Today's Crypto was brought to my attention by a reader, and I gotta be honest; It seems pretty solid. It's one of these few cryptos that takes a really hard look at the economics and says, "hey, we can economic the SHIT outta this". It's clean, it's sensible, and it takes some rather high level concepts and makes them relatively easy to understand for your rank and file investor. That's something that appeals to me greatly. I like it so much, that I wanna wear a trenchcoat and flash it in a Walmart parking lot.
Results May Vary.
BUT I'm getting ahead of myself here and frankly, that's unfair. Look at what I just did! I poisoned the well by talking it up! Well, that's okay. After all would you expect anything less from your Friendly Neighborhood Internet Asshole™? There are things that I take issue with in this project as well, so I'll be balanced and let you know what I think of that. Let's get down to it.
The Journey to Stability
Cryptocurrency is a new market. Due to many reasons, it is also a ridiculously volatile market as it stands. If you went up to a typical traditional market investor and said, "Hey! Your stock is gonna lose 30 percent of its total value today!" the investor in short order would likely do two things:
1.) Shit his or her pants on the spot.
2.) Have a stroke while trying to sell off their position.
See, we Crypto enthusiasts are... made up of something a little different. For us, that's just another day at the office. We learn the hard way that the journey is often more important than the present location, and we learned to HODL the shit outta our volatile assets, hold the line and wait until we get back into a better place. Hell, we BUY more while the Crypto market is getting its ass kicked on the pavement. They don't call this the wild west for no reason, folks.
While this makes for potentially massive gains for speculators and a great bit of excitement, it is ultimately not the best thing in the world, especially if we are gonna call what we invest in a currency. As you might have learned in my previous excursion, currencies have great utility if they're stable, and even greater utility if they're stable over a long period of time. Combine that with the fact that the major market cap cryptos tend to correlate pretty well with bitcoin, and we have ourselves a bit of a problem; when Bitcoin falls, the entire damn market falls. Conversely, when Bitcoin is up, the Alts tend to be up as well. This correlation is rather nasty in the bad times, and Ampleforth wants to change that.
The Basic Motivation (WHITEPAPER HERE)
So, the whitepaper starts out with giving us a nice little introductory course in what exactly money is, and why it's considered useful. They break down money into categories based on their status in two areas: Their scarcity and use value. They made this little chart here to show us the differences:
They refer to crypto as a "Synthetic Commodity" which makes a lot of sense when you think about it this way. For example, Gold is absolutely scarce and can be used as something other than money. Fiat on the other hand, has no no use outside of money, and we can print as much of it as we could ever want. A synthetic commodity holds a particular place where it has no use outside of money and can be scarce! That's one of the reasons why there's a max supply; with blockchain it is effectively impossible to counterfeit or make more Bitcoin unless the protocol itself is fundamentally changed to do that. That's not as easy as it sounds, and it introduces scarcity into something that you would normally think would be rather hard to do. The paper mentions that crypto is very unique in this sense.
Oh, in case you were wondering, a Coase Durable is related to something called the Coase Conjecture Which deals with how a monopolist should price a durable good and so on... it's out of the context of this article. But it IS some really interesting economic reading and I recommend you go and read it if you have time. In short, a Coase Durable is something that has a non monetary use but is also not absolutely scarce. This is rather hard to visualize, but one could imagine a context where say, the air you breathe would be an example. While you're on earth, you're in the presence of an effectively unlimited supply of air, and it has real world use.
In any case, the paper puts forth that "Synthetic Commodities" are placed in a really interesting position that has only become possible recently in terms of what we call money, is volatile, but mostly uncorrelated with traditional markets, and is rather well correlated with the crypto market. The idea? Uncouple correlation - as well as can be done - with everything. How in Merlin's Gimp Suit is that supposed to happen?
I Spend FAR Too Much Time On Stupid Shit.
Okie Dokie, this is how they propose to do this. The major goal is to take in price action and information from exchanges on the buying and selling of Ample adjust the supply accordingly. Ah, simple in statement, but the specifics are a bit more complicated. The major goal is to reach what they call Price-Supply Equilibrium, and this in effect takes the price of Ample and keeps it at a particular target. In our case, it is one United States Dollar.
Notice The Operative Term Here: They want to Adjust the SUPPLY of Ample to maintain Price-Supply equilibrium. This is interesting, because it's actually not something that I figure many - if any - other crypto projects do. Imagine for a moment that the protocols of Bitcoin changed continuously to keep the price of BTC at say... 6000.00 USD. That would be insane! But, when you think about it, it makes A WHOLE lot of sense if you're trying to "un-volatile" your currency. At a high level, the supply and demand for a crypto can be roughly analyzed by the inflows and outflows of the currency through the exchanges. control the inflows and outflows, and you control the price. That's essentially what they wanna do; Instead of having a volatile price, they are making a volatile supply. If it's a little unclear still what is going on, here's their example that shows you how it all works:
- Equilibrium 1 :
Alice has 1 Ample worth $1.
- Demand Increases :
Alice has 1 Ample worth $2.
- Equilibrium 2 :
Alice has 2 Amples each worth $1.
That blows my mind; They keep the price steady in terms of total balance by fluctuating the number of coins the user has! Again insanity right? Well, yes (in a cool way) and no; The way their protocol is set, your "percentage ownership" of the asset holder doesn't change; you essentially have what you started with, and that only changes if you choose to buy or sell.
I don't want to bore you with the math because others have covered the basics of it pretty damn well (And Mr. CryptoWiki has more followers than I do, which makes him by default better than me. FOLLOW HIM, good stuff), but it deals with adjusting the supply to fit the equilibrium goal (1.00 USD) and "smoothing out" the price once they get there. I think it is an ambitious, unique and interesting project. But... while I know that they're still working on it, I have some concerns about its potential use as a currency. In the mid to long term goals, they envision Ampleforth as alternative to central bank money and a collateral in decentralized banking systems.
The biggest thing is that as of right now, the coin still follows the market. This is very much evident with the recent boom and the ensuing "Corona-Bust" that occurred with the market. They went up, then dropped just like everyone else. And yes, as adoption moves forward and more people use it, their protocol might have more volume and such to work with to reach its intended goal.
My biggest question is: What will happen to Ampleforth's price action post BTC halving? That is gonna be a wild ride to see.
But, what the hell do I know? Their explanations are clean, and that's something I can get behind. Economics is really hard. If I missed something, tell me how I missed it and correct me. I love being wrong, because honestly, that drives more user interaction. Call me a dickwad or something. I don't really care.
Thank you SO SO much for reading, I REALLY appreciate it. If you liked this little foray into a complex Crypto topic by a guy who is mostly unqualified to be talking about things like this, then please, check out my back log and give me a follow.
Until Next time, keep your eye on the markets and keep your wallets filled with an Ample supply.
BONUS FACT: I just watched Cats on DVD yesterday and was traumatised by a spread-eagled Rebel Wilson in a furry costume. Jesus, that movie is scary.
BONUS FACT TO SUPPLEMENT THE BONUS FACT: Did you know that Cats supposedly has a "Butthole Cut"? I'm ready for the Taylor Swift Scene in that one.