“I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or if they try, they will shortly be out of office.”
― Milton Friedman

“Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.”
― Aleksandr Solzhenitsyn

Tuesday, April 11, 2017

Experiments in suppressing the volatility of crypto currencies

I have to read this again, but I found it interesting. I’m not sure volatility is something crypto-currency advocates should be overly concerned about at this stage in crypto-currency evolution. Most of the volatility in Bitcoin, for example, has to be attributed to novelty and skepticism.

It's true that one part of a definition of money is "a store of value." High volatility does run counter to that requirement. But, isn't Bitcoin a symptom of skepticism about the long term value (erosion through inflation and potential for catastrophic volatility) of fiat currencies? Suppressing volatility by tying a crypto-currency to fiat currency seems counter-intuitive.

These experiments are attempts to smooth out the value of crypto-currency “X” compared to US$. The right question for a successful crypto-currency would be what’s a US$ worth in crypto-currency “X”. Pegging a crypto-currency to a fiat currency means accepting the risk a crypto-currency is designed to avoid.

As the author points out, these experiments can be seen as a market-based attempt to answer the question, “How should a mechanism for pegging a crypto-currency to a fiat currency work?" Whether we should care is subject to debate about what a crypto-currency is and is expected to accomplish, and in what time-frame.

Everything You Need to Know about Dollar-Denominated Cryptocurrencies

No comments: