In my book, BitCoin was the first real electronic money. By this I mean something that you could send somebody else, and once they get it they have the money. It can’t be withdrawn.
It has of course one other key feature: it is decentralized, meaning that it can’t be shut down by government authorities, or by a central issuing entity. And, to some extent, it is anonymous. To some extent, because really only Monero or ZCash are anonymous. BitCoin really isn’t.
But, getting back to the key feature: Bitcoin (and Ethereum, and LiteCoin and a whole host of other coins) operate primarily as a type of electronic currency. You buy them. You more or less trust that they won’t go out of business in the next 24 hours. And you use them to send to somebody else.
Unfortunately, all these coins have one major problem: volatility. If you are relying on the coin to pay the rent, and they depreciate quickly (as they can absolutely do), you are not a happy camper. It’s also bad for buyers, who can’t pre-buy a large stash of coins without worrying about a loss of purchasing power.
But wait, isn’t the US Dollar itself a ponzi scheme?
Defenders of BitCoin and other coins are quick to point out that the US Dollar has lost a massive amount of purchasing power over it’s 200+ year history, and that our current 20 Trillion dollar debt load is an accident waiting to happen.
Without debating the economics, however, I will point out one simple fact:
In the short and medium term, fiat is stable. $20 buys the same amount of stuff this week as it will next week.
That is not true for stocks, angel investments, and (most) crypto. That is why these things are not great universal means of transaction for buying and selling things.
So why is the dollar so stable?
1. It is ubiquitous and used by all americans (and many non americans) 24 hours a day. There is inherent ENTROPY in this fact. Short term stability is BAKED IN to the very concept of the dollar.
2. There is a sheriff in town called the Fed. The Sheriff can make new laws, buy back dollars, do XYZ in order to maintain stability. There is no sheriff for BTC
Enter the stable coin.
Stable coins provide the same electronic money advantages as BitCoin or Ethereum, but without the volatility. Long term, they have the same problems as the dollar. But short term, they are stable.
The first stable coin (to my knowledge) was Tether, created in 2013 by my friends Brock Pierce and Reeve Collins. I was one of the very first users. For some reason, it started as a subscription service…
Tether has had a controversial history. It was absorbed as part of / affiliated with the exchange BitFinex in 2014, and there has much speculation online as to whether it’s backing is true or not. But regardless. Tether has grown to over 2 Billion in market cap, a major sign that the market needs a stable coin
Over the last 12 months, stable coins are all the rage. There are three clear types of these
Tether like IOUs:
Over-collateralized Crypto-backed coins
There are a number of these, but i would like to single out DAI.
Synthetic Fed Coins
Here there are coins which have an artificial money supply created by a virtual fed. This is an extremely complex model. Check out reserve and basis.
So how do stable coins impact other coins like Ethereum?
Generally speaking, Stable coins are best for most transactions. The good news is there are now a plethora of them to choose from, and regardless of who wins the stable coin wars, there is no need to accept volatility for payments.
This does mean that companies need to rethink the use of non-stable coins in crypto projects. Having a staking coin, like EOS makes a lot of sense to share the burden of dev costs across a broad community. Having a discount coin, like BNB, is also extremely appealing. Using the coin to unlock protocol features is great for projects that are developing dapp protocols.
Humans are fine with suffering volatility for projects that they support and believe in. And these may be in fact all deemed “securities tokens”. This can still work. But for pure transactions, I think stable coins are going to likely emerge the winners.
Stable Coins and WorkCoin
For us, after months of agonizing soul searching, we decided to use stable coins and not our own crypto as the means of buying and selling services. We had to admit to ourselves that no matter how much we love our project, when our coin is finally released it will be volatile. So is BTC. So is ETH.
Once we bit the bullet and “learned to love the bomb” we realized that this is now a killer advantage over any system that is strictly denominated in volatile crypto. Do you really want to be paid in newcoin that is traded on 3 exchanges with huge bid ask spreads, and low liquidity. Do you even want to get paid in ETH when ETH can drop 70% in a three month period?
Again, we think the correct model is staking coins, discount coins, voting coins not payment coins.