![]() And while criticism of Libra has mainly been centered on how its governance mechanism is controlled by a few large corporations - the Switzerland-based Libra Association - Terra’s policy is coded directly on its blockchain and therefore is transparent and impervious to human interference. This is achieved using a second cryptocurrency, Luna, which acts as a monetary policy instrument and earns transaction fees as a form of reward. In contrast to Libra, it employs a form of automated monetary policy to keep its price stable, contracting the supply when prices are too low and expanding it when prices are too high. It’s less well-known in the U.S., but it’s an example of how stablecoins actually work in the wild - a blockchain currency with reliable value that normal people actually use. Terra (where Nicholas works) is a new stablecoin that has been adopted by several online merchants across Southeast Asia. Although there is still a lot of uncertainty surrounding the project, it might look more like Venmo, with people sending dollars through Facebook. Pushback from regulators and traditional financial institutions has induced Facebook to pull away from its original vision of a global currency that competed with monetary authorities. The highest profile attempt so far - and the most controversial - has been Facebook’s new, yet-to-be-released cryptocurrency project, Libra, which was supposed to be tied to a basket of short-term government securities and bank deposits in historically stable currencies such as U.S. Stablecoins have adopted a variety of approaches to solve this price volatility problem. ![]() Hanyecz was proving a point - this was the first instance of a good being purchased with a cryptocurrency - but the now-legendary story has also become an allegory of the pitfalls of using a notoriously volatile tender for day-to-day purchases. ![]() Today, this transaction would be worth almost $100 million. Hanyecz was a U.S.-based software programmer who agreed to pay someone 10,000 Bitcoin for two Domino’s pizzas (a fair price at a time when Bitcoin was worth only a fraction of a penny). Finding the Right Application for BlockchainĪs their name suggests, stablecoins distinguish themselves from their more popular but highly volatile cryptocurrecy brethren, such as Bitcoin, in their focus on price stability. In striving for stability from the start, stablecoins hope to avoid situations like the one experienced by Laszlo Hanyecz in 2010. Uniquely positioned to act as a medium of exchange in e-commerce, stablecoins enhance both the efficiency and reach of e-commerce. But now, one promising category of cryptocurrencies known as “stablecoins” seems poised to succeed where its predecessors failed. While it has found a place in niches such as supply chains and digital IDs, problems like price volatility and the need to comply with the existing regulatory framework have prevented mainstream adoption in currency. For all the hype around blockchain - the open-source digital ledgers that many have argued will do everything from make cash obsolete to remake the global economy - it can sometimes seem like a solution looking for a problem. For that to come to pass, however, four conditions need to align: appropriate technology, consumer demand, corporate champions, and an amenable regulatory environment. ![]() Because just as Paypal and eBay (or Alipay and Taobao, if you prefer) revolutionized how people shopped online and Amazon changed how people shop, full stop, digital payment services - powered by blockchain technology - could be the next great upheaval in global e-commerce growth. Speaking at Stanford, Federal Reserve Governor Lael Brainard noted that the “potential for digitalization to deliver greater value and convenience at lower cost” has piqued the interest of the traditionally risk-averse institution.įor now, the Fed’s interest in digital currency might be most notable as a sign of how the world has changed - and where the winds are blowing. But this winter, the Federal Reserve announced that it’s investigating the possibility of issuing its own digital coin. Digital currencies, such as Bitcoin, were the purview of speculators and coders, not stodgy central bankers. government might mint its own digital currency, you might have dismissed the idea as starry-eyed futurism - or, less charitably, a joke. A few years ago, if you had heard that the U.S. ![]()
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