Since the 1990s, cypherpunks have struggled to overcome a major problem when designing electronic currency:How to achieve decentralization while preventing double spending. Until 2008, this problem was creatively solved by Satoshi Nakamoto through blockchain technology and the Proof of Work (PoW) consensus mechanism. We all know the subsequent story.
After 15 years of development, Bitcoin still ranks first in the industry in terms of market capitalization. Ethereum and other decentralized application platforms have not been able to catch up, which shows its huge revolutionary significance. In this dimension, Bitcoin is undoubtedly successful. But from another perspective, Bitcoin is unsuccessful, that is, its original currency vision has not been achieved. No one uses Bitcoin in daily payments, and USD alternatives such as USDT that are anchored to legal currencies are now It also seems to have occupied the position of the settlement currency in the crypto industry, a position that should have belonged to Bitcoin.
Bitcoin seems to have drifted away from the purpose of its creation, a peer-to-peer electronic currency, and has become a crypto asset, the recognized digital gold of this era.
This is directly related to another key and unknown problem that Bitcoin fails to solve:How to keep the purchasing power of currency stable on the basis of decentralization. Satoshi Nakamoto did not consider this when designing, and the money supply is directly fixed to a limited total amount and an output method that is halved in 4 years. This makes the price of Bitcoin very unstable, causing us to have to settle for the next best thing and use a large number of centrally managed stablecoins such as USDT for payment and settlement.
Even though there are currently many Bitcoin believers trying to distort the fact that Bitcoin’s lack of supply adjustment mechanism will not affect Bitcoin’s use as a daily payment and settlement currency, they even regard this shortcoming as Bitcoin’s main advantage.But people around the world are voting with their feet. No one really wants to use Bitcoin, which is value storage-oriented and highly volatile, as a medium of daily payment. In addition, the data performance of the Bitcoin Lightning Network also verifies this fact.。
It is impossible for the entire crypto world to use the US dollar as a substitute for settlement for a long time. This is seriously contrary to our vision, but now it seems that Bitcoin cannot support this world currency ideal. Although few people have noticed the shortcomings of Bitcoins lack of money supply regulation, visionaries like Bitcoin OG and economist Lawrence have gradually emerged, constantly speaking out and hitting the nail on the head.Pointing out that gold’s purchasing power is more stable than Bitcoin’s. Recently, Brian, the CEO of Coinbase, a leading crypto exchange who started his career in Bitcoin trading, alsoPointing out that many people are unwilling to use BTC as an actual currency and proposing Flatcoin in this direction。
Flat means flat in economics, and The economy is now flat means that the economy has not undergone any significant changes (increase or decrease). Putting it in currency meansPurchasing power will not fluctuate drastically. In addition, Brian also made it clear that the purchasing power stablecoin should be decentralized, not anchored to legal currency, and track the consumer price index.
Due to the influence of Coinbase, the issue of money supply regulation that Satoshi Nakamoto chose to avoid fourteen years ago has once again been brought back to the center of the industry.“How to achieve decentralization, prevent double spending and maintain stable purchasing power at the same time”。
8 Big Risks of Indexing Flatcoin
Unfortunately, the index Flatcoin explored by Brian also faces major problems, which are mainly 8 risks in the process of pegging the index:
Centralized execution risk: Index linkage relies on a single point of execution by the management agency, and there is the possibility of malicious decoupling.
Risk of data fraud: Indexes published by companies or governments can be controlled and manipulated and do not reflect real market conditions.
Index base price risk: The index is priced in legal currency, but the price of the legal currency itself fails.
Risk of technical failure: technical distortion of the index itself, wrong source of market price
Assess scope risk: the index is unable to cover changes in demand and prices for a basket of items caused by technological progress
Representative risk: life needs are always changing, and index components and weights cannot represent real-time needs.
Data security risks: Data on the chain relies on external input, and oracles have security risks.
Manipulation risk: Hackers, big capital or powerful institutions manipulate index source data to profit from asymmetric risks
These 8 risks cannot be completely avoided. So is there a way to stabilize purchasing power without being linked to any published index?
Flatcoin based on gold supply regulation mechanism
We can first think carefully about gold, whose purchasing power remains stable for a long time. Although gold has withdrawn from the stage of daily payment currency due to the high circulation cost caused by its physical form, we can explore the principle of stable purchasing power from its monetary mechanism.
Historically, an important advantage of gold becoming a currency is that it has a natural purchasing power stabilization system, also known as a supply adjustment system.The system works effectively based on free market competition in the production costs and prices of gold and does not need to be linked to any index.。
An increase in the price of gold will stimulate more gold mining and reduce the use of gold in industry, jewelry, and collections. Individuals may even melt jewelry and cast it into gold bars, thereby increasing the supply of gold in the market. The price of gold decreases, gold mining ceases, industrial use increases, and more gold is made into jewelry collections, thereby reducing the gold circulation in the market. It is through this mechanism that gold can maintain relative purchasing power stability over the course of history and assume the role of a global large-scale daily settlement currency for a long time.
In other words, if there is a set that is the same as gold,With a cost mechanism and a free market to regulate the money supply, purchasing power stability can be achieved spontaneously.。
Bitcoin has the cost mechanism of gold, but it does not have a supply stabilization mechanism that can adjust currency output according to market demand., this is the reason why Bitcoin has long-term value but cannot maintain stable purchasing power.andAlmost all current algorithmic stablecoins lack a cost system similar to Bitcoin and gold., this is the reason why algorithmic stablecoins can maintain price stability in the short term but always collapse in the long term.
So is it possible to stand on the shoulders of the giant Bitcoin?Invent a cryptocurrency that truly has the same purchasing power stability principle as gold?
We can think and evaluate from the following 7 points:
Degree of decentralization:Achieve the same decentralization as Bitcoin, or even better, both in terms of technology and operations
Fair distribution of money:There is no reservation, pre-mining, private placement, etc. to achieve fair distribution and no one can avoid market competition to gain a share.
Effective control mechanism:It has a flexible money supply adjustment mechanism. Whether it is long-term or short-term adjustment, it is theoretically faster than gold supply adjustment, which can match long-term economic growth and smooth short-term price fluctuations.
Incentives:Reasonable incentives exist to promote the rapid development of currencies
Economic principles:It is supported by monetary economics theory and cannot violate basic economic principles to ensure the rationality of the model.
advanced technology:The public chain architecture system is more mature than Bitcoin and can support more technology and scenario requirements.
Cost of production:Has the same cost mechanism as Bitcoin or gold, such as PoW
If the above evaluation dimensions can be realized uniformly, then the money supply adjustment problem that Satoshi Nakamoto once avoided can be solved:We will get a purchasing power-stable electronic currency that simultaneously achieves decentralization, prevents double spending, and self-regulates the money supply., this seems to be an almost perfect currency system and will most likely be the greatest cryptocurrency after the emergence of Bitcoin and Ethereum. With this solid monetary foundation, the crypto industry will undoubtedly move toward greater development and prosperity.
We can see that Flatcoin can currently be divided into index-linked types and market-cost types similar to the gold supply adjustment mechanism. We believe and hope that the attempts and development of Flatcoin can bring us one step closer to the realization of that ideal and perfect currency vision.
