I have to concede that actually is one of the use cases for cryptocurrencies or more concretely: stable coins.
I guess using cryptocurrencies make sense if you are completely left to your own devices and can't rely on the government for help.
I'm just worried how this will turn out long term:
- Is using a cryptocurrency run by a company registered in Hong Kong, backed by a bank on the Bahamas really that great of an idea?
- Are large parts of the population able to store their assets correctly. Are they storing their coins on their own wallets or are they using exchanges. If they use exchanges, does the government have an interest in letting them do whatever or are they imposing sanctions? If they store their coins in their own wallets, is the majority of the population able to properly secure their assets?
- Will mining operations have an impact on the existing infrastructure if it becomes to profitable. I can totally see mining operations by powerful individuals prioritizing their profit over a nearby town's electricity needs.
But most importantly: what will happen if the value of cryptocurrencies decreases or even crashes? I don't see regular people highly invested in crypto just walking away from a crash.
Also - to preempt any statements about USDT having a higher backing rate than most banks... US banks have something USDT doesn't - FDIC account insurance. When it comes to banks the buck doesn't stop with the bank - it stops with the US government.
AFAIK there are no FDIC insured stable coins - there's apparently USDF[1] which is being promoted by FDIC insured banks but the coins themselves aren't subject to FDIC insuring and could quite possibly either bankrupt the backing entity or be abandoned in the case of a bank run.
In that case, and with the caveat that deposit insurance is wired and uncertain at the best of times, that makes stablecoin a regulated bank.
This makes it for for the user. I don't see how a bank can comply with banking law though. How does a bank prevent criminals, sanctioned orgs, money launderers or whatnot from using it?
It's possible that regulators will leave a loophole like this in play. They aren't always sharp.
What that is, is a bank where account are a wallet. It's still a USD bank account.
When you think about it, banks simply agree to transact with each other and thereby offer a payment network. When you have a Chase bank account what your balance is showing is how many "Chase dollars" Chase is owing you. Those dollars can be redeemed 1:1 for physical dollars.
>If the total outstanding coins isn't fully backed by real USD, then that bank will eventually run.
Well, the way banks operate they also only need to keep a fraction of their deposits liquid and immediately withdrawable. However, there is one big difference here. The Fed is actually the one providing the inter bank payment infrastructure with so called bank reserves which can only be held on servers owned by the Fed. A lot of the QE stuff is just there to make treasuries as liquid as deposits. It's not money printing. It's more like lending liquid money in bank accounts that isn't locked up via a certificate of deposit.
The big problem that Tether and so on have is that the central bank isn't on their side. So the only safe investment is just plain dollars. Running an unregulated bank is going to backfire at some point.
One version of a stablecoin is. There are lots of other forms (ex: algorithmic stablecoins) that are transparently backed by other assets that you yourself can audit.
UST is an algorithmic stablecoin and briefly de-pegged when it had a "bank run", but the incentives to keep it pegged ultimately won. As long as LUNA doesn't go to 0, then UST should always re-peg (theoretically).
What's interesting with most stable coins is that you end up trusting a third-party anyway, so a blockchain or a trustless technology serves no purpose there, if you just trade in this cryptocurrency. Technically (not legally) speaking, the USDT mentioned in the article could be replaced by another token pegged to the USD delivered by a company based in the US and allowing Lebanese clients to transact in it, everything via a regular website and database on which transactions would happen.
In these unstable countries you can see people walking away from cash. How much inflation in the US and around the world will people tolerate before diversifying into crypto. Looks like the ball is already rolling.
The market cap for bitcoin is only a trillion, once it's up to around 100 trillion the price will be a lot more stable just like the dollar itself.
> How much inflation in the US and around the world will people tolerate before diversifying into crypto.
Diversifying from cash (which is impacted by inflation) into (most) cryptoassets with such volatilities doesn't make sense. People who have cash rather than appreciating assets want zero risk and some idea of how much they'll still have in one year. Cryptoassets don't provide that.
> once it's up to around 100 trillion the price will be a lot more stable just like the dollar itself.
Why? You seem to imply that USD is stable because of how big it is. I'm not sure where you get that from. The Fed targets a 2% inflation, so by definition, when it doesn't fail, the USD is stable.
If market cap is really the relevant metric, then you might as well compare BTC and CHF, and you'll reach your threshold faster.
USD is manually managed to ‘tax’ holders 3% per year in the form of inflation. It is stable, but you do pay for that stability.
Bitcoin on the other hand is not centrally managed for better or worse. It relies on a broad number of holders to ensure stability. Any small crytpo currency is a lot more volatile due to whales rocking the boat. At 100 trillion, there are no whales big enough to move the market significantly on their own.
> At 100 trillion, there are no whales big enough to move the market significantly on their own.
So you're saying that if the market cap of BTC increases, that necessarily means that whales have less power. I could sympathize with this argument if that a bigger market cap entailed that BTC would be well spread among independent actors (that would thus compensate each other's behavior), but there's no evidence for this. Wealth inequality is increasing in a lot of places, why do you think it's not the case for BTC? Of course we can't know given the pseudonymous nature of the ledger, but I wouldn't bet on this.
Now, even if I grant you that, that's just one cause of instability, and there are many others. When Elon Musk influences the BTC/USD rate using social networks, he's not acting as a whale, he's just acting as a celebrity. It's also unclear how BTC will perform through the next financial crisis, but I don't think it'll be the last asset people will sell during a panic.
Practically speaking, there's also little sign of the volatility of BTC going down. So either its usage is not spreading, or its stability has little to do with how spread it is, but you can't have both.
> Is using a cryptocurrency run by a company registered in Hong Kong, backed by a bank on the Bahamas really that great of an idea?
No, but I've never had Binance or Localbitcoins steal my money, Paypal and banks have done so, and I've been using both for around the same time.
> Are large parts of the population able to store their assets correctly.
With great power comes great responsability.
> Are they storing their coins on their own wallets or are they using exchanges.
Usdt over binance (0 fees) seems to be popular with a lot of people that don't want to deal with bitcoin's swings. Most people aren't using USDT real (-ish[0] erc20) wallets because it costs $30 to $60 to send anything. USDT over Bitcoin Lightning (already in the works) will fix this.
> If they use exchanges, does the government have an interest in letting them do whatever or are they imposing sanctions?
Lightning will fix this, it will make exchanges not hold any coins at all, thus they will be unseizable as everything will be done over Lightning,
> If they store their coins in their own wallets, is the majority of the population able to properly secure their assets?
I expect aunt Jane will be using a centralized entity that can recover her funds for her, young people, like anyone under 40 will use Lightning and enjoy their freedom.
> Will mining operations have an impact on the existing infrastructure if it becomes to profitable.
Lightning, halving cycles, etc will reduce mining, though maybe not fast enough if you're thinking in terms of climate change. Reminder that the US military is the single largest polluter in the world, not Bitcoin.
> But most importantly: what will happen if the value of cryptocurrencies decreases or even crashes?
Bitcoin will never crash, when enough people use it, but it might crash a few times before we get there (e.g. covid crash).
[0] It's realISH because ERC20 runs on Ethereum, which is not a real decentralized system like Bitcoin, and the upcoming switch to Proof of Stake switch will only make it more centralized/brittle.
Lightning is a very bad solution for a problem that should not exist. It fragments people from being on the actual bitcoin network to being in tiny side channels that still need to sync with the main chain. It solves the problem of someone being able to send a hundred small transactions to the same person, which is a use case that never happens.
Bitcoin is only congested because it has the bandwidth of a 28.8 modem (700KB blocks every 10 minutes)
I guess using cryptocurrencies make sense if you are completely left to your own devices and can't rely on the government for help.
I'm just worried how this will turn out long term:
- Is using a cryptocurrency run by a company registered in Hong Kong, backed by a bank on the Bahamas really that great of an idea? - Are large parts of the population able to store their assets correctly. Are they storing their coins on their own wallets or are they using exchanges. If they use exchanges, does the government have an interest in letting them do whatever or are they imposing sanctions? If they store their coins in their own wallets, is the majority of the population able to properly secure their assets? - Will mining operations have an impact on the existing infrastructure if it becomes to profitable. I can totally see mining operations by powerful individuals prioritizing their profit over a nearby town's electricity needs.
But most importantly: what will happen if the value of cryptocurrencies decreases or even crashes? I don't see regular people highly invested in crypto just walking away from a crash.