Government issued currencies versus cryptocurrency as a currency
Crypto is well known for being volatile. Cryptocurrencies cannot be used for everyday purchases and were never used to make payments because they were too volatile, with only pure speculation as their only application.
Despite the fact that 1 USD will always be worth 1 USD, the value of that same USD changes wildly in other currencies.
This reminded me of the in(famous) Bitcoin Black Paper by Nassim Taleb. In his opinion, Bitcoin or other volatile cryptocurrencies cannot be used for trading because you would need to pay your supplier in cryptocurrencies, and cryptocurrency prices might fluctuate a lot, and that would be bad for business.
How should we solve the problem?
The argument of stablecoins comes up. What about the stablecoins(BUSD,USDC,USDT etc), then? We’re back at square one with stablecoins: why not simply use fiat directly? Fiatcoins and flatcoins were discussed by Brian Armstrong. Fiatcoins are pegged to a currency, whereas flatcoins are not pegged to any currency, but are still relatively stable for cryptocurrency as a currency
Two kinds of stablecoins.
Fiatcoins are pegged to an external fiat currency like USD, directly or indirectly.
Flatcoins are newer. If fiat itself starts to inflate, it isn’t really “stable”. So a flatcoin optimizes instead for price flatness vs an on-chain basket of goods.
— Balaji Srinivasan (@balajis) June 7, 2021
Only drawback to flatcoins is that they fluctuate a lot more than stablecoins, and as far as I’m aware, most of them do not have a use case other than being a hedge against inflation INSIDE the crypto world.
The big question
Is it possible to save, spend, and receive payments using cryptocurrency in the real world today?
The answer is yes, but no. In Venezuela, RSV is the only crypto available for buying bread at the local bakery, getting a haircut or riding a taxi, or receiving payment. Reserve developed an app that lets people convert hyperinflated bolivars into RSV, a fiatcoin pegged to the USD, which tracks a basket of assets, but the transition from fiatcoin to flatcoin is still a long way off. Further, the Reserve Protocol mainnet hasn’t launched yet, so the app is centralized in the meantime (although they intend to have it transact on-chain and give users self-custody when it has).
If you want to learn more about Reserve: https://reserve.org/project/
My humble view, as someone still learning
For crypto adoption to be widespread, mass, and everyday, it needs to be backed by a decentralized, stable cryptocurrency that doesn’t tie to anything, but is something all its own, creating a crypto version of the Bretton Woods Basket.
To close this post, I’m going to quote none other than Vitalik himself about cryptocurrency as a currency:
The latter because I’m thinking about stablecoins. Some people think stablecoins are purely transition tech, and post-hypercryptoization BTC or ETH will be stable. I think there’s a big chance this is wrong and even post-hypercryptoization we would still need explicit stablecoins
— vitalik.eth (@VitalikButerin) September 1, 2021