I have been thinking a whole lot about a big portion of the problems associated with the Crypto space. I recently asked myself a question; What do I want out of a cryptocurrency? If I had the team and the bankroll to create my own blockchain technology, how would I do it? what would it look like?
That's a huge question and I know that I'm just another random-ass Internet Asshole. What the hell do I know? Admittedly, not enough. I am COMPLETELY WILLING to hear your criticisms of this. Are there other ways? What would you do? Tell me!
In any case, here goes:
A Cryptocurrency Is a Currency.
This is the first step. If you read my previous article, I went over the basics of how a currency is defined, and I think these are the foundation by which I should build my ideal technology. So, here's the thoughts for each definition:
Medium of Exchange.
- The crypto should be easily and swiftly transferable between people. This means that there should be little lag between sending and receiving. Seconds. The technology should also have the ability to scale and maintain this speed over time.
- To reach this, we might have to explore alternatives to traditional blockchain technology. Holochain and DAG (Directed Acyclic Graphs) have shown promise, and I think more research into these should be undertaken. We don't want to abandon the decentralized ledger, but rather find more efficient ways to go about having a decentralized ledger.
- It should be feeless. This is a big one, especially if the Crypto wants to become a major competitor in the space. Visa and other card/centralized baning technologies are the default, and with it comes fees. No fees means extreme competition.
- It should be stupidly easy to use. Your grandma should be able to use this as readily as she can a credit card. Mobile usage will be the gold standard here; the apps should be easy. One great tech would be the ability to have the long strings of letters for say wallet addresses should be easily managed with a plain english username proxy. That would be one way to get it done, and it has been done before.
Unit of Account.
- In order to be a unit of account, there needs to be adoption. Adoption is the biggest hurdle to the industry, and it is the number one thing that will make or break the crypto space. More people need to use it. That will help it to become a common unit by which the prices of goods and services are compared. In order to make this happen, the technology has to be solid medium of exchange! See, that was the first one. Imagine for a moment you could:
1.) Entice vendors to both recieve payments and send payments with NO FEES.
2.) Grow the user base Rapidly with incentives.
These two pieces together will make adoption incredibly easy. And I think it can be done.
Store of Value. (This is The Big One)
- First and Foremost, this means STABILITY! This shit needs to be more stable than than a middle aged dad who likes to build ships in a bottle as a hobby. How could that be done? I think the crypto should DEFNITELY be a stablecoin. However, I think that collateralization based on traditional fiat currencies would be folly; this would only serve to introduce implicit dependencies to traditional fiat that would undermine the purpose in the first place. Basing it on some commodity would do the same thing. So maybe to collateralize it based on the Crypto Market would be the best bet. Keep your decentralized currency contingent on other decentralized currencies. Of course, DAI already does this, and I commend the effort. But just as a thought, how would I do it? Here's an idea I have been working on for a while now:
1.) Do the research into the trends between the top 100+ market cap cryptocurrencies. We want to say, find ten pairs of cryptocurrencies that consistently maintain opposite trends to each other, and have lasting power. This means that you want a negative correlation between the two as much as possible. When one goes up, the other goes down. You might notice that some folks like to say, buy the top ten market cap currencies in equal measure and see how they do over time. While on the surface it seems like a good diversification strategy, it is not. The top ten market caps tend to move tightly together. When one drops, the others drop as well. When you have as much negative correlation as possible, you know that one will likely balance out the other. Here's a chart that takes a look at the correlations between cryptos:
Many Currencies Could Be Used For This Purpose!
2.) Buy a portion of interest in every negatively correlated pair, based on the magnitude of negative correlation. The total value of this initial portfolio will be the basis for the number of initially issued coins in the pair. Say we pegged it precisely to the US dollar, then our initial supply could be calculated as:
1.00 = (Value of negatively correlated portfolio) / Total supply of Stablecoins
Which would mean:
Total Supply = (Value of Negatively Correlated Portfolio).
So, the total supply is equal to the value of the portfolio. If the portfolio is worth say, 10,000 dollars, then there are 10,000 stablecoins for total supply. This becomes rather problematic at first glance because that would mean in order to have a large amount of coins to circulate, you would need to have a massive portfolio, which would be a really tall order for a startup. So, instead of keeping at at the traditional 1.00, say you made the stablecoin equal to 0.01 USD:
0.01 USD = (Value of Negatively Correlated Portfolio in USD) / Total Supply of Stablecoins.
Which would mean:
Total Supply of Stablecoins = (Value of Negatively Correlated Portfolio in USD) / 0.01
Ah, that's better. Now we have 100 times the supply of stablecoins. if you have a 10,000 dollar portfolio, then you have a million StablePennies!
Now I know what you're thinking; It's technically still pegged to the USD in some way. True.. to an extent. I surmise that this method would mitigate that implicit dependency rather sufficiently. This is still very much divorced from direct collateralization, which has its problems (like maintaining trust in that the collateral is ACTUALLY there. Looking at you, Tether).
Now this by itself has some issues; First a single portfolio is rather... centralized. Second, there's no guarantee that the correlations between the cryptocurrencies would stay that way over time. There has to be a mechanism in place to both make the portfolio incapable of being manipulated by one actor or organization, while ensuring that the the price of the stablecoin stays... well, stable. How do we do it? I say make it the job of nodes in the network.
A Network of "Maintenance Nodes" Is Responsible for Maintaining Price Stability. So, this is how I think this should be done:
- Nodes, like on other networks, lend forth minimal computing power (presumably much less than traditional PoW Blockchains) to verify and maintain the standard price. Every node in the system would be responsible for "checking" the prices based on exchange data, volume, etc. of the negatively correlated pairs. Essentially, each node would analyze the market and establish a price change based on the analysis. A consensus mechanism could be put into place where the nodes "cross check" with the others in order to get a price within say, a particular tolerance. Then, when consensus occurs, changes to the base portfolio are made and processed in order to maintain the price. In effect, the entire network becomes a large scale distributed computing project whose goal is to:
1.) verify network transactions.
2.) maintain coin stability.
The precise setup would require more thinking and a lot of programming, but I believe a protocol - something you could call a "Proof of Correction", would be leveraged. The reason for using negatively - or minimally - correlated currency pairs would be to minimize volatility, and maximize success of keeping the coin price stable. The end goal would be to keep the net gain (or loss) of the portfolio to zero, thereby assuring stability. Also, by minimizing volatility inherently, one might be able to also minimize the power necessary to analyze and correct the price of the stablecoin. That's a little speculation on my end, but it makes sense.
How Would One Incentivize This? Well, This is where things get interesting. I tentatively propose that an "auxiliary coin" be used as a reward for this maintenance. This coin would be allowed to fluctuate and change based on inflows and outflows in much the same way a stock in a company would fluctuate, or say other cryptocurrencies. These would be paid to the nodes, have a larger supply, and be used for say other auxiliary use cases such as Dapps, whatever.
Come on, Ginger Man! Why go through all the trouble to create a stable crypto - just to create another that's volatile like the rest?
This is an easy question to answer. I think one of the things that drew a lot of us to the space was the idea of investment and speculation. I wanna keep keep that. Investment and speculation shouldn't go away in a world with a stable, widely adopted cryptocurrency. These types of rewards make things better. In order to mitigate any potential capitulation, the reward could be "split". A portion of rewards are issued in the volatile currency and the other in the stable currency. Rewards would be distributed evenly across the board; if you participate in the action of correcting the currency, you get rewarded. Want to earn more? Create more nodes to help do work in the system. You'd want to set it up where the more nodes you have, the more potential stability you have at your fingertips.
Here's Another Fun Idea: Wanna make it really easy for damn near anybody to participate in the node stuff? Make different levels of nodes; a Tier Two Node would perform basic calculations that wouldn't bee too arduous for say, an ARM processor on a smart phone. Have people run it, integrate it with a wallet and boom, you can have thousands of folks running these Tier Two Nodes. Wanna put some more "Oomph" behind your "Nodiness"? Have a Tier One Node Program that uses dedicated hardware, or runs on a desktop/laptop and does more work to verify transactions. Reward users according to what node they end up running. You can also have a stipulation where say, you want to increase the supply. One could have folks volunteer a sliver of their rewards to the portfolio to be used as a supply increasing mechanism.
One thing I haven't really focused on here is the actual economics of the coin itself. Sure, we might be able to maintain a stable price based on the portfolio, but what of the inflows and outflows of the coin itself? This might be something that would have to be taken into account in addition to the portfolio, and weighed against it.
I don't think much of this would necessarily be revolutionary, and I figure that there are probably projects out there that do something on the lines of what I propose. If so, I would love to hear about them. I by NO MEANS have all the answers, and I'm sure my readers can come up with some pretty Far-Out ideas that would put me to shame.
BUT Thank you SO SO MUCH for reading, I really appreciate it. Please follow and read some of my backlog if you enjoyed.