In the original Bitcoin Whitepaper, you can read
"What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party"
https://bitcoin.org/bitcoin.pdf
The goal was to create an alternative way to pay for services and goods, or to give money for any reason, always in a trustless environment, but as the relationship between the value of the things you pay for and the money you are paying for those things can dramatically change from one day -or even one second- to another, then the system is non practical for everyday commerce, thus stopping crypto to reach the objective it was created for. The real goal of BTC cannot be achieved, just because of the extreme volatility of BTC itself and in consequence, of all the existing altcoins.
The system is claimed to be democratic and decentralized, but right now, BTC price is based upon the absolute decision of those who trade it in the exchanges, without considering the opinion of those willing to keep their funds safe. The value of crypto is absolute centralized depending on the only will of those who trade it on exchanges against FIAT, or against other altcoins. The vast majority of coins that remain outside the the trades, doesn't matter to calculate the price. This IS NOT democratic.
Right now, if a whale takes the decision of selling all its BTC, counting for 2% of the circulating supply, at, let's say, 80% of the current value, then the 98% of the remaining BTC will suddenly crash, no matter if were being held by long or by short term holders, or even by some one who sold his house because he believed in BTC. The same applies to any altcoin in any exchange.
If the price of a crypto decreases 10 percent, because the owners of 2 percent of coins, suddenly decide to sell it, would be like the price of dollar could decrease because a millionaire decided to buy an international consortium, affecting the savings of a grandma in a cookies can, but this is not happening this way with FIAT, isn't it?
Those who own the 2 percent of a given crypto can decide the MarketCap because right now the price of all coins depend absolutely on exchanges. And here is an example -with a formula- to demonstrate it.
We will define the variables as:
PLT : Price of the Last Trade
CIE : total amount all Coins or Tokens of a single symbol In Exchanges
COE : total amount all Coins or Tokens of a single symbol Outside Exchanges
CS : Circulating Supply
Today, the price calculation formula for any given crypto, is just this:|
Coin Price = PLT
and we know that
MarketCap = Coin Price * CS
This is equivalent to say that:
Coin Price = PLT * ((CIE/CIE) + (0 * COE/CS))
In this example, if the circulating supply is 100 million coins, if there are 10 million coins in all the exchanges, and if the last price of the coin in a given market is 1 U$, the price of the coin is:
Coin Price = 1 US$ * ((10M/10M) - (0 * 90M/100M))
Coin Price = 1 US$ * (1 - 0)
Coin Price = 1 US$
And, if the price decreases to 80 cents in one day in the exchanges, then:
Coin Price = 0.8 US$ * ((10M/10M) - (0 * 90M/100M))
Coin Price = 0.8 US$ * (1 - 0)
Coin Price = 0.8 US$
Decreasing the MarketCap by 20% in ONE DAY
Fact: The price of crypto is entirely and absolutely determined by the coins in the exchanges. Period.
The guys who have the 2% of that given crypto, should not decide the price of 98% remaining coins. This is nor democratic, nor decentralized. To our point of view, this is not only unfair, but lacks of logic and is deterring a proper widespread of cryptos for everyday use. We know that it's just the way it is, but the extreme volatility of cryptocurrency is just caused for this very reason.
Calculating the price of assets, shares, commodities, or whatever could be traded based only on supply-demand ratio could have been appropriate for many things during mankind history, but not for crypto. Why? because crypto is supposed to be the new technology to give an updated shape to a complex concept: "money".
As long as crypto show such an extreme volatility, it adoption for everyday will never arrive. That is not what this community wants, I guess. Maybe it is a very profitable high risk game for day traders, gamblers, or whatever, ICO issuers, airdrops and magazines, but not for crypto community and probably not for what Satoshi was thinking when he started the fire on 2008.
There could be a solution for this issue, only if the whole community could agree on a new and different way to calculate the price of crypto, just by a fair, democratic, decentralized and "weighted" way.
It will be necessary to define a base for every day calculation, that should be the last price at 00:00 GMT, defined as
YCP : Yesterday's Coin Price
The weighted variables will be:
WPLT : Weighted Price of the Last Trade
WYCP : Weighted Yesterday's Coin Price
Where
WPLT = PLT * CIE/CS
WYCP = YCP * COE/CS
MarketCap = Coin Price * CS
The MarketCap formula will always remain the same:
MarketCap = Coin Price * CS
and the grand difference would be in the Coin Price
Coin Price = WPLT + WYCP
If this calculation is applied to the same example given above, with a Circulating Supply of 100 million coins, with 10 million coins in all the exchanges, with a closing yesterday's price of 1US$, and if the price in exchanges decreases to 80 cents in one day, then:
Coin Price = ((0.8 US$ * 10M) + (1 US$ * (100M-10M))/100M)
Coin Price = (0.8 US$ * 10M/100M) + (1 US$ * (100M-10M)/100M)
Coin Price = (0.8 US$ * 10M/100M) + (1 US$ * (90M/100M)
Coin Price = (0.8 US$ * 0.1) + (1 US$ * 0.9)
Coin Price = 0.08 US$ + 0.9 US$
`Coin Price = 0.98 US$
Showing a huge difference of 18% less variation in coin price (0.98 vs 0.8), for the same difference in trade price, and hence a greater increase in stability, perhaps assuring crypto a rapid adoption in everyday commerce use.
For this to become real, it should also be necessary to define a "Zero Hour" to set base prices for every crypto on earth. This should be decided in consensus and widely announced very much the same way it has happened with every BTC fork. Perhaps you will agree with us that there is no better moment than 00:00 GMT on May 22, 2020.
Would Laszlo Hanyecz be happy with this?
Will Satoshi Nakamoto and the crypto community agree, and therefore find a consensus in just 2 years from now?
What do you think?