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United States National Debt Hits a Record $26 Trillion Amid COVID-19

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The United States national debt has reached extraordinary levels amid the intense days of the coronavirus outbreak. The national debt in the US has reached $26 trillion, a scale never witnessed before.

Back in April, the United States national debt stood at $24 trillion, rising to $25 trillion the next month. Currently, the debt stands at $26 trillion, meaning that the national debt is growing at the rate of $1 trillion every month amid the COVID-19 pandemic.

A Closer look into the United States national debt

With national debt now at $26 trillion, according to the USDebtClock, every taxpayer has a deficit of $209,415 each, or $78,863 per US citizen. The national debt stood at $22 billion a year ago, suggesting that it rose by $4 trillion within that timeframe. To put this in context, the national debt of the United States has increased by $8 trillion over the last five years.

The growing national debt has been catalyzed by the COVID-19 pandemic. This has resulted in a massive economic downturn and an enormous rate of unemployment in the United States and around the world. The United States economy plummeted by 4.8 per cent in Q1 2020, its largest decline in the single quarter since the market crash of 2008.

On the other hand, stocks are trading at record prices. However, some market experts warn that it is a purple patch that may soon end.

The high unemployment rate in America

Back in April, the unemployment rate in the US stood at 14.7 percent, which slightly dropped to 13.3 percent in the next month. Before the coronavirus spread across the world from Wuhan, China, to hit the Americans in February, the unemployment rate was 3.5 percent.

When the unemployment rate is too high, the government has to increase its spending to sign the unemployment checks. On top of spending massive amounts, the government of the United States also issued COVID-19 stimulus checks worth 2.2 trillion back in March.

On the other hand, Bitcoin has already made a full recovery after falling below $4,000 alongside global markets. By comparison, Bitcoin has no central authority and is not issued by any central bank, which means that there is no national debt. The flagship cryptocurrency has slightly crossed the $10,000 level a couple of times; the highest price Bitcoin has seen since February.

Is an Economic Incentive the Only Way to Keep the Network Decentralized?

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The economic incentive is the motivation a player gets to behave in a particular manner. With needs, wants and desires as the priority for the player, it works towards the preference set by the motivator for a particular incentive. 

As a contingent motivator economic incentives are classified in multiple forms. The top and the most relevant for the cryptospace being the extrinsic incentives – rewards for a particular behavior and punishment for another. 

This type of economic incentive runs on positive and negative reinforcement. 

Economics of incentivizing cryptocurrencies

Bitcoin’s incentive scheme depends on the presumption that individuals are sane players. If these players are rational, they are incentivized to participate in mining, buying and holding BTC. The concept of rationality is significant but often taken for granted.

Silvio Micali, an MIT professor and founder of Algorand says, that the creator of Bitcoin probably never imagined its incentive structure would cause capitalist industrial-scale mining pools. He even believes that the system does not need to reward trivial computations. Miners are compensated for their role while validators who don’t invest in overpriced equipment and excessive electricity are not.

With beliefs such as incentives should be the last resort, Micali is building Algorand. 

“Algorand’s logic is simple: it ties the security of the whole economy to the honesty of the majority of the economy, and makes it impossible for a small subset of the economy to control the fate of the whole economy.”

To give some background, Algorand is a public blockchain that works on a novel version of the Byzantine Agreement [BA]. Here, players are replaced in each round of communication. In this BA protocol, users do not keep any data except for their private keys, which allows Algorand to replace participants immediately after they send a message. 

Vitalik Buterin as the Founder of the second biggest cryptocurrency, Ethereum, believes that such a network wouldn’t work. 

Buterin stated that having no incentives at all means there’s no incentive for someone to not be lazy and go offline. While Micali from Algorand believes that all players on the network are honest, Vitalik’s belief is that the majority of the players are not; emphasizing the crypto phrase: verify, don’t trust. 

A fundamental insight at the heart of economics is that people respond to incentives

Under the assumptions that:

  1. Cryptography can be hacked 
  2. All players are honest
  3. Nevertheless, there will still be bad players and,
  4. Economic incentives significantly influence human behavior

Financial security becomes important!

The economic incentives drive humans to act in a particular way that makes them bet stakes [tokens, computational power, etc.] on the network to provide support for protocol stability with optimal security through a reward structure that prevents its unethical behavior.

Achieving all of this without an incentive model and keeping the network decentralized might be difficult or rather impossible.

All things considered, users are egotistically unpredictable in nature and they may decline to participate because of their concerns on electricity and data transmission consumption. This is why it is necessary that each user participating in the network receives a satisfying reward to compensate for their efforts. However, suitable incentive mechanisms that can meet the diverse requirements of users in dynamic and distributed peer-to-peer environments have yet not been invented. 

 

Disclaimer note: This article is based on the contributor’s opinions/research and does not necessarily represent the views and opinions of Tron Weekly.