created this kind of paintings not only to decorate kings' chambers but also to save knowledge and even send a message for future generations. There are unlimited topics of historical paintings: wars, revolutions, coronations, celebrations, everyday life, royal balls, etc.
A Scene from ‘The Beggar’s Opera’ VI, by William Hogarth

The Charge of the Mamelukes, by Francisco de Goya

Historical paintings belong to only one of many types of paintings which are used to convey information and knowledge. Great examples of other types are symbolic and religious arts which concentrate mostly on spiritual knowledge rather than plain facts.

Paintings with a deep meaning

Some people can say that abstract styles are best for deep thinking and philosophy. I will partly agree with this statement because a lot of thoughts can't be expressed with any known shapes or colors. In this case, abstract style combined with a clear explanation of every piece of painting can represent those things that previously was impossible to represent in a painting.

 Nevertheless, a great bunch of ideas and thoughts can be represented using realistic styles as well. Here are a few paintings the only purpose of which is to send some message to the viewer.

After the rain, by Cyril Rolando 
Farm, by Pawel Kuczynski 

As you can see, skilled artists are able to create paintings with very deep ideas, without using abstraction at all. There are much more beautiful works of art as well as artists who create something more than just simple paintings. All works illustrated above are created by not that much-known artists, but there are a few very famous ones who created their works in order to perpetuate their philosophical ideas in their pictures.

 One perfect example of such an artist is Salvador Dalí with his fascinating masterpiece The Persistence of Memory. This picture is a kind of symbol of the transience and relativity of the time space.
"The soft watches are an unconscious symbol of the relativity of space and time, a Surrealist meditation on the collapse of our notions of a fixed cosmic order". This interpretation suggests that Dalí was incorporating an understanding of the world introduced by Albert Einstein's theory of special relativity.
The Persistence of Memory, by Salvador Dali

Conclusion

So, as you can see, realistic styles allow you to express a lot of ideas and thoughts, and to create paintings with a lot of different purposes. Of course, abstract art is very important, it will never go away, but it is very important to understand that even though abstract styles are very powerful and in some sense attractive, they are not for everything. There are much more topics which require realistic styles, rather than abstract. Probably, if you want to talk about the highest philosophical ideas, then of course there is no chance that you can elude abstract techniques, but for vast majority of other topics abstraction will not make your painting look better or more professional, it will just show that you can't use techniques and methods that are better suited for these particular purposes. 


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Sunday 30 July 2017

5 ways to choose a university

July 30, 2017  

Choosing a university is the problem that every student has been faced with. One can think that there is nothing difficult to find a university to study in, but this naive idea disappears when you actually need to send applications to universities. There are a lot of good and not so good universities, which makes it very difficult to choose a few to send applications to. Moreover, different people look for different experiences: some people want to socialize more, others -- to study. All personal preferences must be taken into consideration.

 Before your final decision, you must understand that university is not the most important thing in life. Even in the worst university you will be able to study, socialize, and get some plans for the future. Don't forget, that you must like what you are doing, don't overwork or you will bury your talent forever. Choose carefully, and always try to have a good life right now. Of course you must think about the future, but not to live in the future.

 Here are 5 most common ways which people use (most of the time without realizing it) to choose a university.

#1 Guessing

The simplest and dumbest way to choose a university. You may have heard that some university is not that bad, your friends studied or are studying there and they told you that the university is good, it's not far from your parents' house, etc.

In some cases, it can be a valid way of choosing a university. If you don't care about the society, education, or anything else. If you have a group of friends who study there, your parents' house nearby, and a city that you feel comfortable in, then I guess it's a valid option.


#2 By location

The most common way to choose a university. The simplest example is a statement "I want to study in the US," when a person doesn't care about the university itself, but the fact that it must be located in the US.

 Another common scenario can be seen in cold weather countries and cities, where people try to go to universities in the south, where it's warm all year long. A lot of people want to study in California because of this reason.

 There is a common sence in choosing a university this way. If you don't like the place where you live, you can always apply to a school in another country or city, which you like and find a job there after the graduation. So, it's not as much a process of choosing a university, as it is a process of imigration to a place you want. By far, the easiest and the most reliable way of immigration to many countries.


#3 Ranking

For those people who cares about their opportunities after graduating from the university, may want to choose a university depending on its prestige. There are three most known and respected ranking systems in the world:
Personally, I chose my university using exactly this method. To be honest, it is not the best way to find a university: good academic education and job opportunities are not everything in the world. By choosing an academically strong program in a good university, you may deprive yourself from having a good time and enjoying the life, which is very important as a matter of fact.

 Moreover, not every well known university has every field of specialization, so there is a chance that you will do not what you want to do, but what you have to do. In this case, life will become miserable very fast and for long. Rank of a uniiversity is truly a very important variable to take into consideration, but definitely not the most important one.

#4 Depending on the Field of science or professor

This way of choosing a university is pretty much the same as the previous one except that here you are concentrating not on your future perspectives, but on your academic results. If you are planning to become a professor in a university or a researcher, then this is definitely a notable option for you.

 Otherwise, if a university is a little bit more than just a place with books and lectures for you, then you probably need another method to choose your dream school..


#5 Using logic

This method is truly the best one in terms of the result: you will be able to choose a university depending on your needs, which will give you the best outcome. Unfortunately, for such a perfect university you must pay with your time and effort. To be able to find your future alma mater, you will have to look at all possibly properties of universities: location, cost, academic programs, sports, type of community, financial aid, size of college, campus activities, etc. Sometimes searching for this information is very difficult, so you must be ready to spend a few months of permanent hard work to be able to find something that you may like.


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