Before I get started I want to say I am a firm believer in cryptocurrencies and in blockchain technology. I simply do not believe that the ‘powers that be’ would stand by and allow for a cryptocurrency, such as Bitcoin, to replace traditional fiat currencies. That is not to say I believe cryptocurrencies will become worthless (some will, obviously), nor does it mean I think fiat is here to stay.
As with everything in life, we tend to see things in a matter of binary options. And this often causes the fractious relationships which either end of any scale often has to endure. The fact is that the solution to most problems we face ends up being a happy medium of all variables which affect them. Our monetary system is no different.
This is what leads me to the belief that stable coins will, eventually, replace traditional fiat currencies, not outright cryptocurrencies. If you do not know, a stable coin is a cryptocurrency which is pegged to something else in order to limit price volatility. Generally speaking stable coins are usually pegged to tradable commodities (such as precious metals) or other currencies.
Stability and what to peg to
When talking about stable coins it is vital that they are backed up by something of value beyond that of the coin itself. At present many available stable coins are backed up by a fiat currency or gold. I personally think the latter is where the future of global economies will reside.
It may not be gold, specifically, but I am of the opinion that future economies will be operated by national stable coins which reflect the resources, both natural and otherwise, which are owned by a country. This is where traditional cryptocurrencies, such as Bitcoin, will come into play regarding the economy.
Traditional cryptocurrencies, such as Bitcoin and Ethereum, will exist for as long as people are willing to mine them. As long as such is the case it is fair to assume they will retain some form of value. I believe that the aforementioned national stable coins will, at most, take into consideration a nation’s mining power and BTC (or another cryptocurrency) reserves.
While Ethereum and Bitcoin differ in their purpose (Ethereum has a purpose other than a store of value) the fact remains that, as long as they have value, people will accept them as some form of payment. The fact also remains that their decentralised nature provides more security than the centralised alternative. It is the second point which I believe will save cryptocurrencies such as Bitcoin from falling into a vat of redundancy.
Whatever happens in the future two things can be certain: wealthy people will want to buy expensive things and people will want to steal the funds of said wealthy people. It is this simple notion that I believe saves Bitcoin and will ensure it has a purpose.
What about volatility?
It is true that Bitcoin in its current state cannot be considered to be a true store of wealth. How can it be? It most certainly isn’t for those who bought in at $20k USD. Quite the opposite. However, I do believe it will eventually find its true price.
Presently, Bitcoin and alike are subjected to more uncertainty than those of us waiting to see what is going to happen with Brexit. They literally are ungoverned in numerous countries and banned in others. Their purpose is consistently questioned publicly and numerous multi-million dollar scams have been facilitated by them. That is natural, this completely new territory for all of us in this space.
When, and only when, the nuances around cryptocurrencies are fine-tuned and governments around the globe reach a consensus on the place in which they hold in modern society, I believe we will see a Bitcoin with a stable price that does not fluctuate like the British weather.
At this point, I think that Bitcoin will be considered to be a true store of wealth and it may find itself considered as one of the many resources which are used to peg national stable coins to. It is also at this point that I believe people will use Bitcoin et al to transfer their own personal store of wealth in order to make a large transaction.
Original link: https://somethingdecent.co.uk/crypto/blog-posts/opinion-stable-coins-will-replace-fiat-not-cryptocurrencies/
Opinion: Stable Coins will Replace Fiat, not Cryptocurrencies was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.