There is a new project in the blockchain that intends to help the volatile network trading become more stable and would probably be the start of a HUGE change in the crypto world. The project is called Firmo. Firmo has 2 main parts. First is the ability to form smart contracts and the way to platform to use those smart contracts.
You can find the FULL details for Firmo here:
Introduction:
It is a bit complicated since we will be talking financial matters and as we know, understanding finance was never an easy task. I will try to make things way simplier to understand in this post but would focus on how the Smart Contract works.
The Main Idea of Firmo is to make trading cryptocurrenct much stable than today. Right now, cryptocurrency is very volatile. To give as an example, Let's say bitcoin is priced as $1000 today (this is just an example). After 1 hour, it may jump to $5000 or more, or $10 or less, depending on the market buy/sell.
With Firmo, the buyers or sellers form a smart contract. Smart contracts are based on derivatives. According to bseindia.com, "A derivative is an instrument whose value is derived from the value of one or more underlying, which can be commodities, precious metals, currency, bonds, stocks, stocks indices, etc. Four most common examples of derivative instruments are Forwards, Futures, Options and Swaps." Derivatives are the factors that affect the trade. For Cryptocurrency, underlying will be buy/sell or supply and demand.
To make it much simpler, here would be a real example on how Firmo would work.People who bought cars and looking for one are very familiar with this.
- Bob is looking for a car and called Honda Dealership.
- Honda Dealership Agent Mike handled call and said they have in stock a 2018 Honda Pilot for $35000.
- Bob said he is interested in that and say he would buy it in 3 weeks.
- Mike said they would need to put a deposit of $500 for the car if he would not buy it immediately.
- Bob agreed and bought it in 3 weeks paying $35000.
So what happened?
Bob is interested in a car, thus Bob is a BUYER. Honda Dealership is selling the car thus they are the SELLER. We have a buyer and a seller so we can now have a trade.
Bob did not make an offer. Mike on the other hand have a Selling offer that Bob Agreed.
Prices of Commodities changes without notice thus a balance is needed to "fix" the car price. The balance is the Smart Contract. Smart Contract assures the seller to have the car priced at 35000 for a fix fee (the 500 balance which can be waived depending on the contract).It assures the seller that the car will be bought as well regarding of the future price.
If in 3 weeks, the car price went down to $2000 then Bob can cancel the trade to avoid the loss. However, the $500 may not be refunded by the dealership depending on their Smart Contract.
On the other hand, If the car price went up to $50 000, then Bob can still pay the agreed price of $35000. Dealership did not have any losses here since if they have the car priced at $35000 that means they earned at that price.
This Smart Contract would be a win-win to either party.
Going back to Cryptos.
Mike is selling bitcoins priced at $1000. Bob saw this and said he would buy 10 in 2 weeks. Mike said there will be a contract fee of $100. This fee would ensure that even after 2 weeks, Mike would still sell the bitcoin for $1000. After 2 weeks, bitcoin price went up to $5000. Due to their contract, Bob still bought the bitcoin for $1000.
Advantages and Disadvantages.
Advantages:
Smart Contracts allows the cryptocurrency to be at a certain price at a specific amount of time.
Smart Contracts assures that the buyers would not have huge losses in the trades after a specific amount of time. Sellers on the other hand is assured of the "fee" in case the buyer would cancel the said deal.
Disadvantages:
Buyers would have to pay the corresponding fee regardless of their asking price. If the bitcoin did not increase in price and stayed at $1000 after 2 weeks, buyer would still pay $1100 with $100 as their Smart Contract fee.
Buyers would have to pay the corresponding fee whether they buy or cancel the deal.
Sellers will have limited earnings. If the Bitcoin priced more than what they are offering, they still need to honor the promised price regardless of the current price.
Conclusion:
The Advantages outweighs the Disadvantages by huge margin. As a buyer, you will not buy something higher than your budget while as a Seller, you will not sell something that you would incur a loss. If you buy a crypto priced at $1000 then offered to sell it at $1500. Even if the price shot up to $10000 in a week, you still earned $500 + fee. There was no actual loss in that. I believe Firmo will have a big impact once people started acknowledging it. Firmo solves the crypto volatility which is a risk in cryptocurrency trading. Once Firmo was adapted, cryptocurrency would be more stable and trading cryptocurrency would be much safer.
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