Philosophy of Sound Money
Since it is obvious that a decentralized international currency is desirable, what should this currency look like? There exists a philosophical divide between two camps regarding what sound money is. The crypto-anarchists who love Bitcoin propose one main argument: "governments rob us of what we own by printing more money at their own discretion". Bitcoin solves this problem by being a decentralized fixed-supply currency, which is unseizable on two fronts — you have custody of your own money (unlike banks), and your money cannot be inflated away (no one can create more Bitcoin and reduce the value of your holdings). To this group of people, Bitcoin and other decentralized fixed-supply currencies are sound money. On the other side of the Bitcoin camp, there exist another group of people who believe that inflationary currencies are not inherently evil, but instead what is damaging is poorly managed, corrupt, and irrational amounts of inflation — factors which led to the extreme devaluation of various currencies in the past.
The fundamental problem with Bitcoin as sound money is that perfect value-retention (fixed supply) comes at the cost of usability. Fixed supply currencies will always be volatile, because the world is dynamic and demand for that currency changes over time. This inherent volatility renders Bitcoin complete unusable across a large set of financial transactions. The unpredictability of price of a currency is a huge barrier in commerce, and may be undermine any claims that Bitcoin will ever become sound money. If there are expectations that the price of Bitcoin will rise in the future, people are hesitant to spend. If there are expectations that the price of Bitcoin will fall in the future, people will not accept it as payment. Although there is validity in the argument of value-retention, I believe that the drawbacks of a fixed-supply currency are too great to ever enable money-like utility.
The State of Stablecoins in 2018
The importance of a price-stable cryptocurrency cannot be understated. Today, these stablecoins reduce the friction between fiat and crypto, allowing traders to easily jump in and out of positions without having to perform bank transfers. In the medium term, stablecoins will be used as the base currency for all on-chain financial contracts and applications, such as loans, gambling sites, prediction markets, and so on. In the long term, some stablecoins aspire to become a new form of money to replace the USD — a brand new monetary system that is used across the globe without any political bearings. How close are we to that pipe dream?
The short answer is: Far. Out of all the projects today, the only one which has seen significant use is Tether, with over $2B in daily transaction volume. Although it is still the early days, we have seen a variety of projects use different models to achieve price-stability. I shall do a full review of all the stable coin projects in the space in my following post. Stay tuned.
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Hi @cryptochindian
Interesting view. A stable coin must be the aim I agree but what is your reference? Fiat currency connot be a reference as it is far from stable. If you look at crypto from a fait poit of view it has hyperinflated. One cannot see this when considering different fait currencies across the world because they all hyperinflate at the same rate. There are only 3 countries left not operating under the central banking system (if I am not mistaking and I have missed a resent war and this number came down).
I wanted to buy new action cricket shoes yesterday because I started playing after about 2 years. I could not find a pair that was reasonably priced (or at least in my mind). The prices were 2 to 3 times higher!! Now if I was use to wasting money I would probably not even have noticed but this is insane!
Government continue telling us inflation is low (1 to 6%) but I don't see it in my life. Maybe this inflation describe Political economic conditions or something it that line but it aint got s@*t to do with my life. I wrote a post about inflation on bread (in South Africa) from 2010 to 2016 being 14% yearly. Link - https://steemit.com/devaluing/@dpl/if-you-save-in-fiat-currency-and-that-includes-stocks-and-pension-funds-i-am-afraid-the-news-is-not-good
People are bleeding and it's the people that can least afford it, the pensioners. How do you start working again at 70 or 80 when you realize that you don't have enough money to even pay your damn rent.
We don't fully comprehend the magnitude of the problem because we are still active in the system (even though we are not excluded from the affect). When it is our turn it will be much worse because government is printing money on an unimaginable rate through the process of counterfeiting or the the legalized term quantitative easing (USA alone prints $89 billion dollars every month). What do you think this is doing to you pension fund that will only pay out in 20 to 30 years.
Lets be conservative and take the inflation rate as 14% as previously stated. Are you growing your fiat at this rate in your pension fund or on the stock market or even worse in a saving account? Maybe if you are a cleaver trader but most people are normal hardworking people that straggle to understand the concept of internet banking let alone trading.
I will never advocate saving anything in fiat currency. It is the worse long term decision you will ever make. Yes we need it to do business on a daily basis but don't save in it long term.
Rather save in Gold or Silver if Crypto is to intimidating. I tried to explain the basics in this post - https://steemit.com/money/@dpl/true-wealth-is-your-time-and-freedom
Thanks for your post. I can see that you have knowledge when it comes to the financial system and it is always nice having a discussion with someone on the same page.
Let me know if you do not agree with my opinion and always remember.
Your true wealth is your time and freedom
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