From Cryptocurrency to Stablecoin : Danger which no one’s thought of.
Updated: Sep 10, 2020
From the 1st day that Bitcoin was created, it is the beginning attempt from the private sectors to reduce roles and powers of Government especially monetary policy implementations from central banks around the world. The first attempt is to keep away from Government or commercial banks to involve any financial transactions. As a result, many cryptocurrencies have been created where users have to log in and use Blockchain to check and verify ownership.
From the previous article, the author has referred to many evidences to show that human’s cryptocurrency development which has been created to meet all of the above demands mentioned earlier. Instead, it’s the way to “increase” world’s energy usage and release enormous amount of heat from related activities, and nobody has mentioned about this issue much. For example, there is an estimation about the amount of electricity usage while using internet to “Mine” new cryptocurrency and keep data as “Chain” spreading to each node (as we call it Blockchain technology), only for Bitcoin, its annual electricity usage is equal to that of the usage in the whole country of Switzerland! All these activities lead human to face with the “accelerator” which is another factor that is worsening the Global warming astonishingly.
So far, it is lucky for the world that cryptocurrency cannot prove itself to be an “intermediary of exchange” to serve the purpose it’s been established or even as being “asset” worth investing reflects from the fluctuations of Bitcoin price or other cryptocurrency prices. Especially, now that the price decreases extremely (More than 30%) during the current investment condition which the world fears the risk of the spread of COVID-19.
Readers might have seen the value of the stock market decreased deeply since some investors have switched their investments to bond market. Some might feel more scared, so they switched their investments to gold market. However, the interesting issue is the prices of the “main currency” of each country do not change much like other assets such as US Dollar (USD), Chinese Yuan (CYN) or Thai Baht (THB). It indicates that cryptocurrency is still lacking one qualification that is “maintaining the value”. This is an important qualification for being money. The price of the exchanges that occurred is the market price resulting from the fluctuating demands of cryptocurrency which is limited in only certain groups of people during that time.
Hence, to reduce the fluctuation of cryptocurrency price, new innovation has been born, which is “Stablecoin”. It is also a type of cryptocurrency which also requires encryption and decryption on Blockchain technology. However, what’s been added is having some sorts of asset backing up its values. It is like having reserve money to back up fiat money. Hence, most assets backing up stablecoin are divided into 4 types; 1. Basket of any currency such as USD 2. Basket of reference goods such as gold 3. Basket of cryptocurrency or another stablecion and 4) backing up with system which controls supply of these stablecoins.
Nowadays, there are more than 200 currencies of cryptocurrency. The most popular is USDT TrueUSD DAI. The other one which is almost making a debut with a lot of interests from people around the world is Libra of Facebook’s. (or under Libra Association which also has other alliances.)
However, the author views that the true benefit of stablecoin is like a shelter of cryptocurrency investment (that is not stablecoin). The investors will switch their investments from other cryptocurrency to stablecoin during enormous price fluctuation since stablecoin has other assets backing up and it is also on Blockchain system which also gives advantages of being cryptocurrency to the owners. Moreover, it is also more convenience to make business transactions with cryptocurrency than that in the past since the price fluctuation is lower. While cryptocurrency has more qualification of being closer to real money and more people are using it as a mean of exchange, the author thinks that it is impossible to use it as a main currency in each country. If the country still has monetary stability, the main currency of that country can still be forecasted without extreme inflation.
One important issue that the author would like to point out is if stablecoin will be more famous and more reliable in the future, the world will have been destroyed more from the indescribable increase of “energy usage level” leading to more emission of Green House effect gas in the atmosphere in order to maintain stablecoin system; usage, production, decryption and running this system. It also includes maintaining the amount of data in the blockchain which continues to pile up which means the need of a bigger server. However, we will use less energy when we do business transactions with main currency of each country even e-payment from the financial institutions which still have a chance to be down sometimes for example transferring money during special occasions/festivals.
In conclusion, stablecoin turns to be the “worsening factor” for this critical weather which creates more problems in the future, and we cannot avoid it. If it is more popular, one way that the author can think of and thinks that everyone could help to protect the world from the disaster is not to get involved in this cryptocurrency unless necessary.
Article by Supakrit Pakdeepatapee
Translator: WISUWAT SUTTHAKORN
Additional readings at
1. Investigating the impact of global stablecoins: https://www.bis.org/cpmi/publ/d187.pdf
2. ทำความรู้จัก Stablecoin คริปโตเคอร์เรนซีที่สามารถคงมูลค่าให้คงที่ได้ตลอดเวลา :