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https://bitflate.org/post/2019/11/05/tether-problem-highlight-the-need-for-inflating-cryptocurrency.htmlBitflate is a cryptocurrency with a constant inflation of 7% per year.Tether stablecoin is in the news again. This time, Bloomberg reported that one Bitcoin whale may have fueled the price surge in 2017. Tether has pending investigations and lawsuits. Many bitcoiners continue to defend Tether. As a private company, Tether dodged authorities by relocating to geo friendly countries (Hong Kong and Taiwan). There is no way to fully audit Tether transaction record. Tether problem highlights the need for a decentralized and digital native transaction coin.
Permissionless is a key feature of cryptocurrencyIt is hard to invent money that everybody on planet Earth agrees to use. Bitcoin is the first successful form of digital money. Permissionless is an important and necessary feature. Permissionless comes with tradeoff. We can’t control its price. Tether team may have good intention. But when they eliminate permissionless and try to control it, things inadvertently fall through the cracks. For example, how does Tether team reliably keep track and reserve fiat for each Tether coin? Tether team may have started with spreadsheets. Later, their software may contain a bug that inflates Tether coin over reserve. When Tether team operates the whole system, it’s really easy to make mistake. In this case, Tether team is wholly responsible. This problem will continue to exist in permissioned blockchain. When it comes to digital money, every participants need to share the responsibility.
Why should everybody trusts one company to create stablecoin?When you need Tether coin, you go to Tether Limited. This creates a choke point. What if all cryptocurrency usage needs to go through Tether. Assume Tether team is ethical, how do we ensure that its software does not contain a bug. What kind of assurance does Tether Limited offer? The risk of using a centralized stablecoin is high.
Besides Tether, there are other stablecoins: USDC, Gemini dollar. But each coin runs on different software. We run into the same risk like Tether. Libra makes significant improvement. It works based on open source software and governed by an association of reputable members. But Libra is currently facing regulators’ scrutiny. The market is not ready for Libra.
The role of inflating cryptocurrencyHow do we break this deadlock to move cryptocurrency forward? I think the space needs a new category: decentralized and digital native cryptocurrency with constant inflation. With inflating supply, people will not hold the coins for just price speculation. With balanced reward system and adoption rate, inflation can create more supply for new adopters. The blockchain is decentralized. The tradeoff is price would not be completely stable. But it is a good tradeoff for being permissionless. As more people become comfortable with using cryptocurrency, they would be more open to stablecoin alternatives like Libra. This is how we move cryptocurrency forward.
