We Love volatility but...
One thing we have learned for certain is that you get a full plate of volatility with crypto currencies. For trading, volatility is welcome , especially after so many years of volatility suppression at the hands of central banks. However, volatility is a hindrance when it comes to currency transactions. What exactly does that mean? Volatility, in foreign exchange, is described by how much the price of a currency in a percentage terms move from its average. This is interesting for a currency trader but not practical in everyday life because a price swing for consumer goods and staples would be hard to stomach for the average person. Many have argued that digital assets need a way to manage the price volatility to become practical in application and as a medium of exchange (MoE).
Stable Coins and Smart Contracts
The internet has been powerful in the way its democratized information and changed commerce. Rich sources of information can be harvested by anyone with a internet connection. Ironically, as information became widely available, the internet itself and all the data became centralized. Large internet companies own or control swaths of personal and historical data. The technology of blockchain provides an opportunity to remake the internet and change the way data and privacy are handled. Blockchain and embedded smart contracts allow a way for individuals to control the personal data and share it with who they like. A smart contract, which is a specific use of blockchain technology, is a computer protocol that automatically executes and enforces a specific set of criteria without using a third party. Through decentralization, individuals can connect peer to peer or business to consumer without necessarily using a centralized intermediary, which is why many people have have described this technology as the internet 2.0. Stable coins, which are tokens whose value will not fluctuate in price, have garnered attention as a way of bridging digital assets and fiat in a way that reduces volatility. These coins could provide scalability and help transform to a decentralized internet were transactions are friction-less and in real time, wringing out inefficiencies in commerce across the globe.
Navigating Protocols
What might the internet look like in the future with more decentralization and what does a stable coin have to do with it? Joel Monegro seminal paper "Fat Protocols" describes the inverse relationship between the current internet, where protocols are benign and apps are king, to where blockchain technology makes the protocols valuable and apps are the second layer. So what will this new internet look like? First we have to make a few assumptions. Tokens will become commonplace for a companies as well as decentralized organizations where you are participating in their particular community through a utility or native token. Secondly, people want to be able use their own tokens freely and across all or many applications without the inconvenience of being a currency trader. Stable tokens might well be the bridge of decentralization which allows one to seamlessly move community to community or protocol to protocol while maintaining your identity and data.
Internet 3.0-the internet of things
I first looked up the word Interoperability assuming it was a new crypto phrase to describe something technical. While the word is worthy of a William Safire muse, it is a central ingredient to tying the web together. Interoperability describes the extent to which systems and devices can exchange data, and interpret that shared data. If you search for "the internet of things" (IoT), surprisingly you will get many different definitions of what this actually means. The best definition, in my opinion, was put forth by the SAS institute which is " It's a concept of everyday objects- from industrial machines to wearable devices- using built-in sensors to gather data and take action on that data across the network".
For two systems to be interoperable, they must be able to exchange data and subsequently present that data such that it can be understood by a user. This function is critical to the evolution of the "internet of things" (IoT), in which separate computers or systems communicate with one another to perform tasks. So your car tells you it time to change the oil (not if you have a Tesla), search the web and find the best price, check your schedule and book an appointment. Your refrigerator will make a list of groceries, order them online and have them delivered to your front door. Wearable devices can monitor health and report data directly to your doctor for analysis. Supply chain management will become automated as the IoT's communicate using secure, transparent, immutable time stamped smart contracts and blockchain. The mind boggling possibilities are endless once tech and protocols start interacting with fluidity across distributed ledgers.
What Currency is in my electronic wallet?
There are over 400 different fiat currencies in the world and the majority of these are characterized by high volatility and a lack of trust. This is salient because it is at the heart of why the USD is a reserve currency. This is not to say Bitcoin is going to replace USD as the reserve currency or even the euro, yen or remibi as a medium of exchange. Bitcoin however because of it's unique immutable and mathematical structure makes it a compliment for a reserve, a medium of exchange as well as a store of value. While I believe digital coins, native tokens and stable coins will all have a place in this new and evolved ecosystem perhaps known as internet 3.0, the engine of this system is still the internet of money, which is Bitcoin.
Perhaps a smart stable coin gains traction or a digitized US dollar becomes the bridge to connect everything across the internet, time will tell. What seems clear is that blockchain technology and Bitcoin will bring more decentralization to the web. In turn there will be more connectivity worldwide between people, communities and "things".