Mar 18, 2019 07:00 UTC
Mar 18, 2019 at 07:00 UTC
How Stable Coins Could Prove to be a Disaster for Decentralized Space
2018 might have been the year of bears, which saw major cryptocurrencies lose a significant chunk of their market capitalization. However, as voiced by many analysts and trade pundits, the longest crypto market might have been a nightmare for investors, but it helped the crypto trade market to shed a lot of its volatility.
Price volatility had been the biggest concern for the traditional investors and financial institutions which refrained them from foraying into the decentralized market.
2019 saw a number of traditional players and financial institutions making a foray into the cryptocurrency space. The biggest name to do that is JP Morgan, probably the biggest critique of Bitcoin among the traditional investors launched its own stable coin called JPM Coin.
Apart from JP Morgan, many other traditional banks are either looking to avail crypto-based services like crypto trading, crypto hedging, and crypto custodial services or looking to launch a stable coin of their own.
So, what’s up with these stable coins and why traditional players are only interested in having some form of stable coin to enter the crypto space? We would try to analyze various factors about the love for stable coins and try to answer why this could prove to be a disaster for the decentralized space.
Stable Coins are not Decentralized or Cryptocurrencies in True Sense
Stable coins work on the same principle of fiat, i.e it has a stable value pegged against another entity like the US dollar or gold or even petroleum. It works on the two coin theory, where one coin’s price kept constant while the other coin bears the brunt of the volatile market.
Tether is probably the most famous among the stablecoins and it is pegged against US dollar, however, it has often been marred into controversy for not really providing proof for the claims that it makes. Be it not having enough US dollar in reserve for the amount of Tether in circulation, or the number of hacks on its network.
Same holds true for any other stable coins coming to the market, in order to be called a cryptocurrency it must be decentralized, i.e the creators should not have the control over the circulation supply. But alas the vision of cryptocurrencies have been corrupted and the focus is more on the financial aspect.
To give you a perspective only Bitcoin and Ethereum are considered independent entity and rest thousands of coins fall under the bracket of security. Stable coins are basically glorified fiats and nothing more.
When JPM coin was launched many prestigious publications called it the next best thing for the crypto space, as it would merge the gap between the traditional and decentralized space. Well, if you think about it they are not even close. By offering crypto services or launching a digital form of currency does not really make you a part of the decentralized space, you are just munching on the trend, the same trend which you denied for so long.
Banks are Doing what they are Best at, milking the trend. Heres a fun fact, money laundering is a nuisance we have been battling for years, and you know who is the biggest aid of these notorious criminals turning their illegal money to legal, the same banks. According to an estimate, banks help criminals launder $2 trillion money every year.
Stable coins and Traditional players Might Hijack the Vision of Decentralized Economy
When Satoshi Nakamoto launched the white paper for Bitcoin, he visioned a decentralized economy, where the people do not have to be dependent on any banks to use their own money. The vision was never to have a coin valued in thousands of dollars. It was against the same traditional players against whose monopoly the concept of cryptocurrencies was formed.
If the traditional players really want to make a difference or do something for the decentralized space, then they can start with abolishing all unnecessary fees and charges for the common man, like charging a fee for depositing the money, or the charges for withdrawing money or charges for the transaction.
The current trend of traditional players moving into cryptocurrency space is purely from the financial point of view, it has nothing to do with the vision. During the 2017 Bitcoin price rise, a tea company added “blockchain” to their name just because it was in the trend, and its valuation rose by more than 100% overnight. This holds true for the JP Morgan and any other banking system offering crypto services.
It’s funny when the entry of traditional players into crypto space is being lauded as revolutionary when the concept was created to end the dependence of people on the same banking system.
The recent surge of many traditional financial institutions in the cryptocurrency space must not be weighed in more than what it is. It’s just that people have realized the future is digital if not completely decentralized, and looking at the popularity of the cryptocurrencies there was no way around.
“If you cannot fight them, join them”
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