One of the greatest problems of Bitcoin is its enormous volatility. It's likely that everyone will agree. Such volatility, which also causes the oldest and most experienced traders abdominal pain and is succeeding in the meantime to frighten and keep most of the population from buying it.
A real Bitcoin opponent will not give up an opportunity to emphasize this problematic point and will claim every time: "How do you expect the Bitcoin to serve as a global payment method when its price often rises or falls by tens of percentage points within a few hours?" Indeed, this is a serious problem that needs to be considered.
Optimists will tell you that this is a natural process of adopting a young and innovative technology and that the more it will be used, the less volatile it will be. But here we have a classic case of an egg and a chicken. How will the widespread use of the currency increase if the sharp volatility continues?
Recently, a new and breakthrough currency in the digital coin market has joined the arena and purports to offer the desired solution. This is an innovative project which, according to its developers, has found a unique and original solution for dealing with the problem of volatility that overshadows all digital coins and is designed to be used in their heads.
The new currency, NuBits, is a distributed digital currency based on Lockchine technology that will always, but always, be equivalent to US $ 1. That's at least planning.
In the meantime, a month or so since his release, he seems to be doing it with great success.
The creator of the Nubits is a man named Jordan Lee. A familiar figure in the world of digital currencies, especially in projects related to Pyrkoyen (PPC), the digital currency distributed for the first time introduced the currency technology Proof-of-Stake.
[In short, Proof-of-Stake is a method of coin mining that creates inflationary environment around the currency, as opposed to the deflationary bitcoin.
Aside from Nubits, Jordan Lee is also working on the development of another innovative project called PeerShares (a second-generation digital asset platform to be built on the Pirkwin network), which is expected to be launched soon.
So the Bitcoin is volatile. There is no doubt about that. But have you ever thought about why it's so volatile?
Jordan Lee has a good explanation, which he is already showing at the opening of the NuBits Whitepaper.
Li argues (and rightly so to say) that the problem of currencies such as Bitcoin, Pyrkoyen (and other currencies in the market) and the one that causes the extreme volatility in their prices, is that in these networks the same monetary unit is used both as a currency and as a share.
Taking the example of Bitcoin, a potential investor who believes in the technology and monetary system that the Bitcoin network offers and operates accordingly and acquires Bitcoin to express this confidence, simultaneously increases the overall value of the bitcoin and increases the bitcoin's price.
This mechanism has undoubtedly been a major part of Bitcoin's success in recent years, enabling its supporters to purchase Bitcoin coins and immediately benefiting from the appreciation of the currency as well as supporting and strengthening the entire chain.
According to Li, the Bitcoin and its ilk were marketed to the public as coins, but in practice they acted as shares for all intents and purposes.
Nothing to say. It is difficult to argue with these claims. The purchasers of the first Bitcoin bought the coin for ideological reasons and a genuine trust in the new monetary method proposed by Bitcoin. Those buyers who bought the currency of the future soon discovered that they were actually holding a share on the future value of the currency and not just a new payment unit.
Until a year ago, it was hard to find complainers because Bitcoin, who was richly rich in imagination, supported those who supported him in his early days, but now that the price of Bitcoin has been steadily declining for almost a year, many have recently lost currency for ideological reasons.
Another important point that we all agree on is that a currency that pretends to be a global barter can not afford to fluctuate in these proportions. Even if the movement is only upward. Then the claims that the higher the global adoption will increase and the trading cycles will increase, the lower the volatility will probably be true to a certain extent (assuming that despite the sharp volatility the adoption trend will continue to expand), but the Bitcoin will always be affected by external events directed to the Betcullin network, whether fundamental or speculative , And will behave more as a share and less as a currency.
The solution that NuBits presents to this problem is a complete separation between the currency (unit of payment) per share (unit of ownership).
According to the philosophy at the center of the NuBits, Mania is the one that gives the holder ownership of a certain part of the network and therefore the amount of shares should remain constant. The higher the demand for shares, the higher their price will be.
The amount of coins to be used as a means of payment, however, must be adjusted at any given moment to the forces of supply and demand so that its price will always remain constant. In our case $ 1. Imagine something like a central bank responsible for this part - just decentralized.
In NuBits the decentralized bank is basically all those shareholders of the network. They will decide on the amount of coins issued and their timing. The issue of new currencies will be carried out by the existence of completely democratic votes in which decisions will be made as to whether there is a need to issue new currencies, how many new NuBits coins should be issued and who will distribute them to the market.
Who are specialized network colleagues who are called Custodians and their job is to distribute NuBits new coins and provide liquidity to the market through various trading arenas. (On the weight of the central bank, we will compare them to today's commercial banks).
The custodians receive their powers from the shareholders who consider the Custodians' various proposals (which may also include Pirkwin's acquisition of dividend distribution to shareholders, execution of a network development project, etc.) and their compensation requirements for distribution. By using the voting mechanism, the shareholders decide whether the Custodians meet the conditions required to become a currency distributor.
Shareholders may at any moment monitor the behavior of the Custodians and disqualify their rights if deemed necessary. Which is expected to encourage Custodians to behave appropriately and avoid abuse. Jordan Lee compares Custodians to politicians who run for office, but in this case the public can also oust them if they do not keep their promises.
On the other side of the chain is the general public. They are the NuBits themselves.
In the Nu network, each NuBits owner can "park" the NuBits in his possession for a predefined period, in return for interest, which he will receive in the form of new NuBits coins at the end of the parking period.
The interest rate that NuBits holds will be determined by the shareholders by means of a sophisticated voting mechanism that enables them to raise or lower the interest rate as necessary and even to set various interest rates for different periods. (In fact, to produce a kind of sophisticated yield curve, similar to that in the traditional bond markets).
Well then we have shareholders, Custodians, Nubits holders, parking, interest and yield curves.
At this point I can assume that some of you are no longer really with me. So let's start again and this time more orderly:
The ultimate goal of the NuBits is to neutralize the volatility of the currency and maintain its value at exactly $ 1.
When you try to artificially and permanently maintain the value of a financial asset, there is a constant and constant need to take care of both supply and demand.
The supply side is easy. Shareholders may decide to issue new NuBits coins as needed and distribute them to the market through the various trading platforms using the Custodians' accounts.
The Custodians who received the new coins will always offer them for $ 1 and make sure that this price cap is not broken. In an extreme case in which demand for Nubits increases and threatens to breach the $ 1 rate, shareholders will work to create more and more Nubits coins and meet demand.
The demand side is slightly more complex. Here comes the parking mechanism mentioned above.
In order to generate demand for NuBits, Nu will offer interest payments to NuBits holders who will be willing to park their holdings for a specified period.
The underlying assumption is that an attractive interest rate will attract buyers to NuBits and create demand for new investors who will purchase NuBits only for the purpose of parking and the receipt of the interest rate offered. The weaker the demand side, the more shareholders will vote for a higher interest rate reward, which in turn is expected to attract more and more buyers until demand for NuBits stands at the $ 1 rate. When this happens, the same mechanism will be activated to lower interest rates gradually depending on changes in demand.
Another possibility of creating the demand side for NuBits, which we will not expand on here, is the raising of a dedicated investor with a net balance of dollars that will be ready to place orders for NuBits at a price of $ 1 through his available capital for an annual interest payment.
When the NuBits coin was launched on September 23, many eyebrows were raised about the ability to support the $ 1 rate exactly as the theory suggests. Today, after more than a month and a half of trading, it appears that the developers have succeeded in making the theory a reality and the NuBits stand steady as promised at a rate of exactly $ 1.
magnificent. So we found a coin that is both digital and non-volatile. You can close the stand and go home. But wait a minute ... Something here does not work out.
Is it possible that the stability shown by the NuBits in maintaining the $ 1 rate is only a temporary stability that is soon to end in a jarring tone? Certainly there is also the reason:
You may have noticed the previous part of the explanation that the network's solution to supply shortage is simple and intuitive, and includes the creation of more coins to be added to the market, but a closer look reveals that the demand side of the network is also producing more and more supply.
Confused? Think about it for a moment. Attractive interest rates are expected to attract new buyers to the NuBits market, which is expected to increase demand and push the value to $ 1. They are also expected to park almost immediately their holdings for a defined period in order to benefit from the same interest rate. Up to here everything sounds good. But pay attention! The interest paid to NuBits at the end of the period will be received in the form of new NuBits that did not previously exist on the network. The result: an increase in demand which eventually leads to an increase in supply.
This problematic structure, to put it mildly, is why many people believe the NuBits network is a ticking time bomb.
At first, and in small numbers (such as those that exist today) no problem is expected. But as time passes and as more and more interest rates are paid in the form of new NuBits, the pressure on the supply side is likely to increase. In the absence of a solution to increase the demand side, which does not entail further flooding of the supply, at some point the card tower is expected to collapse and to completely erase the demand side, while raising interest rates to new highs.
The good news is that the development team is aware of the problem and is working intensively with the community to find new and creative solutions to support the network. (Such as creating Custodians accounts which are likely to place buy orders immediately after each sale). It seems that in spite of the great danger, in the absence of a formative event that will act as a trigger, it does not appear that an immediate danger is imminent and close to the fixing of the gate.
Another big disadvantage of the NuBits comes from the news he brought with him. To cancel volatility and fix its value there is a price. This disadvantage is the main reason why the Bitcoin and digital currency community members disdain NuBits and not embrace the currency. I am talking about the fact that the Nubits, despite being digital and distributed and such a blockcane technology, is close to the US dollar. The most printed currency in the world.
A large proportion of digital currency purchasers do so precisely because these currencies are not the dollar (or any other government currency for that matter). The linkage of the NuBits to the dollar may eliminate its volatility but also castrate one of the most prominent features of digital currencies. Autonomous control of currency value.
NuBits should take into account that the currency they hold may lose a significant part of their value in the next few years due to the massive printing of dollars by the federal government and the decline of the US as the strongest economy in the world, exactly the opposite of what the Bitcoin shareholders expect.
Despite all this, however, aside from apocalypse scenarios (especially the likes of bitcoins), the dollar is still the strongest and most sought after currency in the world and is expected to remain in this position for many years to come.
Despite its limitations, the NuBits project is creative and innovative and very interesting to see where it can evolve in the future. The project does not limit itself only to the US dollar and in the future (if the experiment succeeds) it is likely that new coins will be created that are attached to other Fiat coins.
