People speculate on the price of "normal currency" too.
But faaaarr fewer than those who use it for transactions. In the crypto world it's reversed.
Is that a problem?
Yes, the price fluctuations created by speculation make it hard to use for payment. How do you agree on a fair price when you don't know what the "money" will be worth in a few weeks.
The deflationary effect caused by hoarding currency, as is done with bitcoin, would bring about a Great Depression scenario in a real economy.
If you need the token's price to be stable then there are stabletokens specifically designed for that.
And how do they manage that?
It varies, there are a bunch of different types of stabletokens. The two main approaches I'm aware of are:
Tokens that are issued and backed by a trusted third party. Tether, for example, issues one USDT token for every USD that is deposited with Tether Inc. and you can redeem USDTs for USD again any time. I'm not particularly fond of this approach, but it's simple and popular and as long as you're not holding USDT long-term I don't see a big problem with it as a day-to-day currency. Just make sure the issuing company is audited and you're prepared for the possibility that they could turn out to be lying.
Tokens that are issued by on-chain smart contracts, backed by other digital assets. DAI and Liquity are examples of these. They are more complicated but IMO the better choice because you don't have to trust anyone - you can see the token's backing right on the blockchain itself and know whether it's actually worth what the stabletoken needs for support.
One of the nice things about the on-chain smart contract stabletokens is that they can be backed by less-stable tokens, such as Ether itself, so you can get the best of both worlds out of them.
Ok, so a stablecoin means, that the holder gives an unsecured, zero-interest loan to a company with unknown credit worthiness. It's "stable" because a $1 debt stays a 1$ debt. That's a nice spin on zero interest. It's not what I'd call a currency. Or sane, reasonable, sensible, ...
I note that tether is known for not allowing audits. Are you for real?
The other option is that the loan is collateralized in crypto. And you can't actually redeem the stablecoin for money, you can only get crypto that trades for $1, allegedly. On the liquity site I wasn't able to see how the price is determined. I did see that there is a redemption fee of variable, unknown size. I'm not quite clear how that is supposed to be sane.
Ok, so a stablecoin means, that the holder gives an unsecured, zero-interest loan to a company with unknown credit worthiness.
No. Neither of the approaches I described means that. You can check the credit-worthiness of Tether and other such companies (Tether was just an example, there are many others) and decide whether you want to use their token based on what you learn if you wish. As I said, you only need the token to last for as long as you're using it for, so if you're running a storefront for example you can be paid in those tokens and immediately trade them for something you trust more.
And you can’t actually redeem the stablecoin for money, you can only get crypto that trades for $1, allegedly.
The stablecoin is worth $1, yes. That's the point of the stablecoin. The "allegedly" part is not actually allegedly, it's part of how the smart contract backing the token operates.
Are you for real?
Yes. I get the impression that you're arguing in bad faith, though. I'm happy to discuss the details of how these things work but you're calling this "insane" and that's not a particularly useful mindset for learning.
No. Neither of the approaches I described means that.
Yes, it does. You can redeem the "stablecoin". That means it's an IOU; a debt. That means you are granting a loan while holding the coin.
There are several reasons why there is interest on loans. One is risk. If you lend $1 to 11 people and one of them can't pay back, you are left with only $10 of $11. No problem among friends, but not a viable business model. You'd have to charge 10% interest to break even.
It's not a problem to use debt as money, cause that's what we do. What you have in your checking account is a debt owed by the bank to you. The difference is that your checking account is insured. You will not lose money if the bank goes bust.
The “allegedly” part is not actually allegedly, it’s part of how the smart contract backing the token operates.
How is the smart contract updated with the current market prices?
Yes. I get the impression that you’re arguing in bad faith, though.
I know how crypto works and I'm being honest with you. I had hoped that my question would make you realize that a debt is not a separate currency. Well, that didn't work but now we know. I am quite willing to learn how these smart-contract-stablecoins work, or if they do.
Regarding the question of "bad faith": I am sure that you have already checked if what you just learned about Tether is true. That means you understand that using it as an example of a viable currency potentially helps a company defraud people. Will you edit your post?
The fact of the matter is that I have warned you about the clear and well-known dangers of USDT. I could have been more polite but I still have done you a great favor, that may save you a lot of money. You're welcome.
I was irritated that someone, who apparently considers themselves knowledgeable on crypto, would not know about tether. I am also irritated that this great favors is met with accusations of bad faith.
Yes, it does.
No. The part I was objecting to was: " gives an unsecured, zero-interest loan to a company with unknown credit worthiness." That's the part that's incorrect. Some stabletokens don't involve a company at all, it's entirely on-chain controlled by smart contracts.
How is the smart contract updated with the current market prices?
The one I'm most familiar with is DAI, which is maintained by the MakerDAO smart contract. MakerDAO uses a collection of price oracles to determine prices, which are in turn managed by people who own governance tokens (MKR) for the MakerDAO smart contract itself. They vote on which oracles are used, and on other economic parameters used by MakerDAO to keep its peg table. If MKR holders do a good job then MKR tokens appreciate in value, "rewarding" them. If they do a poor job then MKR tokens lose value.
This is complicated, but it's a necessary complication to ensure that MakerDAO can function in a decentralized and trustworthy fashion. There are a number of pages out there that go into more detail, this one seems pretty good at a glance.
I had hoped that my question would make you realize that a debt is not a separate currency.
Well, I'm not sure what you mean here. Tokens that represent a debt can certainly be used as a currency if everyone involved considers the debt to be sound and trusts that it will be repaid.
That’s the part that’s incorrect. Some stabletokens don’t involve a company at all, it’s entirely on-chain controlled by smart contracts.
I'm not sure I get the point. Company is a broad term. I don't see how MakerDAO is not a company. So what kind of legal entity is MakerDAO, exactly? (I know next to nothing about the relevant laws here.)
The one I’m most familiar with is DAI, which is maintained by the MakerDAO smart contract. MakerDAO uses a collection of price oracles to determine prices, which are in turn managed by people who own governance tokens (MKR) for the MakerDAO smart contract itself. They vote on which oracles are used, and on other economic parameters used by MakerDAO to keep its peg table. If MKR holders do a good job then MKR tokens appreciate in value, “rewarding” them. If they do a poor job then MKR tokens lose value.
Okay, so it works like a stock company, except that share owners take a more immediate role in running the company than usual. They vote on the valuation of the collateral. That part makes sense; in isolation, anyway. There are some things which are obviously worrying, but I'll have to punt, for now.
Tokens that represent a debt can certainly be used as a currency if everyone involved considers the debt to be sound and trusts that it will be repaid.
Yes, we mostly use debt as a currency. If your checking account is denominated in USD or EUR, then you are still using USD or EUR as currency. Using crypto-tokens is simply a technologically vastly inferior way of tracking debts, not a new currency. The apparent fraud is the only way this makes economic sense.
I’m not sure I get the point. Company is a broad term. I don’t see how MakerDAO is not a company.
Company is actually not a broad term, it's a legal term with a specific meaning. MakerDAO is not a company, it's a smart contract. If you want to use terms that loosely it's going to be difficult talking about this stuff.
Using crypto-tokens is simply a technologically vastly inferior way of tracking debts, not a new currency.
But ultimately that's the thing that you're arguing here, so you can't simply state it as a premise. That's the classic meaning of begging the question.
The apparent fraud is the only way this makes economic sense.
That came out of nowhere, this is the first time an accusation of fraud has shown up in this discussion. What fraud?
But far, far, far, far more people use it as currency. Exchanging it for goods and services is clearly the main use for it.
Crypto is used like a stock.
In addition to using it as a currency, sure. But as I asked rigatti, is that a problem? At worst one might perhaps argue that the name "cryptocurrency" is misleading, but I've never cared much about semantics like that.
You're saying "in addition to using it as a currency" as if that's actually what people do with crypto. They don't.
And yeah, it is a problem. It renders it useless outside of as a bit of gambling on the side.
Alright, so let's call them cryptotokens instead. I've always preferred that myself, it's a much more general description of what they do. It doesn't change what they are but if that term makes you happier we can go with that.
It renders it useless outside of as a bit of gambling on the side.
Hardly, there are lots of things you can do with these things. A ledger is more than just for tracking money, it's a database. You really can't think of useful things that could be done with a completely decentralized and permissionless database?
People don't use bitcoin or other cryptocoins as a general purpose database. They use it as they'd use a stock.
Bitcoin, no, because it's a hopelessly out of date blockchain that actively resists having new capabilities added to it. Ethereum, on the other hand, is designed that way from the ground up. Many of the other smaller but more modern blockchains are also like that.
And yet they're still used like a stock and you can't really use them as a currency.
You can't use them as a currency everywhere. But the same can be said for any other currency too. You can't use US dollars everywhere. You can't use Chinese Yuan everywhere. And so forth. A currency doesn't have to be universally accepted everywhere on the planet for every application before it's useful.
Regardless, I was talking about using Ethereum as a distributed database.
You know fine well that's not what I meant.
If you were to attempt to only use Bitcoin, Ethereim, whatever, you almost certainly literally wouldn't be able to live.
You can't just pay all your bills with it.
And even the people who own it almost never use it as a currency. They treat it like a stock.
I really don't see your point here. I'm agreeing that you can't use it for everything. But what's wrong with that? There are plenty of things in this world that aren't useful in every circumstance and yet that doesn't mean those things are worthless. Use them for the things that they're good for. Elsewhere in this thread I listed off a whole bunch of non-stock, non-currency applications that have been built on blockchains if you really don't like the monetary applications.
As a side note, though, I'm kind of amused and baffled that the Grand Nagus of all people is dismissing any monetary uses for cryptocurrency.
You make it sound like it's not used for absolutely everything, but it's used for a lot.
And it just... isn't. It's almost entirely unused as a currency.
There are people who ride the bike as a means of transport. Then there are people who build their entire identity around riding a bike. That doesn't mean one or the other rides it wrong.
A token of value can have multiple different usecases at the same time.
Bikes are used as a mode of transport. That's what everybody uses them for.
Crypto isn't really used as a currency. It is used like a stock. That's what everybody uses them for, if we're being honest.
People speculate on the price of "normal currency" too.
But faaaarr fewer than those who use it for transactions. In the crypto world it's reversed.
Is that a problem?
Yes, the price fluctuations created by speculation make it hard to use for payment. How do you agree on a fair price when you don't know what the "money" will be worth in a few weeks.
The deflationary effect caused by hoarding currency, as is done with bitcoin, would bring about a Great Depression scenario in a real economy.
If you need the token's price to be stable then there are stabletokens specifically designed for that.
And how do they manage that?
It varies, there are a bunch of different types of stabletokens. The two main approaches I'm aware of are:
Tokens that are issued and backed by a trusted third party. Tether, for example, issues one USDT token for every USD that is deposited with Tether Inc. and you can redeem USDTs for USD again any time. I'm not particularly fond of this approach, but it's simple and popular and as long as you're not holding USDT long-term I don't see a big problem with it as a day-to-day currency. Just make sure the issuing company is audited and you're prepared for the possibility that they could turn out to be lying.
Tokens that are issued by on-chain smart contracts, backed by other digital assets. DAI and Liquity are examples of these. They are more complicated but IMO the better choice because you don't have to trust anyone - you can see the token's backing right on the blockchain itself and know whether it's actually worth what the stabletoken needs for support.
One of the nice things about the on-chain smart contract stabletokens is that they can be backed by less-stable tokens, such as Ether itself, so you can get the best of both worlds out of them.
Ok, so a stablecoin means, that the holder gives an unsecured, zero-interest loan to a company with unknown credit worthiness. It's "stable" because a $1 debt stays a 1$ debt. That's a nice spin on zero interest. It's not what I'd call a currency. Or sane, reasonable, sensible, ...
I note that tether is known for not allowing audits. Are you for real?
The other option is that the loan is collateralized in crypto. And you can't actually redeem the stablecoin for money, you can only get crypto that trades for $1, allegedly. On the liquity site I wasn't able to see how the price is determined. I did see that there is a redemption fee of variable, unknown size. I'm not quite clear how that is supposed to be sane.
No. Neither of the approaches I described means that. You can check the credit-worthiness of Tether and other such companies (Tether was just an example, there are many others) and decide whether you want to use their token based on what you learn if you wish. As I said, you only need the token to last for as long as you're using it for, so if you're running a storefront for example you can be paid in those tokens and immediately trade them for something you trust more.
The stablecoin is worth $1, yes. That's the point of the stablecoin. The "allegedly" part is not actually allegedly, it's part of how the smart contract backing the token operates.
Yes. I get the impression that you're arguing in bad faith, though. I'm happy to discuss the details of how these things work but you're calling this "insane" and that's not a particularly useful mindset for learning.
Yes, it does. You can redeem the "stablecoin". That means it's an IOU; a debt. That means you are granting a loan while holding the coin.
There are several reasons why there is interest on loans. One is risk. If you lend $1 to 11 people and one of them can't pay back, you are left with only $10 of $11. No problem among friends, but not a viable business model. You'd have to charge 10% interest to break even.
It's not a problem to use debt as money, cause that's what we do. What you have in your checking account is a debt owed by the bank to you. The difference is that your checking account is insured. You will not lose money if the bank goes bust.
How is the smart contract updated with the current market prices?
I know how crypto works and I'm being honest with you. I had hoped that my question would make you realize that a debt is not a separate currency. Well, that didn't work but now we know. I am quite willing to learn how these smart-contract-stablecoins work, or if they do.
Regarding the question of "bad faith": I am sure that you have already checked if what you just learned about Tether is true. That means you understand that using it as an example of a viable currency potentially helps a company defraud people. Will you edit your post?
The fact of the matter is that I have warned you about the clear and well-known dangers of USDT. I could have been more polite but I still have done you a great favor, that may save you a lot of money. You're welcome.
I was irritated that someone, who apparently considers themselves knowledgeable on crypto, would not know about tether. I am also irritated that this great favors is met with accusations of bad faith.
No. The part I was objecting to was: " gives an unsecured, zero-interest loan to a company with unknown credit worthiness." That's the part that's incorrect. Some stabletokens don't involve a company at all, it's entirely on-chain controlled by smart contracts.
The one I'm most familiar with is DAI, which is maintained by the MakerDAO smart contract. MakerDAO uses a collection of price oracles to determine prices, which are in turn managed by people who own governance tokens (MKR) for the MakerDAO smart contract itself. They vote on which oracles are used, and on other economic parameters used by MakerDAO to keep its peg table. If MKR holders do a good job then MKR tokens appreciate in value, "rewarding" them. If they do a poor job then MKR tokens lose value.
This is complicated, but it's a necessary complication to ensure that MakerDAO can function in a decentralized and trustworthy fashion. There are a number of pages out there that go into more detail, this one seems pretty good at a glance.
Well, I'm not sure what you mean here. Tokens that represent a debt can certainly be used as a currency if everyone involved considers the debt to be sound and trusts that it will be repaid.
I'm not sure I get the point. Company is a broad term. I don't see how MakerDAO is not a company. So what kind of legal entity is MakerDAO, exactly? (I know next to nothing about the relevant laws here.)
Okay, so it works like a stock company, except that share owners take a more immediate role in running the company than usual. They vote on the valuation of the collateral. That part makes sense; in isolation, anyway. There are some things which are obviously worrying, but I'll have to punt, for now.
Yes, we mostly use debt as a currency. If your checking account is denominated in USD or EUR, then you are still using USD or EUR as currency. Using crypto-tokens is simply a technologically vastly inferior way of tracking debts, not a new currency. The apparent fraud is the only way this makes economic sense.
Company is actually not a broad term, it's a legal term with a specific meaning. MakerDAO is not a company, it's a smart contract. If you want to use terms that loosely it's going to be difficult talking about this stuff.
But ultimately that's the thing that you're arguing here, so you can't simply state it as a premise. That's the classic meaning of begging the question.
That came out of nowhere, this is the first time an accusation of fraud has shown up in this discussion. What fraud?
I'm well aware.
But far, far, far, far more people use it as currency. Exchanging it for goods and services is clearly the main use for it.
Crypto is used like a stock.
In addition to using it as a currency, sure. But as I asked rigatti, is that a problem? At worst one might perhaps argue that the name "cryptocurrency" is misleading, but I've never cared much about semantics like that.
You're saying "in addition to using it as a currency" as if that's actually what people do with crypto. They don't.
And yeah, it is a problem. It renders it useless outside of as a bit of gambling on the side.
Alright, so let's call them cryptotokens instead. I've always preferred that myself, it's a much more general description of what they do. It doesn't change what they are but if that term makes you happier we can go with that.
Hardly, there are lots of things you can do with these things. A ledger is more than just for tracking money, it's a database. You really can't think of useful things that could be done with a completely decentralized and permissionless database?
People don't use bitcoin or other cryptocoins as a general purpose database. They use it as they'd use a stock.
Bitcoin, no, because it's a hopelessly out of date blockchain that actively resists having new capabilities added to it. Ethereum, on the other hand, is designed that way from the ground up. Many of the other smaller but more modern blockchains are also like that.
And yet they're still used like a stock and you can't really use them as a currency.
You can't use them as a currency everywhere. But the same can be said for any other currency too. You can't use US dollars everywhere. You can't use Chinese Yuan everywhere. And so forth. A currency doesn't have to be universally accepted everywhere on the planet for every application before it's useful.
Regardless, I was talking about using Ethereum as a distributed database.
You know fine well that's not what I meant.
If you were to attempt to only use Bitcoin, Ethereim, whatever, you almost certainly literally wouldn't be able to live.
You can't just pay all your bills with it.
And even the people who own it almost never use it as a currency. They treat it like a stock.
I really don't see your point here. I'm agreeing that you can't use it for everything. But what's wrong with that? There are plenty of things in this world that aren't useful in every circumstance and yet that doesn't mean those things are worthless. Use them for the things that they're good for. Elsewhere in this thread I listed off a whole bunch of non-stock, non-currency applications that have been built on blockchains if you really don't like the monetary applications.
As a side note, though, I'm kind of amused and baffled that the Grand Nagus of all people is dismissing any monetary uses for cryptocurrency.
You make it sound like it's not used for absolutely everything, but it's used for a lot.
And it just... isn't. It's almost entirely unused as a currency.
There are people who ride the bike as a means of transport. Then there are people who build their entire identity around riding a bike. That doesn't mean one or the other rides it wrong.
A token of value can have multiple different usecases at the same time.
Bikes are used as a mode of transport. That's what everybody uses them for.
Crypto isn't really used as a currency. It is used like a stock. That's what everybody uses them for, if we're being honest.