Tag Archives: Finance

What is the difference between Savings account and Checking account?

A checking account:

– usually accrues no interest
– can used to pay bills via checks, debit card transactions, and ATM withdrawals
– usually has no limit on the number of transactions that can be done

A savings account:

– accrues interest (though not much these days)
– typically limits the kind and number of transactions that can be done with it

So basically a checking account is where money for your day to day payments flows through, while a savings account is where you keep your savings.

In the US, when you put money into a checking account, the bank has to keep 10% (unless it is small bank, then the number is smaller) in reserve, and it can lend out the rest to people seeking loans (as long as it meets other conditions not relevant here).  If you put money into a savings account, the bank can lend out all of it without keeping any in reserve (as long as it meets other conditions not relevant here).

So, the bank can lend out more of the savings deposits than the checking deposits, which makes savings deposits worth more to them.

Because the regulators impose these differences in regulation between the two accounts, they don’t want banks to create something which is called a savings account but acts like a checking account.  So they have regulation D, which forces banks to limit savings account, such as “6 transactions per month” limit.

What is BitConnect and how people lost all their money on it?

BitConnect was a ponzi scheme using their own cryptocurrency, the BitConnect coin. Ponzi scheme means that a company offers a supposed investment opportunity to its customers, promising above-average returns (in this case 40% per month). They intend to make good on that promise by attracting more and more investors, so that the payouts can be paid by an ever increasing stream of money. In order to make this possible, they rely on multi-level marketing: They encourage the investors to do the marketing for them, by telling their friends, family and online communities.

The end-game for a ponzi scheme is that at some point, when no more people come in and investors start demanding money, they go bust. But not before the people who created it all siphon away all the money they can.

The way this worked here was that people bought the BitConnect coins with BitCoins, and then “lent” it to the BitConnect platform. At the end of it, investors wouldn’t get back their money in BitCoins, but the BitConnect coin – which is pretty much worthless everywhere else.

So what happened was that BitConnect grew so big that it attracted media attention, and people rightfully called it out for what it was. Due this and the recent Bitcoin crash then, they decided to close their platform, presumably keeping a lot of the Bitcoins that people gave them for their worthless cryptocurrency.

Why can’t governments regulate cryptocurrencies?

Governments can, and have, regulated cryptocurrencies, in at least a few ways (exchanges have to perform anti-money laundering/know your client checks on users trading large amounts, etc). However, if you’re willing to play outside of the more mainstream businesses, it gets really tricky. Some of the design principles for Bitcoin are:

  • Censorship resistance: no central authority can suppress your transactions.
  • Decentralisation: anybody can participate in the network, from anywhere. There is no privileged authority, so no single point that you can eliminate to take out the network.
  • Anonymity: As long as you don’t reuse addresses, it’s comparatively hard to track your money flow.

All of these things mean that, while governments could regulate cryptocurrencies, enforcing that regulation is another matter entirely. Still, regulation does have something of an effect, and you can see prices drop whenever a major government changes the rules.