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March 27, 2014, 02:25:09 AM |
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There's a simple reason why a contract coin simply cannot work: money supply.
Total money supply in the World is approximately USD100trillion. Since most other forms of assets merely have a currency value and aren't currency themselves, then they don't need to be brought into the equation. If you wish to substitute a contract coin for each "unit" of currency, then you'd also have to take into account the pennies and also that cryptos can be up to eight decimal places in size. That being said, if you were to create a contract coin for each "unit" of transferable currency, then the supply would be staggering. Basically, 10,000,000,000,000,000 contract units would be needed. 21million Bitcoins equals 2,100,000,000,000,000 (with just over 12.5million integer units mined so far). As you can see, there's a dilution effect already. One contract coin couldn't ever equal one fiat penny - i.e. they could never rank pari passu to each other.
Added to this problem, and assuming that you created a crypto with exactly the right number of units, in order to mine enough to get the system working would take a phenomenal length of time. In that time the fiat pool would have most likely increased and global inflation would make a mockery of the expected contract coin supply. You'd simply never be able to keep up, which is a shame.
Another issue (of many that would take ages to discuss), and perhaps the most pertinent one, is that since a contract coin mimics a fiat currency that it too is effectively being used as a fiat equivalent - i.e. it's a money derivative of a money derivative. A crypto pegged to a fiat is no different to the fiat itself, and so goes against the entire crypto ethos and philosophy. All you'd be doing is creating an alternative transfer and payment system, nothing more, albeit it would be a lot simpler, cheaper and transparent. Low margins would scare bankers off, but not entice them or governments to integrate it into their systems. If the fiat doesn't follow the contract coin, then how do you transfer the real value? May as well just wire the fiat in the first place...
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