Steemit Crypto Academy - S4W5 - Homework Post for @awesononso.

1) Explain why stability is important in Digital currencies.

Stability can be defined as the ability of a currency whether digital or fiat to withstand volatility in that its value remains stable for quite long periods of time. Fiat money is centralized and though it fluctuates its value tends to stay stable for quite long periods of time and if it fluctuates there are bodies in place regulators like the Central Bank, the government among others that make sure the situation is handled before the currency greatly loses it value.

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Digital currencies on the other are highly volatile as its value can change in just a matter of hours or minutes therefore much as traders can make such huge profits they can also make absolutely large losses to. Digital currencies are decentralized in the sense that traders determine the value of the currency through forces of demand and supply. Where more of a cryptocurrency is bought in large volumes its value automatically goes high making the price become high and where large volumes are being sold the value of the currency goes down making the price low.

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Digital currencies therefore do not have central bodies or authorities to regulate them and this is where the aspect of stability in digital currencies comes in. Arguments have been brought forth that centralization of digital currencies would do so much good because the issue of volatility would now be easily regulated by a central authority to create some stability in the currencies through policies made. Furthermore it has been stated that if central authorities control digital currencies, it will be easy to integrate their use in everyday life like shopping among others because the stability of digital currencies will now be stable as there is a body always keeping it in check.

However, some arguments have been against bringing about stability through centralization because stability is great however one of the greatest advantages of digital currencies against other currencies is the level of security. Digital currencies like crypto have very secure systems through blockchain in that even though there have attacks through hacking they are few yet fraud on fiat money is very high. Therefore one of the scares is that if digital currencies become centralized the main aim being to make them stable security may easily be compromised and also just like fiat currency it is likely to be concentrated in the hands of the few who control it.

Therefore stability in digital currencies is great because it will solve the problem of volatility however one has to notice that this same aspect makes traders make large profits when they make their trades at the right time. Therefore one may not be able to control the volatility however they can try to gain as much knowledge as possible to be able to benefit when they make trades be it buying or selling at the right time.

2) Do you think CBDCs would be good in the future?

CBDCs are Central Bank Digital Currencies in full and they are generally an electronic representation of a country’s fiat currency though they are based on the blockchain system where all transactions are recorded on a ledger. CBDCs are different though from cryptocurrencies in the sense that they are centralized while other digital currencies are based on a peer to peer system that makes it decentralized.

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One has to notice that we are in an era where currencies are slowly moving to the digital space as there are various means of using currencies without it actually being physical. Much as various banks are actually looking at integrating CBDCs in their financial services one has to be totally aware of both CBDCs’ pros and cons.

Pros.
CBDCs have a high percentage of inclusion of the people compared to fiat currency because fiat currency requires one to actually open a bank account and to go to either the physical bank or an ATM to withdraw the money yet CBDCs would cut out all these processes in that one can just carry out transactions using their digital wallet. Furthermore banks are more concentrated around towns and there maybe few branches in rural areas making it hard for people in such areas to access financial services however CBDCs do not require one to move at all as all they need is their device and most probably internet.

The security of CBDCs is enhanced and way better than that of actual fiat currency because it is based online and takes advantage of the blockchain system that is more secure and furthermore CBDCs are likely to have serial numbers that can be tracked and therefore that number can be used to track all its activities therefore increasing its security further.

CBDC transactions are instant or at least take a very short while therefore making payments more efficient and this helps cut down on aspects like transactions costs.
CBDCs also save other costs that are normally incurred with normal fiat currency like costs used for o make physical currency, costs spent on its storage and transportation to other banks. All these costs are cut out as the currency is now digital.

CBDCs are centralized in the sense that they are they are created by the central bank and further regulated by it and the government. Therefore where policies that are positive are made they positively impact the CBDCs especially in areas as relates to inflation. Volatility is easily controlled to make CBDCs stable unlike other digital currencies like crypto that are controlled by demand and supply.

CBDCs are also more legally recognized as compared to other digital currencies because they are backed by the Central bank and the government unlike cryptocurrencies that do not have a regulator therefore the issue as to their regulation and legality keeps arising even though they are profitable and well known.

CBDCs have some cons to;

There is a general fear as relates to data breach because CBDCs are run by a central body and a lot of data is collected which is stored in one place therefore there is a possibility for sharing the data with third party entities for different purposes like marketing etc. Therefore, if it being paid for it would mean they would literally be making money off private information.

Furthermore, the issue of trust still arises because sometimes governments may make policies that affect greatly in a negative way like making policies that may foster inflation. Therefore much as these central authorities make good decisions that affect CBDCs positively, one has to note that bad decisions can be made to which would cause great losses.

The availability of technology is still lacking especially in third world countries as few people have devices like smartphones or computers that they can use therefore in such a case CBDCs would have a low reach as few people would be able to access it. Furthermore, it may require internet and one has to keep in mind that not all areas around the world have good network and some people can’t afford to spend on internet, therefore where would it leave them? Therefore, governments have to ensure that as they roll out CBDCs they have set systems in place to enable everyone access usage of CBDCs.

Explain in your own words how Rebase Tokens work. Give an illustration.

Rebase tokens are a type of cryptocurrency which are designed in way that the circulating supply of the token adjusts automatically in relation to the price fluctuations. Therefore the supply of the token increases or decreases accordingly either when the price increases or decreases. Usually the principle of demand and supply works in a way that as the demand of a token goes high the price increases since it has become scarce and if the supply is high the price of the token goes down.

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Rebase tokens work in the reverse because they have a rebase mechanism which regulates the supply of the tokens in relation the price. Rebase tokens are designed in a way that if the price of the token goes up, a positive rebase takes place where the supply of the rebase tokens increases to balance the price as it goes back to the original price or a price closer to it. On the other hand, if the price of the rebase tokens goes down a negative rebase happens in that the supply of the token is reduced and therefore the price goes back to the original or a closer price.

One has to know that this is all possible because of the rebase mechanism as it allows the supply to contact and expand according to the price. Rebase tokens have a target price whereby the price can never go beyond it, in that a rebase takes place at a scheduled time and if the price goes below the target price then supply is reduced and if the target price goes above the target price supply is increased.

One has to bear in mind that the price of rebase tokens does not change rather what changes are the number of tokens because the tokens increase when the price goes high to reduce fluctuations and the number of tokens reduce when the price goes down.
Examples of rebase tokens include Ampleforth (AMPL), YAM, RMPL and BASED. Ampleforth has its rebase scheduled after every 24hrs and it’s price target is $1 however its rebase routine happens at random times to prevent manipulation by bots. Therefore different rebase tokens have different price targets and rebase routines.

** 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?**

Rebase % = { [ (Oracle Rate - Price Target) / Price Target ] x 100} / 10

Oracle Rate - $1.021
Price Target - $ 1.061

Rebase % = {[( 1.021 - 1.061) / 1.061] x 100} / 10
= { [(-0.04)/1.061] x 100} /10
= {-0.0377 x 100} / 10
= -3.77 / 10
= -0.377 %.

5) Trade some tokens for at least $15 worth of USDT on Binance and explain your steps. (Give necessary screenshots of the transaction)

@awesononso thank you.