In the wild, wild west of cryptocurrency, anything goes and volatility prevails. It is what makes things so thrilling. Yet even the most venturesome of cowboys crave stability from time to time.
Without some semblance of it, any initial excitement quickly turns into a lurking fear, a constant looking over the shoulders. Enter stablecoins, or coins that have value stable in fiat or other real-world assets.
One attempt is Tether, which is pegged to the U.S. dollar, but it was compromised recently. DAI, an asset backed by a basket of digital currencies, is another try but it is not yet ready for public utility due to its complex structure -- even though it has been under development for three years.
As regulation struggles to keep up in the blockchain space, state-issued stablecoins have become an increasingly important means of curbing some of this volatility. Curbing the volatility A state-issued stablecoin is an encrypted digital asset whose value is pegged 1:1 to a country’s fiat currency.
Such an asset would be able to withstand the unrestrained volatility of cryptocurrencies today. Bitcoin, whose value has been on the inexorable rise, is still subject to large price fluctuations and this unpredictability makes it an unreliable store of value. Tokenizing local currency on the blockchain will fill this gap and restore market confidence, all while providing Bitcoin and other cryptocurrencies time to mature and stabilize.
A stablecoin will also expedite the process of blockchain adoption, since it allows traders, merchants and consumers to complete transactions using a currency that is strong, steady and familiar to them.
A national stablecoin will also enable a government to monitor transactions, thereby curbing tax evasion and money laundering activities.
More on Forbes: Why Blockchain Is Real And Bitcoin Is A Mirage
Is this antithetical to the initial ideals of cryptocurrency and trustless decentralization? Perhaps. But it is one thing to have small, private payments using virtual currencies, and another to eliminate central-bank-issued money altogether and have corporation-scale transactions that are fully anonymous. The social costs of financial crimes would be too high and the global economy as we know it might go into meltdown.
Moreover, even if those issues can be addressed, full decentralization takes time; it is probably naïve to expect a fiat world to transform into a crypto one overnight. State-issued digital dollars would serve as the bridge for the fiat and crypto world, allowing for harmonious co-existence and mutual infrastructural support in the interim.
Whether we can transition fully to a new world economy with just cryptocurrency remains to be seen. Whether that is desirable, remains to be fought over.
State efforts to issue digital dollars are already underway: Russia is hoping to launch its very own CryptoRuble; Kyrgyzstan plans to create its own cryptocurrency backed with gold; the Swedish central bank has proposed an e-Krona; and China is arguably ahead of the pack with its tests to build a domestic cryptocurrency that will exist alongside the yuan.
Singapore might have the most to gain
A tourist boat travels past the city skyline in Singapore, on Wednesday, July 12, 2017. (Photographer: Nicky Loh/Bloomberg)
Singapore is also in the race. In 2016, the Monetary Authority of Singapore (MAS) announced the launch of Project Ubin, a payment system prototype on the Ethereum platform aimed at enabling local inter-bank transactions using a tokenized Singaporean dollar.
Major financial institutions including DBS Bank, UOB Bank, OCBC Bank and technology companies participated in the project. Project Ubin has since concluded two successful phases and launched software prototypes that transfer funds efficiently, protect transaction privacy, and mitigate the risks of a single point of failure.
The insights gained from these two phases will pave the way for further development of the digital SGD (e.g. scaling and cross-border payments).
More on Forbes: Putting Singapore's Dollar On Blockchain May Prove It's The Most Crypto Friendly Place On Earth
One can only speculate where Singapore currently stands relative to other countries in the scramble to launch a national stablecoin, but the larger point is this: It must emerge as the victor in this race to become the smart financial center it wants to be.
It must channel more resources into creating a roaring blockchain hub, one that will deliver economies of scale and attract even more developer talent, creating a positive feedback loop of growth.
Successfully launching its own stablecoin will allow the nation-state to sustain its first-mover advantage, enhance financial security, and develop the infrastructure for a thriving blockchain ecosystem, all of which will lead to greater adoption, fintech dominance and economic prosperity.
Discover more from Forbes here: https://www.forbes.com/sites/luuloi/2017/12/17/a-state-issued-coin-could-unleash-untapped-potential-...
Without some semblance of it, any initial excitement quickly turns into a lurking fear, a constant looking over the shoulders. Enter stablecoins, or coins that have value stable in fiat or other real-world assets.
One attempt is Tether, which is pegged to the U.S. dollar, but it was compromised recently. DAI, an asset backed by a basket of digital currencies, is another try but it is not yet ready for public utility due to its complex structure -- even though it has been under development for three years.
As regulation struggles to keep up in the blockchain space, state-issued stablecoins have become an increasingly important means of curbing some of this volatility. Curbing the volatility A state-issued stablecoin is an encrypted digital asset whose value is pegged 1:1 to a country’s fiat currency.
Such an asset would be able to withstand the unrestrained volatility of cryptocurrencies today. Bitcoin, whose value has been on the inexorable rise, is still subject to large price fluctuations and this unpredictability makes it an unreliable store of value. Tokenizing local currency on the blockchain will fill this gap and restore market confidence, all while providing Bitcoin and other cryptocurrencies time to mature and stabilize.
A stablecoin will also expedite the process of blockchain adoption, since it allows traders, merchants and consumers to complete transactions using a currency that is strong, steady and familiar to them.
A national stablecoin will also enable a government to monitor transactions, thereby curbing tax evasion and money laundering activities.
More on Forbes: Why Blockchain Is Real And Bitcoin Is A Mirage
Is this antithetical to the initial ideals of cryptocurrency and trustless decentralization? Perhaps. But it is one thing to have small, private payments using virtual currencies, and another to eliminate central-bank-issued money altogether and have corporation-scale transactions that are fully anonymous. The social costs of financial crimes would be too high and the global economy as we know it might go into meltdown.
Moreover, even if those issues can be addressed, full decentralization takes time; it is probably naïve to expect a fiat world to transform into a crypto one overnight. State-issued digital dollars would serve as the bridge for the fiat and crypto world, allowing for harmonious co-existence and mutual infrastructural support in the interim.
Whether we can transition fully to a new world economy with just cryptocurrency remains to be seen. Whether that is desirable, remains to be fought over.
State efforts to issue digital dollars are already underway: Russia is hoping to launch its very own CryptoRuble; Kyrgyzstan plans to create its own cryptocurrency backed with gold; the Swedish central bank has proposed an e-Krona; and China is arguably ahead of the pack with its tests to build a domestic cryptocurrency that will exist alongside the yuan.
Singapore might have the most to gain
A tourist boat travels past the city skyline in Singapore, on Wednesday, July 12, 2017. (Photographer: Nicky Loh/Bloomberg)
Singapore is also in the race. In 2016, the Monetary Authority of Singapore (MAS) announced the launch of Project Ubin, a payment system prototype on the Ethereum platform aimed at enabling local inter-bank transactions using a tokenized Singaporean dollar.
Major financial institutions including DBS Bank, UOB Bank, OCBC Bank and technology companies participated in the project. Project Ubin has since concluded two successful phases and launched software prototypes that transfer funds efficiently, protect transaction privacy, and mitigate the risks of a single point of failure.
The insights gained from these two phases will pave the way for further development of the digital SGD (e.g. scaling and cross-border payments).
More on Forbes: Putting Singapore's Dollar On Blockchain May Prove It's The Most Crypto Friendly Place On Earth
One can only speculate where Singapore currently stands relative to other countries in the scramble to launch a national stablecoin, but the larger point is this: It must emerge as the victor in this race to become the smart financial center it wants to be.
It must channel more resources into creating a roaring blockchain hub, one that will deliver economies of scale and attract even more developer talent, creating a positive feedback loop of growth.
Successfully launching its own stablecoin will allow the nation-state to sustain its first-mover advantage, enhance financial security, and develop the infrastructure for a thriving blockchain ecosystem, all of which will lead to greater adoption, fintech dominance and economic prosperity.
Discover more from Forbes here: https://www.forbes.com/sites/luuloi/2017/12/17/a-state-issued-coin-could-unleash-untapped-potential-...