Thursday, April 19, 2018

Next generation of cryptocurrencies want to use algorithms to mimic central banks

How quickly the cryptocurrency sphere is evolving.

Nine years ago, a mysterious individual or group using the name Satoshi Nakamoto created the first cryptocurrency on the blockchain which was meant to offer people a chance for decentralized money that was outside the control and purview of governments and central banks.  And over the next near decade over a thousand of these types of digital tokens have sprang up.

Then a new type of cryptocurrency came onto the scene which offered individuals tokens that were backed by physical resources such as gold, diamonds, coffee, and even donuts.  These cryptos would incur their own label known as Stablecoins because they promised less volatility than their unbacked cousins.

And now we can add a third category or evolution to this sector as a new form of crypto is being engineered which will offer a flexibility in supply, and would use an algorithm to mimic the functions of a central bank.

Stablecoins are their own category of cryptocurrency. They're designed to maintain a set peg, and avoid the volatility inherent to cryptocurrencies. Unsurprisingly, the most common peg is US$1. 
There have been three distinct generations of stablecoin so far, with new developments in distributed ledger technology and economic theory spurring new coins. 
The third generation is getting increasingly crowded and complex. This genre of coins is focused strongly on economic theory, to create stablecoin systems without any outside collateral. Basis is one of these coins, along with others like Havven and USDX. These cryptocurrencies are essentially designed to be self-sustaining economic systems, which can expand and contract as needed just like a central bank issued currency. Except in the case of these coins, the expansion and contraction is controlled by an algorithm, rather than by a central authority. - Finder


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