Will we ever see smart money?
Here is our pick of the 3 most important Stablecoin news stories during the week.
It seems to me to be a waste of time and effort to build a new form of money that is basically the same as we have today, especially as the technology enables us to do so much more.
This week started with some muffled news on the Facebook front that they would be ready for a limited trial by the end of this year. A full 18 months slip on original projections.
Facebook, Diem — the digital currency project formerly called Libra — has the potential to reach billions of people, solving issues like financial inclusion, digital identity, faster and more affordable payments, and more.
However, it is now very much a sibling of the national central banks who are powering ahead with pilots and trials of central bank digital currencies (CBDC), with 80% of countries already experimenting with CBDCs. A CBDC is a digital form of fiat money, backed by a suitable amount of monetary reserves like gold or foreign currency reserves.
This article got me thinking, why does a Digital Currency have to be a copy of existing money? Why not unbundle the three features of money and just be good at one or two of them? The three features of so called sound money are:
- Store of Value
- Medium of exchange, and
- Unit of Account
Bitcoin is really good at the first and third feature. With the new capabilities of Digital Currencies such as smart contracts as we are seeing with DeFi which is good at the second and third feature we can now reimagine a whole series of different types of new money.
Then this article explores what some of these new smart contracts could do. “If our e-wallets can’t make some purchasing decisions, the promise of easier payments will melt like ice cream on a summer day.” In other words, money should not just be the usual three features but also a fourth, smart!
So in summary, unless we are making money smarter, why move to digital at all? The current designs and implementations at Facebook, Central Banks CBDC’s and a number of stablecoins are no smarter than boring old Fiat and electronic money is today.
Alan Scott is an expert in the FX market and has been working in the domain of stablecoins for many years.
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