“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

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