USA

A growing worry for charities: 

AND DEMOCRATS

Tax havens for the rich
By HALELUYA HADERO

today

In this Jan. 12, 2021 file photo, sun shines on state Capitol in Pierre, S.D. The “Pandora Papers” investigation revealed how the rich and powerful have been shielding their wealth in offshore accounts, including in trust-friendly states like South Dakota. As these so-called “dynasty trusts” are increasingly becoming known as tax havens for wealthy Americans and foreigners, some experts worry it could spell bad news for charities. (Erin Bormett//The Argus Leader via AP)

A spotlight that has been thrown on how many of the rich and powerful shield their wealth is also intensifying a fear among philanthropy experts: That the tax havens being used by the wealthy will increasingly siphon money away from charitable causes.

Wealthy Americans have long sought to use charitable contributions to reduce their tax burdens. But the “Pandora Papers” report, issued Sunday by the International Consortium of Investigative Journalists, revealed how world leaders, billionaires and others have stashed trillions of dollars out of the reach of governments by using shell companies and offshore accounts, which are considered legal.

One maneuver described in the report, a “dynasty trust,” can exist in perpetuity in states like South Dakota. Using these trusts, Americans can legally shield themselves from estate and other taxes — and thereby remove a major incentive for charitable giving.

When the wealth of an American individual or couple exceeds a threshold — $11.7 million or $23.4 million, respectively — each dollar value above that level, once bequeathed, is subject to a federal estate tax of up to 40% for each generation.

But a carefully crafted dynasty trust helps succeeding generations avoid those taxes. And the longer the trusts last, the longer the user can avoid taxes and the longer he or she may lack a financial incentive to donate to a charity.

Experts note some Americans are also legally able to avoid state income taxes on revenue generated by their assets by setting up trusts in states that don’t levy income taxes. One of them is South Dakota, which also doesn’t have its own estate, capital gains or inheritance tax, thereby making it an especially attractive destination to park wealth.

“There’s every reason to think that the ultimate effect of this type of wealth being put into these vehicles will also be a long-term loss in revenue for charitable organizations,” said Ray Madoff, a professor at Boston College Law School who teaches philanthropy policy and taxes. “The impact on the charitable sector, I would say, is probably already underway, but will grow over time.”

Tax policy, after all, consistently affects charitable giving. After the tax law changes pushed through Congress by President Donald Trump in 2017, charitable donations dropped 1.3% in 2018 compared with the prior year, the Treasury Department reported. Normally, such donations tend to grow at roughly the same pace as the nation’s gross domestic product, which climbed 5.2% that year.

As the Biden administration promotes its plans to raise taxes on wealthy Americans, it is building into its estimates the consideration that many people who would be affected by the tax increases would donate more to charities to lower their tax burden. But for many wealthy individuals, trusts like those outlined in the “Pandora Papers” would reduce their tax burden without the charitable giving.

Trusts allow one person, a grantor, to transfer assets to a trustee who then manages and directs them for a third beneficiary. In such states as South Dakota, Alaska and Nevada, though, the person who transfers assets could name themselves the beneficiary of a trust. These so called “self-settled trusts” can shield assets from creditors and further reduce tax burdens by moving the assets out of the taxable estate, said Mitchell Gans, a professor at Hofstra University who specializes in tax law.

South Dakota also deploys strict privacy laws to keep trusts out of the public eye. It is a feature that wealth advisors use as they appeal to potential clients with prospects of growing multi-generational wealth. According to the investigative report, the state’s trust assets have skyrocketed to $360 billion during the past decade alone.

For charities, it’s difficult to know what the long-term consequences of the trusts will be. Officials at numerous philanthropies and lobbying organizations declined to comment on the impact of the “Pandora Papers” revelations on charitable giving because, they said, they lack data on how widespread the use of these tax havens is.

But some studies suggest there might be some impact. According to a recent study by the consulting firm CCS Fundraising, 25% of donors cited the tax deduction as a motivation for their charitable giving. A joint study from Bank of America and the Indiana University Lilly Family School of Philanthropy found that 22% of the wealthy donors surveyed would reduce their donations if tax deductions for charitable giving were eliminated. The same study found that 51% of wealthy donors said they sometimes contribute to charity to receive a tax benefit.

Patrick Rooney, a professor of economics and philanthropic studies at Indiana University, said he believes that dynasty trusts will undermine philanthropic donations. Removing incentives for charitable contributions, he said, essentially raises the price of giving. On the other hand, Rooney noted, lower taxes could drive donors to contribute more to the causes they care about on their own terms.

“Most high-net-worth households are donors to different types of charities for different reasons,” he said. “So we would expect some of these folks, even though they’re trying to evade taxes, (to) also have some philanthropic impulses. But we won’t know that for a while.”

Chuck Collins, director of the Inequality and the Common Good program at the progressive think tank Institute for Policy Studies, said that many wealthy Americans view their philanthropy as part of their wealth preservation technique. Still, he noted, some who are charitably inclined might nevertheless want to avoid taxes.

“I think that’s probably a pretty big category (of people),” he said.

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AP Business Writer Glenn Gamboa contributed to this report.

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The Associated Press receives support from the Lilly Endowment for coverage of philanthropy and nonprofits. The AP is solely responsible for all content. For all of AP’s philanthropy coverage, visit https://apnews.com/hub/philanthropy.

Global tax deal seeks to end havens, criticized for 'no teeth'

Leigh Thomas
Fri, October 8, 2021

 Ministerial Council Meeting, in Paris

By Leigh Thomas

PARIS (Reuters) -A group of 136 countries on Friday set a minimum global tax rate of 15% for big companies and sought to make it harder for them to avoid taxation in a landmark deal that U.S. President Joe Biden said levelled the playing field.

The deal aims to end a four-decade-long "race to the bottom" by setting a floor for countries that have sought to attract investment and jobs by taxing multinational companies lightly, effectively allowing them to shop around for low tax rates.

The 15% floor agreed to is, however, well below a corporate tax rate which averages around 23.5% in industrialised countries.

Some developing countries that had wanted a higher rate said their interests had been sidelined to accommodate richer nations, while NGOs criticized the deal's many exemptions, with Oxfam saying it effectively had "no teeth."

The accord also promises to be a tough sell  in Washington, where a group of Republican U.S. senators sent a letter to Treasury Secretary Janet Yellen saying they had serious concerns.

 https://www.reuters.com/world/us/after-eu-tax-win-yellen-will-try-sell-us-republicans-global-tax-deal-2021-07-14

Negotiations have been going on for four years, with the deal finally agreed when Ireland, Estonia and Hungary dropped their opposition and signed up.

The deal aims to stop large firms booking profits in low-tax countries such as Ireland regardless of where their clients are, an issue that has become ever more pressing with the growth of 'Big Tech' giants that can easily do business across borders.

"Establishing, for the first time in history, a strong global minimum tax will finally even the playing field for American workers and taxpayers, along with the rest of the world," Biden said in a statement.

Out of the 140 countries involved, 136 supported the deal, with Kenya, Nigeria, Pakistan and Sri Lanka abstaining for now.

The Paris-based Organisation for Economic Cooperation and Development (OECD), which has been leading the talks, said that the deal would cover 90% of the global economy.

"We have taken another important step towards more tax justice," German Finance Minister Olaf Scholz said in a statement emailed to Reuters.

"We now have a clear path to a fairer tax system, where large global players pay their fair share wherever they do business," his British counterpart Rishi Sunak said.

But with the ink barely dry, some countries were already raising concerns about implementing the deal. The Swiss finance ministry demanded

 https://www.reuters.com/article/global-tax-oecd-swiss-idAFL8N2R44EZ 

that the interests of small economies be taken into account and said that the 2023 implementation date was impossible.

In the United States, meanwhile, Republican senators said they were concerned the Biden administration was considering circumventing the need to obtain the Senate's authority to implement treaties.

Under the Constitution, the Senate must ratify any treaty with a two-thirds majority, or 67 votes. Biden's fellow Democrats control only 50 seats in the 100-member chamber. And Republicans in recent years have been overwhelmingly hostile to treaties and have backed cuts in corporate taxes.

The reaction to the deal from U.S. markets was muted, with investors focused instead on the latest payrolls data. Some of the Big Tech companies, often cited by critics for seeking to lower taxes through operations overseas, welcomed the accord.

"We are pleased to see an emerging international consensus," said Nick Clegg, Facebook Inc vice president of global affairs. "Facebook has long called for reform of the global tax rules, and we recognise this could mean paying more tax, and in different places."

An Amazon.com Inc spokesperson said the company supports the "progress towards a consensus-based solution for international tax harmonization, and we look forward to their continued technical work."

Analysts at Morgan Stanley said that tech hardware, some media services, and healthcare appeared to be the most exposed to a 15% minimum tax rate.

'INCREASED PROSPERITY'
 https://www.reuters.com/business/finance/what-is-global-minimum-tax-deal-what-will-it-mean-2021-10-08

Central to the agreement is a minimum corporate tax rate of 15% and allowing governments to tax a greater share of foreign multinationals' profits.

Yellen hailed it as a victory for American families as well as international business.

"We've turned tireless negotiations into decades of increased prosperity – for both America and the world. Today's agreement represents a once-in-a-generation accomplishment for economic diplomacy," Yellen said in a statement.

The OECD said that the minimum rate would see countries collect around $150 billion in new revenues annually while taxing rights on more than $125 billion of profit would be shifted to countries where big multinationals earn their income.

Ireland, Estonia and Hungary, all low tax countries, dropped their objections this week as a compromise emerged on a deduction from the minimum rate for multinationals with real physical business activities abroad.

'NO TEETH'

However, many developing countries have said their interests have been ignored and that wealthy nations were likely to continue dividing up 

the spoils of foreign direct investment.

 https://www.reuters.com/business/finance/big-investment-hubs-dodge-bullet-global-tax-overhaul-2021-10-08 

Argentine Economy Minister Martin Guzman said on Thursday that the proposals forced developing countries to choose between "something bad and something worse".

Campaign groups such as Oxfam said that the deal would not end tax havens.

"The tax devil is in the details, including a complex web of exemptions," Oxfam tax policy lead Susana Ruiz said in a statement.

"At the last minute a colossal 10-year grace period was slapped onto the global corporate tax of 15%, and additional loopholes leave it with practically no teeth," Ruiz added.

Companies with real assets and payrolls in a country can ensure some of their income avoids the new minimum tax rate. The level of the exemption tapers over a 10-year period.

The OECD said that the deal would next go to the Group of 20 economic powers to formally endorse at a finance ministers' meeting in Washington on Oct. 13 and then on to a G20 leaders summit at the end of the month in Rome for final approval.

Countries that back the deal are supposed to bring it onto their law books next year so that it can take effect from 2023, which many officials have said is extremely tight.

French Finance Minister Bruno Le Maire said Paris would use its European Union presidency during the first half of 2022 to translate the agreement into law across the 27-nation bloc.

(Reporting by Leigh Thomas; Additional reporting by Christian Kraemer in Berlin, Elizabeth Piper and Mark John in London and David Lawder and Patricia Zengerle in Washington; Megan Davies in New York and Chavi Mehta in Bangalore; Editing by Alexander Smith and Rosalba O'Brien)

More than 130 countries reach deal on corporate minimum tax


In this June 7, 2017 file photo, the Organisation for Economic Co-operation and Development (OECD) headquarters is pictured in Paris, France. Nearly 140 countries have agreed on a tentative deal that would make sweeping changes to how big, multinational companies are taxed in order to deter them from stashing their profits in offshore tax havens where they pay little or no tax. The agreement announced Friday foresees countries enacting a global minimum corporate tax of 15% on the biggest, internationally active companies. (AP Photo/Francois Mori, File)


FRANKFURT, Germany (AP) — More than 130 countries have agreed on sweeping changes to how big global companies are taxed, including a 15% minimum corporate rate designed to deter multinationals from stashing profits in low-tax countries.

The deal announced Friday is an attempt to address the ways globalization and digitalization have changed the world economy. It would allow countries to tax some of the earnings of companies located elsewhere that make money through online retailing, web advertising and other activities.

U.S. President Joe Biden has been one of the driving forces behind the agreement as governments around the world seek to boost revenue following the COVID-19 pandemic.

The agreement among 136 countries representing 90% of the global economy was announced by the Paris-based Organization for Cooperation and Economic Development, which hosted the talks that led to it. The OECD said that the minimum tax would reap some $150 billion for governments.

“Today’s agreement represents a once-in-a-generation accomplishment for economic diplomacy,” U.S. Treasury Secretary Janet Yellen said in a statement. She said it would end a “race to the bottom” in which countries outbid each other with lower tax rates.

“Rather than competing on our ability to offer low corporate rates,” she said, “America will now compete on the skills of our workers and our capacity to innovate, which is a race we can win.”

The deal faces several hurdles before it can take effect. U.S. approval of related tax legislation proposed by Biden will be key, especially since the U.S. is home to many of the biggest multinational companies. A rejection by Congress would cast uncertainty over the entire project.

The big U.S. tech companies like Google and Amazon have supported the OECD negotiations. One reason is that countries would agree to withdraw individual digital services taxes they have imposed on them in return for the right to tax a part of their earnings under the global scheme.

That means the companies would deal with just the one international tax regime, not a multitude of different ones depending on the country.

“This accord opens the way to a true tax revolution for the 21st century,” said French Finance Minister Bruno Le Maire. “Finally the digital giants will pay their just share in taxes in the countries — including France — where they produce.”

On Thursday, Ireland announced that it would join the agreement, ditching a low-tax policy that has led companies like Google and Facebook to base their European operations there.

Although the Irish agreement was a step forward for the deal, developing countries have raised objections and Nigeria, Kenya, Pakistan and Sri Lanka have indicated they will not sign up.

Anti-poverty and tax fairness advocates have said the bulk of new revenue would go to wealthier countries and offer less to developing countries that are more dependent on corporate taxes. The G-24 group of developing countries said that without a bigger share of revenue from reallocated profits, the deal would be “sub-optimal” and “not sustainable even in the short run.”

The deal will be taken up by the Group of 20 finance ministers next week, and then by G-20 leaders for final approval at a summit in Rome at the end of October.

Countries would sign up to a diplomatic agreement to implement the tax on companies that have no physical presence in a country but earn profits there, such as through digital services. That provision would affect around 100 global firms.

The second part of the deal, the global minimum of at least 15%, would apply to companies with more than 750 billion euros ($864 billion) in revenue and be passed into domestic law by countries according to model rules developed at the OECD. A top-up provision would mean tax avoided overseas would have to be paid at home. So long as at least the major headquarters countries implement the minimum tax, the deal would have most of its desired effect.

___

Kirka reported from London.

Ireland, Hungary agree to drop opposition to global tax overhaul


Irish finance minister Paschal Donohoe speaks to reporters in Slovenia on September 10.

 Photo by Igor Kupljenik/EPA-EFE

Oct. 8 (UPI) -- A global treaty to impose a minimum global tax rate of 15% on large multinational companies took a step closer to approval Friday when Hungary joined Ireland and Estonia in dropping opposition to the agreement.

A deal is expected to be announced Friday at a meeting overseen by the Paris-based Organization for Economic Cooperation and Development.


The treaty involves more than 130 nations and would be the most substantial overhaul to the global tax system in a century. The new tax system could begin in 2023.

Finance officials from the Group of 20 major economies announced their approval of the plan in July and the OECD has been pushing for an agreement for about a decade.

Ireland agreed to drop its opposition to the treaty after language was revised to remove a stipulation that minimum tax rates should be "at least 15%."

"We have secured the removal of 'at least' in the text," Irish Finance Minster Paschal Donohoe said, according to CNN. "This will provide the critical certainty for government and industry and will provide the long-term stability and certainty to business in the context of investment decisions."

The change allows smaller Irish companies with less than $867 million in annual revenue to continue paying a corporate tax rate of 12.5%. That reduced rate lured many companies like Facebook, Apple and Google to headquarter their European operations in Ireland.

The 15% rate would apply to more than 1,500 Ireland-based multinational companies.

Hungary, which has attracted investment with a 9% corporate tax rate, agreed to join the deal after securing an exemption that would allow multinational companies to reduce profits subject to the tax over a period of 10 years.

The deal is subject to U.S. congressional approval, where Republicans have voiced some opposition. President Joe Biden's administration is supportive of the change.

"It's a once-in-a-generation opportunity to make the international tax system fairer," U.S. Secretary of State Anthony Blinken said in a statement this week.

OECD Secretary-General Mathias Cormann said he's "quietly optimistic" that an agreement will be finalized before the G20 Leaders' Summit in Rome on Oct. 30.

Japan Becomes First G-7 Nation to Factor ESG Into Investments

Yuko Takeo and Grace Huang
Thu, October 7, 2021,



(Bloomberg) -- Japan will introduce environmental, social and governance considerations for foreign reserves held by the finance ministry, reflecting a need to seriously tackle climate change in order to achieve the country’s 2050 carbon neutral goal.

The decision to include ESG as a factor for foreign asset holdings is a first for a Group of Seven nation, Finance Minister Shunichi Suzuki said Friday. The ministry didn’t disclose the amount of funds that will be affected.

“Globally there are various climate measures being introduced ahead of the United Nations climate change conference,” said Suzuki, speaking to reporters in Tokyo. “There’s increasing interest in ESG from institutional investors.”

Instead of shifting the existing portfolio, ESG will become a new factor to be considered for all new foreign asset investments, the Finance Ministry said in a statement. It said investment into ESG bonds will likely increase as the ESG bond market expands.

Most big UK banks still have a gender pay gap of over 30%

REUTERS/TOBY MELVILLE

Are they walking the walk?


By Cassie Werber
Reporter
Published October 8, 2021

When the UK’s annual gender pay gap numbers come out there’s always the possibility of a dramatic change showing up in the data. Companies are by now well aware of the problem with paying women less than men, and they many make plenty of noise about trying to solve it.

But when it comes to banking—which, of any sector, surely has the resources to make a change—the startlingly large gender pay gaps just don’t seem to be going away.

HSBC Bank Plc, an entity which employs 2,000 people in the UK and includes HSBC’s global banking and markets business, has the biggest gender pay gap, at 54% in 2020-21, meaning that women earn just 46 pence for every £1 men earn. That’s actually an improvement from 2018-19, when the gap stood at 61%.

HSBC says the disparity comes from the high proportion of senior men in this business: Its top quartile in that division is 91% male to 9% female. Addressing that disparity is presumably a prerequisite for fixing the pay disparity.

HSBC UK, meanwhile, which contains the company’s UK retail banking operations and employs upwards of 20,000 people, has a less pronounced gap, but still over 30%. That’s about where the rest of the UK’s big banks fall, with Barclays leading the way towards parity with a gap of 24%.

The bigger picture on gender pay-gap data

Gender pay gap reporting has been mandatory in the UK since 2017 for every employer with more than 250 employees. At a national level, the gap is much smaller than it is for the banks, and shrinking: For full-time employees the average gap was 7.4% in April 2020, according to the UK Office for National Statistics, down from 9% the previous year.

Mandatory pay-gap reporting is certainly helping the situation, according to a recent report from Kings College London and the Fawcett Society, which compared pay-gap data gathering efforts across Europe. But the report said the UK’s system was toothless in comparison to other countries, like Spain, which do more to compel companies to fix the issue. In the UK, while larger companies have to report gaps, they’re under no obligation to deal with them.
The UK is now a laggard on narrowing the gender pay gap

From its “groundbreaking” beginnings, the UK has begun to lag behind other countries that are now “going further, faster,” said professor Rosie Campbell, director of the Global Institute for Women’s Leadership at King’s College London, in a statement. Campbell also noted that the pandemic had affected women in the workplace disproportionately. Mandatory reporting was frozen in 2020 and delayed this year from April until October to allow companies time to catch up. By the deadline, some companies had not yet reported, while others with workers on furlough had to account for that in the numbers they submitted.

By next year, when the full impact of women leaving the workforce will likely be more evident in the data, companies may need to work even harder than before to narrow pay gaps. And at that point, the numbers won’t even take into account the extent to which women who were working before the pandemic are now outside the workforce completely.

H2 STILL MEANS INFERNAL COMBUSTION
Hyundai Joins Shell's 'Project Neptune' For Hydrogen Infrastructure Development

Shivani Kumaresan
Fri, October 8, 2021

Hyundai Motor Company (OTC: HYMTF) announced Hyundai Motor North America (HMNA) has partnered with Equilon Enterprises LLC (Shell Hydrogen) to encourage the growth of hydrogen refueling infrastructure in California.

The agreement, known as Project Neptune, supports Shell Hydrogen's construction of 48 additional and two upgraded hydrogen refueling stations across California beginning in 2021.

As its part, Hyundai has committed to fueling cell vehicle sales growth, supporting the expanding hydrogen infrastructure.

The new hydrogen stations will be partially funded by public funds from the California Energy Commission (CEC).

In March 2021, Hyundai signed a new five-year Global Business Cooperation Agreement with Royal Dutch Shell plc (OTC: RYDAF) to expand collaboration on clean energy solutions.

The future of China's work culture

Elliott Zaagman

Sat, October 9, 2021,

In a late-August ruling, China’s supreme court declared one of the country’s most infamous work practices illegal.

Known as “996,” the term is shorthand for a work schedule spanning from 9AM to 9PM, six days per week. Though popularized by the country’s soaring tech firms, often evoking images of hip urban startup employees with stock option plans hustling before being made millionaires by an IPO or funding round, “996” has evolved in how it is understood and applied by employers and employees, as well as how it is viewed by regulators.

Indeed, while the August 26 Supreme Court decision and issuance of guidelines from the Ministry of Human Resources will impact tech firms and their well-educated, well-compensated employees, the case itself dealt with a worker much further down the digital economy hierarchy: a logistics worker making a salary of 8,000RMB (roughly $1,240) per month, which is just slightly below the average of the country’s 37 largest cities.

China’s regulators appear to be sending a message to employers and employees alike that the rules which define their relationship must change. As is the case with many things in China these days, what the country’s leaders are asking for will require a change not just in action, but also in the philosophies, psychologies, and incentive structures at the core of Chinese society. What this change will look like is only starting to come into form.

Hungry like the wolf (culture)

Photo by VCG/VCG via Getty Images

Whether as a result of the intense work culture that has defined many Chinese companies, or as the pacesetting example that many have emulated, there is perhaps no better case study of the spirit, the benefits, and the potential toxicity of a 996 work culture than that of Huawei.

Known for its “wolf culture,” the Shenzhen-based telecoms behemoth became defined by its intensity. Depending on who you ask, the description can be interpreted in multiple ways. In a more generous interpretation, it is seen as a sort of kinship, of team members moving in coordinated packs in pursuit of a shared goal. For others, it can mean something far more brutal. “In Huawei, ‘wolf culture’ means you kill or be killed,” explained a former Huawei employee who I interviewed for an article on the company in 2017. “I think the idea is that if you have everyone in the company competing fiercely with one another, the company will be better at fighting and competing with external threats.”

Regardless of how its employees came to characterize it, the intensity central to Huawei’s culture also helped shape its success. In contrast to its European competitors Ericsson and Nokia who have been criticized for their cumbersome bureaucracy and perceived complacency, Huawei’s willingness to win and deliver projects regardless of seemingly any obstacle made them favorites of telecommunications network providers across the world.

Though juiced by cheap financing from the Chinese state and lucrative contracts in its domestic market that allowed it to subsidize its overseas business, there is also a competitive logic to the extreme zeal that has characterized the firm’s culture, and which also helps to explain why other Chinese firms adopted such spirit in the form of “996.”

While now considered cutting-edge innovators in some areas, Huawei and other Chinese firms experienced a constant struggle to overcome deficits in technological sophistication in comparison to their foreign peers in their early days. Without holding an advantage through unique or advanced tech, they achieved an edge through cost, speed, and a flexibility in circumventing the obstacles to doing business that can be particularly tricky in the developing world.

“What Chinese tech companies seem to really understand is the value that execution can have over product,” explains Skander Garroum, a German entrepreneur who has founded startups both in China and Silicon Valley. “The U.S.-centric tech narrative is so often one of a genius who creates a great product, and due to an open internet and open economy, it scales simply due to its obvious superiority. But in China and other developing markets, [there] are more obstacles, less openness, and scaling is a question not simply of how good a product is, but how well a team executes, and how hard they work.”

While such narratives are often hyperbolic renditions of the truth, the willingness to out-work rivals is a badge of honor many Chinese companies carry. For ride-hailing company Didi Chuxing, its famed victory over Uber in their mid-2010s battle for the Chinese market was a result of a myriad of factors. Yet to ask many who were involved, the answer is often that they simply executed better on a local level and were willing to fight harder until Uber deemed it to be simply not worth continuing the fight.

Self-defined by their work ethic and hunger, many firms have actively sought out individuals without a privileged background, but who aspire to move above their station in life. Huawei, for example, is known to target its recruiting efforts on young, skilled people from fourth- or fifth-tier cities looking for their ‘first pot of gold’ (第一桶金 dìyī tǒng jīn), using a phrase meaning the first opportunity that a person receives to make a lot of money, or to move into the middle class.

As China grew and its firms rose to global prominence, the dream of the first pot of gold was indeed achievable for many, and generous compensation often accompanied the demanding work hours. For longtime Huawei employees enrolled in the company’s share scheme, annual dividends have been known to surpass hundreds of thousands and even millions of dollars for individual employees, in many cases eclipsing employees’ salaries. It was hard work, but hard work that paid off.

A system set up for employer exploitation

Known for its infamously hard-driving work culture, it can be counterintuitive to learn that the laws on the books in China are quite protective of the rights of workers. In practice, however, these rules have rarely been enforced.

Though technically mandating overtime pay for anything surpassing a standard 5-day/40-hour work week, employers are known to avail themselves of a plethora of formal and informal methods for evading their legal obligations.

In the case of Huawei, this is known to come in the form of a “striver pledge,” a supposedly “voluntary” agreement signed by new employees in which they forego their rights to overtime pay and paid time off. Though Huawei has gained attention for such an approach, similar methods seem to be commonplace, and often for companies who do not offer Huawei’s perks and paths for advancement.

“For our [blue-collar staff], our contracts stipulate that all overtime pay is already included in their monthly salaries,” explained one career-long HR manager who has worked for both domestic and foreign firms in China. “It’s not a good thing, but it is pretty standard throughout China as far as I know.”

Another method for circumventing labor law is through crafting performance metrics that give overwhelming power to management. “It is common for companies in China to take the Western performance-management concept of ‘deliverables,’ but to extend it to extremes,” said a female executive who formerly headed human resources for two large Sino-European joint ventures and who like many interviewees for this piece, requested anonymity to speak freely about a sensitive policy issue. “The ‘deliverables,’ however, will often be impossible to reach. This puts more power in the hands of the manager to determine if they deem the ‘effort’ of the employee to be satisfactory.” The executive added that she has discouraged such practices throughout her career, and that they were more common with local Chinese firms than with multinationals. With such a dynamic in place, it is not difficult to imagine the myriad forms of exploitation that could potentially occur.

For those who have chosen to take on the system, they have often found themselves not only to be at odds with their employer, but with the state as well. Independent labor unions are functionally illegal in China, and the state-run All-China Federation of Trade Unions has historically been inconsistent in aiding workers in labor disputes.

In 2019, former 13-year Huawei employee Li Hongyuan was jailed for 241 days over charges that he had blackmailed the company while negotiating an exit package. Though eventually freed, as prosecutors failed to find sufficient evidence of wrongdoing on his part, news of his lengthy detention was a source of considerable online outrage.

Popular frustration over labor issues in nominally socialist China seems to have been on the rise in recent years. In 2018, security at the elite Peking University cracked down on protests by the school’s Marxist Society, which itself had been protesting the crackdown on labor activists in southern China. The GitHub repository “996.ICU” became a popular online forum for tech workers frustrated with their companies’ brutal workplace practices to vent and bring attention to the worst-behaving companies. For burnt-out young people across China, the trend of "lying flat" (tǎngpíng 躺平), which rejects the pressure and ambition that so defined earlier generations, has gained sufficient popularity that the government has lambasted the movement in major newspapers.

 THE SOLUTION TO 996



Schrödinger’s working hours: Written laws and unwritten norms

Compounded by a need to reduce pressure on families and boost a dwindling birth rate, authorities are now looking to change the unwritten rules of the game that have long dictated labor relations in China.

In response to the August 26 ruling, many companies acted quickly to change official policies. Yet for many firms and industries, the question that looms larger is one of culture and expectations.

TikTok parent company ByteDance, which previously was known to officially conduct a six-day work week, brought an end to the policy. However, this was not entirely welcomed by employees, who in exchange for reduced work days saw commensurate reductions in their pay.

“For many of us, we know what we’re agreeing to when we work for internet companies,” explained a woman surnamed Zhou who has worked for several such firms in China. “We know we might have to work hard, but we also get a chance to make more money,” she said. “If we wanted something different, we would have decided to work for other companies,” adding that she can understand why some ByteDance employees would be upset at the reduced hours and pay.

In the eyes of some China tech workers, increased pressure on companies to comply with government’s stricter expectations around working hours may just mean more informal working hours, for which they are not directly compensated. “Nothing has changed for me or my team as far as I know,” shared one employee of a popular U.S.-listed Chinese internet company. “I work on the weekends, and will work over my holiday [the National Day holiday of October 1]. Just because it’s officially a day off doesn’t mean that business stops,” adding that they “of course” do not receive overtime pay for their extra working hours.

The idea that “business doesn’t stop” is what leaves some in doubt about whether any government regulation will have any positive impact on the condition of tech workers. “ByteDance is cutting back official hours and pay, but if nothing else changes, it doesn’t really matter,” shared Zhou bluntly. “People still want to keep their jobs and get promoted, so of course they will work as much as they can … or move to a company that will pay them more to do it.”

Yet for those who are higher up the management ladder, there is a much stronger inclination to take recent government mandates seriously, both in the letter and spirit of the law. “Companies have to show that they are taking action on this, and if they don’t, they risk being made an example of by authorities,” said the Sino-European corporate HR executive. “HR departments should be conducting company-wide audits and getting a clear picture of what kind of hours people are working,” adding that, “the most likely outcome will probably be to hire more people, who will each work shorter hours, at least in the short term.”

What most do seem to agree on is the broader trend: as Xi Jinping speaks of “common prosperity” and puts the country’s corporate titans on notice, it appears as though the go-go years of China’s gilded age are coming to a close. How far the government will go in enforcing its desired changes is yet to be determined, however. For the first time in a long time, Beijing is signaling to the country’s corporate community that it will no longer tip the scales overwhelmingly in favor of business over labor. The question now is to what degree the balance of those scales will be adjusted.

China roundup: Beijing wants tech giants to shoulder more social responsibilities

Americans with criminal records
could be a solution to the labor shortage

Julie Hyman

·Anchor

Fri, October 8, 2021, 

Jeff Arview had been kicking around in different jobs. An Army veteran who served in Iraq, after he was discharged he suffered from post-traumatic stress disorder and fell into addiction, which led to fighting and theft — then arrests and jail time. Moving on and getting a job was a challenge.

“Even though I was a veteran, because of that criminal history, I was unable to gain employment, which made it really tough,” Arview said. At times, he fell into homelessness.

Arview, 39, is far from alone. The unemployment rate among formerly incarcerated people was 27%, according to a 2018 analysis by the Prison Policy Initiative. That compares with the current overall U.S. unemployment rate of 4.8% in September. A criminal background has carried a stigma for some employers, and in some states there are steep legal hurdles to clearing one's record.

When looking for jobs, Arview came across a recruitment video from staffing company Kelly Services targeting veterans. Enough time had passed since his last arrest that he wasn’t legally required to disclose it when applying — although he eventually did. He was hired as a contractor, then as a full-time talent adviser two and a half years ago.

Second-chance initiatives 'tap into talent' amid a labor crunch

Last month, Kelly Services introduced a recruiting program specifically designed for people with non-violent criminal records. It’s one of an increasing number of companies trying to de-stigmatize so-called “second chance” workers with dual-pronged philanthropic and self-interested goals — help people get back on their feet, and find workers in a tight job market.

Kelly Services CEO Peter Quigley said the latter is a challenge right now.

“The fact is that there are a lot of open jobs, but there are not a lot of jobs open that people want,” he told Yahoo Finance Live in an interview. He said employers have to address employees’ shifting priorities, including offering them paths to career advancement and an inclusive and diverse workplace.

Kelly Services’s program targeting criminal offenders, called Kelly 33, kicked off after an initial partnership with Toyota, where 645 workers accepted jobs at the automaker’s Georgetown, Kentucky plant.

Bobbi Brown (L), senior staffing supervisor for Kelly Services, takes a resume from job seeker Crystal Haigh (C) at the Employment Guide job fair in Westminster, Colorado February 18, 2009. REUTERS/Rick Wilking

“Toyota took a second-chance initiative and was able to increase its talent pool by 20%, increase its diversity by almost 10%, and improve its retention by 70%. These second-chance workers are thankful, they’re reliable and they’re loyal,” Quigley said.

Kelly Services and Toyota aren’t alone. A group of companies in April started the Second Chance Business Coalition, led by co-chairs Jamie Dimon, chairman and CEO of JPMorgan Chase, and Craig Arnold, chairman and CEO of Eaton.

JPMorgan hired 2,100 people with criminal backgrounds in 2020, about 10% of new hires. That was thanks in part to partnerships with community groups in Chicago and Columbus, who trained potential employees and educated them on banking regulations.

“This is making sure we tap into talent that maybe wouldn’t come our way,” said Michelle Kuranty, executive director — global head of talent acquisition sourcing at JPMorgan. “Good talent is always a challenge.”

JPMorgan and the coalition are also pushing for policy changes, including “banning the box” — not including a box on job applications for candidates to check if they have a criminal record — and “clean slate” policies to clear or seal criminal records.

Employers are 'a little more open minded' about criminal records

Americans who have been incarcerated or have a conviction on their record are “ready to work and deserve a second chance — an opportunity to fill the millions of job openings across the country,” wrote Dimon in an August op-ed. “Yet our criminal justice system continues to block them from doing so.”

Economists estimate that U.S. employers hired 500,000 workers in September, up from 235,000 in August. That contrasts with the nearly 11 million jobs that were open in July. Recent jobs data has been lagging forecasts, for reasons ranging from difficult-to-secure child care to geography and skills mismatches.

“When you’re in the legal system, there’s a lot of pressure, it’s not just financial pressure. It’s hard to find somebody that offers you any kind of hope,” said David Shaffer, who was arrested for his third DWI in 2009, a felony in Texas. “Once you get in trouble, the world is full of people telling you what you can’t do.”

By the following year, he was searching for jobs, and got a call from Kelly Services, to whom he disclosed his criminal issues. Eleven years later, he’s still working there, as a senior operations manager.

His colleague, Jeff Arview, said work culture is continuing to change. “Employers are being a little more open minded to it, given the workforce that is needed right now, and I think that is awesome, because they’ll actually give people a chance.”

Correction: JPMorgan partnered with community groups in Columbus. The city was misstated in an earlier version of this article.

This post has been updated with the September jobs numbers.

Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshyman, and read her other stories.

Leading Businesses Sign Fairtrade Pledge to Support 1.8 Million Farmers Calling for Climate Justice

Thu, October 7, 2021

The pledge is part of Fairtrade’s Be Fair With Your Climate Promise campaign encouraging world leaders and businesses alike to take urgent action in support of farmers

WASHINGTON --News Direct-- Fairtrade America

Rosa Maribel Cortes, Julibee Portillo, Alejandra Lemus, Julissa Medina and Sandra Buezo all work at the Xol chocolate factory in Honduras. Xol chocolate is a brand of the Fairtrade-certified COAGRICSAL coop, and the new factory in Honduras was built utilizing a Fairtrade Premium. The factory, the largest of its kind in the region, was built in response to the droughts and diseases caused by climate change.

WASHINGTON , October 8, 2021 /3BL Media/ - Ben & Jerry’s, Tony’s Chocolonely, and UK retailers Co-op, M&S and Waitrose, are among a group of Fairtrade business partners worldwide pledging to support Fairtrade farmers in their call for climate justice in the run-up to the COP26 climate summit in Glasgow, UK, this November.

The companies have signed a business pledge urging world governments and leaders to listen to the voices of farmers – the people who grow the world’s food and other essential goods in low-income, climate-vulnerable nations – as the farmers call for urgent action at COP26.

In the pledge, developed by Fairtrade as part of its Be Fair With Your Climate Promise campaign, the companies commit to take accountability for their own climate impact. They also commit to work alongside Fairtrade to protect and invest in the resilience and green transition of global food supply chains in the face of the climate crisis.

As companies sourcing from Fairtrade producers in Africa, Asia, Latin America and the Caribbean, the signatories to the pledge see the climate crisis hitting the people in their supply chains disproportionately hard. Increasingly volatile weather is damaging crops, harming livelihoods for farming communities, and making crop production more unpredictable.

With approximately three weeks until COP26 takes place in Glasgow, UK, governments must “set ambitious, science-based rules and targets which do not allow unscrupulous businesses to ignore the damage they are causing to the planet, and which encourage responsible business to do more,” the pledge states.

Cheryl Pinto, Global Values Led Sourcing Manager, Ben & Jerry’s, says: “This is an issue of justice, so together with our fans and Fairtrade we call on world leaders to take urgent action. 1.5°C warming will disproportionately and negatively impact disadvantaged and vulnerable populations. This means that the people who grow our food in climate vulnerable nations, where they are already suffering the consequences of climate change yet did the least to cause it, face a bleak, daunting future as their livelihoods are increasingly threatened. The $100 billion climate finance promise must be met and delivered, so that it reaches farmers, strengthens their resilience, and supports a just, fair future for all.”

Other Fairtrade signatories to the pledge include Bewleys, Cafédirect, Clipper, Coliman, Cru Kafe, Equal Exchange, Greggs, Kaladi, Liberation Nuts, Matthew Algie, Navitas and People Tree. Together, all the signatories commit to four key areas of action as part of their ongoing work in their international supply chains, and they call on other businesses to do likewise:

To pay fair prices to producers – farmers and workers should not have to choose between tackling poverty and building resilience to the climate crisis. ‘Our Fairtrade commitments are critical to achieving this,’ say the companies.

To be long term partners with farming communities, listening to the experience of farmers, sharing their own expertise and investing in the urgent transitions farmers need. They will back a shift in food production and supply to one that is resilient to the changing climate, including backing nature-based solutions. They will support farmers as they work together to cut the emissions embedded throughout their supply chains.

To “know and show” their climate impact, by measuring carbon emissions embedded in their supply chains, assessing the climate risks faced at farm level, and publishing the results. The companies say they want to raise awareness about the challenges and the practical solutions, setting a high bar for other businesses.

To speak out, calling in public and private for Governments to set and deliver ambitious targets for emissions reduction and climate finance which puts farmers and agricultural workers first.

The business pledge follows the publication of an open letter from 1.8 million Fairtrade farmers and workers across Africa, Asia, Latin America and the Caribbean earlier this week. The letter warns governments that their lack of action is threatening farmers’ livelihoods and global food supplies, and deepening poverty. Furthermore, the letter calls out the broken promises from world leaders. It demands that the promised $100 billion climate finance is not only paid, but that those funds reach farmers and workers directly to ensure they can withstand the growing challenges of climate change, including by planting more trees and investing in more resilient crops.

Frits Snel, Tony’s Chocolonely Country Manager, US, said: “We can’t achieve social justice on a broken planet. And climate injustice often means the ones actively contributing to climate change feel its repercussions least. This reinforces the structural inequality of global industry and economy. Practically speaking, this also means cocoa farmers are already feeling the consequences of climate change. We’re proud to be carbon neutral, to work with farmers in protecting the land and to produce plastic free packaging. But there’s certainly more to be done. We aim to keep raising the environmental bar together with farmers and our partners at Fairtrade.”

British convenience retailer Co-op recently announced a commitment in their recent Climate Justice for People and Planet report to continue to spend more than 0.7% of their pre-tax profit on international aid and has joined forces with Fairtrade Africa and Fairtrade Foundation to support producers combating the effects of climate change.

Jo Whitfield, Food CEO from the Co-op said: “We are reliant on the global food system for the food we enjoy. However, the reality is that for many of our suppliers the impact of the climate crisis is immediate and pressing. That’s why we’ve been calling on governments to ensure producers in low-income countries receive support to cover the cost of adapting to climate change and transitioning to low carbon production, and on businesses to play their part too.”

Speaking on behalf of the global Fairtrade campaign, Mary Linnell-Simmons, Director of Marketing and External Relations at Fairtrade America, says: “We welcome support for farmers from these forward-looking brands and retailers. It’s imperative that businesses take a lead by earnestly committing themselves to supporting the farmers in their international supply chains. We call on other businesses to do the same. It is more important than ever that we listen to our farmers, raise their voices and ensure governments and businesses alike act now!”

For more information about Fairtrade’s Be Fair With Your Climate Promise campaign is visit: www.fairtrade.org.uk/be-fair

-Ends-

For more information or interviews, contact Martine Parry, martine.parry@fairtrade.org.uk

Notes to Editors

About Fairtrade

Fairtrade changes the way trade works by putting farmers and workers first. That means better prices, decent working conditions and more trade power for small-scale producers. Leading by example, Fairtrade has producers represented in 50% of its governance. Fairtrade International is an independent non-profit organization representing 1.8 million farmers and workers worldwide. It owns the FAIRTRADE Mark, a registered trademark appearing on more than 30,000 products, which is the most recognised and trusted sustainability label in the world. Fairtrade International and its member organisations collaborate with businesses, engage shoppers, activate civil society, and enable producers to take control in order to bring about a fair, sustainable future — a future rooted in social justice. www.fairtrade.net

View additional multimedia and more ESG storytelling from Fairtrade America on 3blmedia.com

What Happens to Bitcoin After All 21 Million Are Mined?

ADAM HAYES
Updated October 07, 2021
Reviewed by
KHADIJA KHARTIT

TABLE OF CONTENTS
Will Bitcoin Ever Reach the 21 Million Cap?
What Happens When All 21 Million Bitcoin Are Mined?
The Bottom Line
Frequently Asked Questions

One of the chief characteristics of Bitcoin (BTCUSD) is its limited supply. Other forms of money, including fiat currencies, can be printed at will by central banks—i.e., they have unlimited supply.

Bitcoin inventor Satoshi Nakamoto capped the number of bitcoin at 21 million, meaning there will only ever be 21 million bitcoins in existence. On average, these bitcoins are introduced to the Bitcoin supply at a fixed rate of one block every 10 minutes. In addition, the number of bitcoins released in each of these aforementioned blocks is reduced by 50% every four years. By August 2021, 18.7 million bitcoins were available, leaving roughly 2.3 million to be mined.1 The supply limitation makes Bitcoin scarce and controls inflation that might arise from an unlimited supply of the cryptocurrency.

As Bitcoin reaches its capped supply, its economics will alter. The incentives for various members in its ecosystem, such as miners and traders, will change. For example, miners may rely less on block rewards and more on transaction fees to earn revenue and profits for their operations. The cryptocurrency's network will also transform, and its participants will be different from the retail traders that populate its current ecosystem.


However, given the cryptocurrency's relatively undeveloped ecosystem, it is difficult to predict with certainty the effect of Bitcoin reaching its capped supply.

KEY TAKEAWAYS

There are only 21 million bitcoins that can be mined in total.

Bitcoin will never reach that cap due to the use of rounding operators in its codebase.
As of Aug, 2021, 18.77 million bitcoins have been mined, which leaves roughly 2.3 million yet to be introduced into circulation.

When Bitcoin reaches its supply cap, block rewards will vanish, and miners will depend on fees from transactions occurring on the cryptocurrency's network for revenue.
Bitcoin's network may evolve from its current unfinished state to becoming a bridge for monetary transactions and trading.

Bitcoin the cryptocurrency will have a defined identity in the financial ecosystem.
Will Bitcoin Ever Reach the 21 Million Cap?

Before delving into the implications of Bitcoin's 21 million cap, it might be interesting to consider the question of whether it will ever reach that figure. Based on the cryptocurrency's current codebase and mining process, some observers say that Bitcoin may fall just shy of the 21 million figure.

To recap, Bitcoin is "mined" by miners who solve cryptographic puzzles to verify and validate a block of transactions occurring in its network. Block rewards, consisting of a set number of bitcoins, are distributed to miners who successfully confirm a transaction block. The rewards are halved every four years.

The rate that bitcoin are produced cuts in half about every four years. Investopedia

When the cryptocurrency was launched, the reward for confirming a block of transactions was 50 bitcoins. In 2012, it was halved to 25 bitcoins, and it went down to 12.5 in 2016. In May 2020, miners stood to earn 6.25 bitcoin for every new block. Block rewards for Bitcoin miners will continue to be halved every four years until the final bitcoin is mined. Current estimates for mining of the final bitcoin put that date somewhere in February 2140.

The Bitcoin mining process provides bitcoin rewards to miners, but the reward size decreases periodically to control the circulation of new tokens.

According to Andreas M. Antonopoulos, author of a book about Bitcoin's workings, the 21 million figure is an "asymptotic cap" on the number of bitcoin in existence.2 In simple words, this means that, while it may reach very close to figure, the cryptocurrency will never reach that limit. This is because block rewards and Bitcoin supply are never expressed in exact terms. Bitcoin's code uses bit-shift operators—arithmetic operators used that round decimal points to the closest smallest integer in certain programming languages. Therefore, a total supply of 6.2589 bitcoins will be rounded out to the closest smallest integer, in this case 6.

While it makes calculations easier, the practice leads to losses in satoshis, Bitcoin's constituent units, during each block confirmation. One bitcoin is equal to 100 million satoshis. According to some, the final bitcoin block will be numbered 6,929,999, and the total supply at that time will be 20,999,999.9769 satoshis. Since bitcoin uses a bit-shift operator system,3 its algorithm will round off that figure to 20,999,999 and leave the cryptocurrency just shy of its 21 million targeted cap.

What Happens When All 21 Million Bitcoin Are Mined?

A consequence of Bitcoin not reaching its planned cap is that it leaves open the possibility that the cryptocurrency's network will remain functional for a long time after 2140. No bitcoins will be issued, but transaction blocks will be confirmed, and fees will become the primary source of revenue. Ultimately, Bitcoin's network may function as a closed economy, in which transaction fees are assessed much like taxes are.

Can the rewards be in satoshis instead of actual bitcoin? Such a practice is unlikely and would require a change in the cryptocurrency's protocol to take effect.

That said, it is difficult to predict the effects of Bitcoin almost reaching the overall supply promised by Satoshi Nakamoto. This is partly because Bitcoin's ecosystem is still undeveloped. The cryptocurrency was originally conceptualized as a medium of exchange but it has found more popularity as a store of value—an investing asset—instead. It is possible that Bitcoin's ecosystem and workings might undergo a transformation, similar to the one that has occured in its identity, between now and 2140.

Although there can only ever be a maximum of 21 million bitcoins, because people have lost their private keys or have died without leaving their private key instructions to anybody, the actual amount of available bitcoins in circulation could actually be millions less.

For example, there could be a protocol change in the cryptocurrency's blockchain to allow for more than 21 million bitcoin in existence. Remember, Bitcoin is an open source cryptocurrency and can be changed to create hard or soft forks that create new cryptocurrencies or alter its functioning. Some examples of the former are bitcoin cash (BCHUSD), litecoin (LTCUSD), and dogecoin (DOGEUSD), which have made minor modifications to Bitcoin's source code and created new coins that have racked up billions of dollars in market valuations.

Effect on Bitcoin Miners

Block rewards and transaction fees are the most important sources of revenue for miners—the former more so than the latter in the current setup. High prices for bitcoin enable miners to cover operational costs and sustain business profits because they can sell their rewards stash in cryptocurrency markets.

When Bitcoin is close to reaching its limit, the reward amounts may not be enough to cover operational costs at miners, let alone generate profits. If and when the supply limit is reached, Bitcoin rewards are supposed to vanish.

In both instances, transaction fees are expected to pick up the slack. The amount of and mechanism for these fees depends on the state of Bitcoin's network at that point in time—i.e., whether it is being used as a medium of exchange or as a store of value. The former may incur reasonable fees to enable Bitcoin's use in daily transactions, while the latter scenario will have miners conducting fewer and more expensive transactions.

Another possibility being put forward is that of miners forming cartels amongst themselves. They might control supply to set high transaction fees or a fee amount that guarantees them a minimum in profits. Selfish mining is another possibility. In this form of mining, miners collude amongst themselves to hide new blocks and release orphan blocks that are not confirmed by Bitcoin's network. This practice will delay production of the final block in Bitcoin's network and ensure high rewards for the new blocks when they are finally released into the network.

The formation of a Bitcoin miners' cartel is not a far-reaching conclusion. Such groupings already exist in other commodities whose supply is constrained or controlled. For example, oil prices are influenced to a large degree by OPEC's production output. Prices in the diamond industry are also reportedly set by a cartel led by mining giant DeBeers.4

Effect on Bitcoin's Network

The most valuable and useful aspect of Bitcoin is its network. Distributed ledger technology is a technological solution to the time-consuming bookkeeping and accounting that characterizes most financial transactions today.


If Bitcoin becomes popular as a medium of exchange in the future, its transaction numbers will surge. Past precedent has shown that there is a significant chance that the network will slow down. This is because Bitcoin's architecture, which relies on a distributed database to hold copies of massive ledgers, sacrifices speed for accuracy and integrity.


In such a scenario, it is likely that Layer 2 technologies, like the Lightning Network, will become responsible for confirming a majority of transactions on its network. Therefore, the cryptocurrency's actual network itself will be used only to settle large batches of transactions.


A second possibility is that the number of transactions on Bitcoin's network falls. Such a situation is possible when Bitcoin becomes a reserve asset. Trades involving the cryptocurrency will be few. Retail traders and small trading firms, who dominate its current trading ecosystem, will be eliminated and replaced by large institutional players and established trading firms. They will conduct fewer and more expensive trades that will incur high transaction fees from miners.

Effect on Bitcoin the Cryptocurrency

Bitcoin's inventor Satoshi Nakamoto designed the cryptocurrency to function as a medium of exchange for daily transactions. But its network has high transaction fees and slow processing times. Meanwhile, its scarcity and rising prices have become a magnet for speculative investors. Their bets on the cryptocurrency roulette have led to volatile price swings in the asset class deterring serious investors away from it. Regulators have criticized its ecosystem as a Wild West.

By the time that the last bitcoin is mined (or close to being mined), Bitcoin may have a more defined identity that it does currently. Side channels, like the Lightning Network, may have increased its network's transaction processing speed and enabled its use as a medium of exchange. Some countries like El Salvador are betting on such an eventuality and have made the cryptocurrency legal tender.

El Salvador made Bitcoin legal tender on June 9, 2021.5 It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it. The U.S. dollar continues to be El Salvador's primary currency.

In the United States, the latest significant events are the Office of the Comptroller of the Currency (OCC) letter in January 2021 authorizing the use of crypto as a method of payment, PayPal Holdings, Inc.'s (PYPL) introduction of Bitcoin, and Tesla, Inc.'s (TSLA) acceptance of Bitcoin to purchase Tesla cars and solar roofs. Tesla reversed course on accepting Bitcoin in May 2021, citing environmental concerns around the resources required for Bitcoin mining.


The increasing scarcity in its numbers will also have driven up bitcoin's price and the corresponding valuation of cryptocurrency markets. Regulators tend to move quickly when increasing amounts of capital flows into an asset class, and it is likely that crypto markets and Bitcoin will also have come under the regulatory umbrella. That will be a sign for institutional investors to move into the cryptocurrency's ecosystem and stabilize its price swings with massive liquidity.

The Bottom Line

Bitcoin's 21 million supply cap is meant to control inflation that might, otherwise, result from an unlimited supply. But it has inflated the cryptocurrency's prices by making it a scarce commodity.

When Bitcoin reaches the supply cap, it is likely that miners will shift from block rewards to transaction fees as their main source of revenue. Development of side channels, like the Lightning Network, may result in Bitcoin's blockchain restricting itself to confirmation of large batches of transactions or ones that involve movement of significant numbers of bitcoins from one address on its blockchain to another. Bitcoin's identity—as a store of value and a medium of exchange—will also be more clearly defined than it is currently.

But none of these predictions are set in stone. The kinetic pace of developments in Bitcoin's ecosystem means that it is difficult to accurately predict its future. For example, the cryptocurrency's protocol may be changed to accommodate the production of more than 21 million bitcoins. Or, it may fall just shy of reaching 21 million.

Frequently Asked Questions

What is Bitcoin's total supply?

The total supply of bitcoins is capped at 21 million.

What will happen to miner fees when Bitcoin's supply limit is reached?

When Bitcoin supply reaches 21 million, miners will rely on transaction fees rather than block rewards, which will have vanished by then, for revenue.

What will happen to Bitcoin's network when it reaches the supply limit?

When Bitcoin reaches the 21 million supply limit, it is likely that side channels, like the Lightning Network, will do most of the heavy lifting in confirming its transactions. The cryptocurrency's blockchain be responsible for confirming only very large batches of transactions or ones that involve movement of large sums of bitcoin from one address to another.

What happens if Bitcoin supply fails to reach the 21 million cap?

One consequence of Bitcoin not reaching its planned cap is that it leaves open the possibility that the cryptocurrency's network will remain functional for a long time after 2140. In keeping with Bitcoin's economics, rewards for confirming these blocks will be minimal.


ARTICLE SOURCES

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Business Insider India. Nearly 90% of Bitcoin Have Been Mined. Accessed Oct. 7, 2021.


YouTube. Bitcoin Q&A: The 21 Million Supply Cap. Accessed October 7th, 2021.


Amber Data. Why Bitcoin Will Never Reach its 21 Million Supply Cap. Accessed October 7, 2021.


The Economist. The Cartel Isn't Forever. Accessed Oct. 7, 2021.


AP. "El Salvador Makes Bitcoin Legal Tender." Accessed June 11, 2021.