STEEMIT CRYPTOACADEMY [BEGINNER'S LEVEL] | SEASON 4 WEEK 5: STABILITY IN DIGITAL CURRENCIES FOR Prof. @awesononso BY @advokate
INTRODUCTION
Really, knowledge is powerful, before now I never knew that there could be stable coins in digital currencies until this lecture educated me. All I knew then was that cryptocurrency is volatile and fluctuates due to the law of demand and supply in the crypto market but I never knew that stable coins have a special features that ensure their stability. Good to know all this.
I came up with my homework post based on my understanding from this lesson as beginner in the crypto ecosystem as I anticipate to acquire more knowledge and improve in standard.
- Explain why Stability is important in Digital currencies.
Since cryptocurrency is very volatile, future price cannot be predicted by the investors because the market is open 24/7 for people to buy and sell, this market is controlled by the investors emotion, so the future does not guarantee increase in price, therefore, anything can happen. If the price of the currency falls investors tend to loss. For an investor in cryptocurrency not to incur loss , the currency have to be stable or keep increasing in price which is not possible because of the law of demand and supply in the crypto market
The unstability in price of currency makes it not to be called a store of value. A digital currency can only be called store of value, that's if it is stable thereby showing very little or no fluctuation in price.
The importance of stability in digital currencies facilitates;
to avoid Price Fluctuations - this helps an investor not to lost the value of their assets as a result of price fluctuation. A digital currency price that is stable, the digital currency is pegged to real assets like gold or dollar or fiat currency that is less volatile and the digital currency is make to have a specific value in the assets they are backed on.
in giving digital currency more relevant to people in business - so many business individuals are afraid of accepting cryptocurrency because of their risk of losing their money when the price of the digital currency suffers a dip.
For example, if a business owner sells a product worth of 0.5BTC which is equivalent to $10,000 and the next day 0.5BTC falls to $7000, the business owner is losing $3,000 from his business but if the cryptocurrency in this case is stable, the business owner have nothing to worry about because the price yesterday we still remain the same like the normal paper currency.
2.Do you think CBDCs would be good in the future? Weigh the pros and cons in your own understanding and state your position.
I designed this image in canva.com
CBDCs has its own limitation and good side of it. CBDCs is a digital representative of a country's currency which is pegged to a specific value of that countries currency thereby making digital currency attain stability which is a big achievement and dream of every investor in the crypto ecosystem.
CBDCs is a good project in future since it is stable, it will facilitate the store of assets, it will also serve as an alternative to the country's legal currency which can be used for buying and selling of goods and services online and the Central Bank Digital Currencies would serve as an universal digital tender that can be representing the a countries fiat currency for peer-to-peer transactions.
This Central Bank Digital Currencies is secured as the Central Bank will always keep in check of any illegal activities from individuals and the network will offer some form of transparency in distribution and issuance of the digital currency because it operates as on a blockchain which is a decentralized system that can be immutable or altered.
Finally, Central Bank Digital Currencies would help to increase and facilitate the adoption of digital currency as legal tender in various countries in other countries that is against the use of digital currencies.
THE PROS OF CBDCs
1. Helps to perform easier, faster and less costly transactions - the Central Bank digital currencies helps to make transaction easier, faster and less costly, since there is no third-party interference in the transaction to monitor the activities of users, the transaction fee is very little as can be compared with the transaction fee of the native bank.
2. High Security - CBDCs we create room for government to combat illegal payments such as fraudulent activities thereby giving people geater security over the assets.
3. Money laundry can easily be traced - since every transaction data is recorded in a block chain and block chain technology is immutable system that is open for everyone to view the information recorded in it without being able to change or manipulate the information. So there will be nothing hidden under the carpet.
4. Central Bank digital currencies will give opportunity to people that could not afford native bank account to store their assets in a cashless form and keep them away from criminal harassment around their environment.
5. Stability - the Central Bank digital currencies is stable since it is pegged to a specific value of another assets. Using central bank digital currency to store your assets gives you stability, business owners can have a very little or no risk at all.
THE CONS OF CBDCs
1. Illiteracy - not everyone in the developing countries understand how digital currencies works and some are not used to modern technologies like mobile phones and other devices.
2. Privacy - many users don't like to give out their personal details like; date of birth, name, location, and age to anyone and they do not want anyone to give them directives or how they would spend their money and the issue of government policies happens to be a limitation over what they want to do with their assets.
3. Centralised - the involvement of Central Bank to keep in check on how the system will would be runned have rendered the objective of decentralization in digital currency defeated because the involvement of third-party partially makes users lose their sole right to get full control over their assets.
Introducing and using Central Bank Digital Currencies as an alternative to represent the countries legal tender online is a good innovation as it offers so many advantage than disadvantage to users. CBDCs value will be more stable than most other cryptocurrencies because it is pegged to a specific value of of a particular asset, so the risk of fluctuations in price in digital currencies is ruled off.
3.Explain in your own words how Rebase Tokens work. Give an illustration.
Rebase token has the same features of stablecoin where it is designed to have a specific value of the native currency or asset which it is pegged or backed up on but the rebase token circulating supply increases or decreases according to the fluctuation of the tokens price in the crypto market.
In Rebase token, the circulating token supply is adjusted according to demand and supply without changing the actual value of the token in the investors wallet, instead of the price of the tokens in their wallets to change, the number of their Rebase token will change, this is contrary to how other cryptocurrency operates, decrease in price of the token affects the amount of each of the token and not the number of token.
Using this as an illustration, for example, If an Ampleforth (AMPL) has a rebase token programmed every 12 hours, then the target price is $2. If the Price of the rebases token goes $2, the circulating supply of the Ampleforth (AMPL) will have to expand during rebase, this will then cause reduction in value of each Ampleforth (AMPL) token. In the other way round, if the price of the the token falls below $2, then the current Ampleforth (AMPL) token supply will decrease during rebase, thereby increasing the value of each of the Ampleforth (AMPL) token.
4. Go to the https://www.ampleforth.org/dashboard/. Check the necessary parameters and calculate the rebase %. What else can you find on the page?
SRC
From the above image gotten from ampleforth.org I was able to deduct the value for oracle rate and price target which are;
Oracle rate = $1.009
Price target = $1.061
Rebase % = {[(oracle rate - price target) / price target] ×100} /10
Rebase % = {[(1.009 - 1.061) / 1.061] × 100} / 10
={[-0.052 / 1.061] × 100} / 10
{-0.049 × 100} / 10
-4.901 / 10
= -0.490
Since the -0.4 ≤ Rebase % ≤ 0.5, the effective Rebase % will be 0.00
Therefore,
Rebase % = 0.00
In the page, I found the following
- The Next Rebase (~+0.00%) =3h:52m:13s
- Calculating / total supply = 113.009m/120.09m
5. Trade some tokens for at least $15 worth of USDT on Binance and explain your steps. (Give necessary Screenshots of the transaction).
When I launched my binance wallet app, I clicked on "Wallet", I already had some BTC in my wallet, I clicked on BTC, I chose a trade pair which is BTC/USDT and I clicked on "Withdrawal" it took me where I input the necessary information which is the amount of BTC I want to sell to get USDT. I sold my 0.00034 BTC to USDT which amounted to 18.41 USDT, the transaction was approved and successful as shown in the transaction details.
6.Transfer the USDT to another wallet with the Tron Network. From the transaction, what are the pros of the stablecoin over fiat money transactions? (Give Screenshot of the transaction
In fulfillment for this homework task. In opened my binance wallet, showing all my assets (USDT) which I was having about 18.424 USDT.
I clicked on my USDT and it displayed the balance of my assets for USDT, I clicked on "Withdrawal" displayed below and it took me to the next page which required me to input the wallet address I am to send my USDT assets.
I copied my USDT TRC-20 Deposit chain address of my Huobi wallet from my Huobi wallet and pasted it, the deposit address was automatically confirmed that it's actually Tron network (TRC-20) and I imputed amount of assets I intended transferring to my Huobi wallet, then I clicked on "Withdrawal". I was sent a code to my phone number and Gmail to input in and complete the transaction.
Within 2 minutes after performing the transaction in Binance, My Huobi wallet was credited with the 15 USDT which I sent from my Binance wallet to Huobi. A transaction free of 1 USDT was charged for this transaction in Binance.
THE PROS OF THE STABLECOIN
When performing my above transaction, I was very observant, I observed that the stablecoin have got many advantages over fiat money currency in respect to;
Transaction speed - the transaction is very fast, after the transferring process of the 16 USDT from my Binance to Huobi, a transaction fee of 1 USDT fee was charged and within 2 minutes, I got my 15 USDT in my Huobi wallet unlike fiat currency that would take more than hours or days to be received by the recipient.
High Security level - Stablecoin have a high security level, before I confirmed my transaction in binance, I was sent codes to my Gmail and phone number to confirm the transaction but in fiat currency, it may only requires my password or fingerprint to complete the transaction.
Low transaction fee - the transaction fee over the 16 USDT sent to my Huobi wallet was just 1 USDT which is very low compared to fiat currency that are always higher when performing transaction of this amount.
CONCLUSION
Stability in cryptocurrency is the dream of most cryptocurrency investors as fluctuation in price causes panick in the crypto market where some users start selling off their assets because they feel that they don't want to lose their money while some investors see it as a time to start buying, hoping that the price of the coin will rise again and then they would start selling off to make profit. Though all this are affected by the human emotions.
Stability in cryptocurrency offers so many advantages in the crypto market
CBDCs is an innovation in the crypto ecosystem, though it has its own advantage and it's disadvantages as regards the investors in crypto ecosystem.
Finally, Stability in cryptocurrency offers so many advantages in the crypto market.
Furthermore, I commend prof. @awesononso for taking time to impact knowledge in this regard. The lecture was well explanatory. Even as a beginner like I am in the cryptocurrency system, I was able to benefit a lot from this lecture. Thanks a lot to you Prof. and everyone that took their time to read through.
Cc;
@awesononso
Hello @advokate,
Thank you for taking interest in this class.
Unfortunately you are no longer eligible to perform tasks in the academy because you have been caught plagiarizing twice.
Cc:
@sapwood