How to explain Ampleforth (AMPL) to Grandmother.

By CryptoBible00789 | #ELI5AMPL | 2 Jan 2021

A Letter to Grandmother.

Introduction.

In the wake of the 2008 financial crisis, an anonymous but genius computer programmer named Satoshi Nakamoto created the Bitcoin whitepaper [Figure 1] and sparked a whole new asset class of internet money. Unique about his Bitcoin is that this global electronic peer-to-peer and trusless money network has a maximum supply of only 21 million BTC, no more can ever be created. Just like gold it is the perfect reserve asset and store of wealth, properties derived from a remarkable characteristic: scarcity. And besides these amazing properties, cryptocurrencies finally offer the ability to include everyone into a better world, especially the more than 2 billion unbanked people, who never entered a bank or received credit in their lives.

And just like Central Banks create(d) ever more fiat money, reducing the global middle class worker's share of money compared to the continuously growing amount of printed money, this revolution of crypto entrepreneurs decided to cut out this corruption and political meddling and created sound and cryptographic protected money protocols, not subject to counterfeiting, once launched.

Because money has several completely different usecases, not a single blockchain or algorithm can cover all the bases. This is why we will need a network of interoperable money-blockchains, all specialized in a unique money-usecase, but able to talk to one another in (a) computer language(s).

What does ideal money look like and why did Ampleforth make its blockchain?

A lesson from history.

Most of the older generation remember the (German) Weimar Republic hyperinflation, a monetary nightmare brought upon the German people due to the government's excessive money printing without any economic resources to back it up, all in a plot to win a war the country couldn't afford. What should be clear is that our current printing of money (quantitative easing, since 2008) should by now have warned us about what might come in a later phase of our current modern monetary theory driven financial system, a financial elite consensus claiming that you can print wealth without investing in jobs and productivity growth. Just like in the history books, this financial engineering experiment will lead to the inability to control an outcome such as stagflation or hyperinflation, two much-feared but yet possible scenarios that threaten to become a reality if we continue on this path.

What would the perfect every day money look like?

Ideally, workers would get paid for their work and efforts with sound money, a form of money that rewards and stores the value of their labor and attribution to productivity growth long enough for them to spend it without losing any purchasing power. Today that is not the case. The real loss of purchasing power is higher than any country's consumer price index claims, because it is very easy to exclude big expenses like a house from the index, just to make a fake point that the rate of inflation (loss of purchasing power) is limited to the targeted 2%.

But money 'does' need to lose 'some' purchasing power over time, or nobody would spend it, resulting in loss of economic growth. For centuries, economics have struggled with this dilemma and tried to tame this horse: all have failed.

A need for 'elastic' money.

The lessons of our financial history show us that money's value is only stable when backed by a gold standard, limiting politician's flexibility to get re-elected after spending lots of cash. It also means that people can not borrow from the future by creating more money in ratio to the treasury gold holdings that reflect their real wealth. This means that gold is the bankers and politicians enemy, and must be suppressed, in an attempt to make people believe that governmental approved and banking produced fiat money is far more valuable. And fiat money can be printed, ... and printed, like magic.

Many economics and great thinkers (IMF) reached a consensus that we are in fact on a wrong path, and are discussing a world where everyone is included (agenda 2030). This new utopia's monetary system will need to be negotiated in something called 'the big reset' and will replace the agreements made during the 1944 Bretton Woods Negotiations. The creation of money will become the work of the developing fintech industry and will give birth to the internet of money and value.

Bitcoin (BTC) can replace the role of gold to create much needed trust in this new monetary system as people are losing trust in their current fiat currencies. Furthermore today's geopolitical circumstances do no longer reflect the new world order created in 1944, when the United States received the privilege to guard and issue the global reserve currency: the US Dollar. 75 years onward the world has changed and China has now become a leading economy and competitor to the USA.

During this monetary reset including the much-needed debt jubilee, the new financial system can only be adopted successfully if enough people trust it, making the further adoption of Bitcoin necessary. Bitcoin is not Chinese nor does it belong to the USA: it is fully decentralized, although China controls a big part of the creation of new Bitcoins through a process called 'mining'. During 2020 a significant number or Wall Street veterans started to fill their Bitcoin wallets in an attempt to preserve their wealth and transfer it into the new system.

So we have our backbone: Bitcoin. We have an application layer: Ethereum. And we need an elastic supply of daily usable sound money: enter Ampleforth.

Ampleforth.

Introduction.

Ampleforth is an Ethereum-based cryptocurrency with an algorithmically adjusted circulating supply and is the first of its kind 'rebasing' cryptocurrency. To design this base money of the new decentralized economy the AMPL-developers decided to provide an asset that meets all the criteria of sound money.

Sound or ideal money needs to be:

a Unit of Account;
a Store of Value;
a Medium of Exchange.

Fiat (government and central bank issued) money fulfills only 2 out of the 3 parameters as it only stores its value during a short period (months), yet over the long time (years or decades) it loses too much of its value. Therefore it can not be considered a reliable store of value. Gold, which has been a store of value for millennia, has supply problems. You can not create enough gold to meet demand (economy can grow stronger than the annual gold mining), so gold prices fluctuate on the short time-frame, making it unfit as a reliable medium of exchange. Bitcoin is a better medium of exchange than gold yet people and now big Wall Street companies are 'hodling' it as a hedge against the (hyper)inflation they fear will come due to the excessive money creation since the start of the first round of 'quantitative easing' (2008). So today it is hard to imagine people paying for coffee with Bitcoin, they rather use it for wealth-preservation.

Conclusion: 'Houston, we have a problem'. To save money for a longer period such as a few years or even decades, people can absolutely 'not' rely on fiat money (USD, EUR), yet often lack the insight that they can save in gold. Nor do they have enough financial knowledge to escape the traps set by the numerous scams that all make a claim on the same ounces of gold they don't have in their possession. Bitcoin solves many of those issues: the ledger is public, therefore the real amount of existing Bitcoins is always known to everyone capable of using a blockexplorer, but compared to gold Bitcoin is even harder to understand for the average person.

Ampleforth looks similar to a stable-coin yet offers an elastic supply chain, in which 1 AMPL varies between a maximum of $1.06, and a minimum of $0.96. The overall goal of the Ampleforth protocol is to constantly move the price towards ~$1.

Currently central banks can only create extra fiat money when needed to boost an economy or bailout '2 big 2 fail' banking conglomerates, but when the economy overheats and needs to cool down, or they need to sharply limit the supply of money during inflationary spikes or even hyperinflation, they have no tools to destroy a part of the circulating fiat money supply.

Ampleforth has the necessary tools to do this, and its protocol will set an example for Central Banks when they design their CBDC-(Central Bank Digital Currencies) protocols.

But there is more...

Amplefort doesn't offer you an AMPL token amount but an AMPL token share!

In all other cryptocurrency projects people hold or trade a certain number of tokens, not a share of the overall circulating token supply. With Ampleforth, token holders own a fixed fraction of the total AMPL circulating supply, rather than a fixed number of AMPL tokens. When the protocol detects that the price of AMPL is too high, it increases the circulating supply, whereas the supply is decreased if the price is too low.

Let's explain this with a huge contemporary conflict: the US-China tradewar. What follows ('') is a symbolic explanation of one of the frictions between the two superpowers.

'We know that China holds a significant amount of USD. Let's for argument sake say 4%. That gave them a 4% share of the total USD in worldwide circulation and a certain global purchasing power or wealth. When the US Federal Reserve bank later bails out banks or other players, prints money with a push on the keyboard and doubles for argument sake the total supply of USD, the Chinese see their share half to only 2%. For the USA this relieves their national problems for the time being, but in the long run they risk that China will no longer want to trade their labor for USD, because they have no control over it. Would you appreciate getting paid in a currency, knowing that the issuer of the currency can destroy the purchasing power it represents?

If the US had the ability to intervene, yet protect China's global USD marketshare, the solution might be more acceptable for China. In other words: what the Federal Reserve needs is the ability to manage the money supply with elasticity.'

What are the future plans for Ampleforth?

After the successful introduction of AMPL elastic tokens to the DeFi community, Ampleforth plans to build out its next phase: Elastic Finance Stack (EFS). This project will anchor AMPL's reputation as a monetary innovative building block for the next generation of finance.

At the core of its Elastic Finance Stack will be the Ampleforth Foundation. On top of this foundation Ampleforth will build liquidity, lending and derivatives purposes. Ampleforth's 'EFS' will operate multichain and provide the necessary cross chain bridges.