Pegged crypto currency and supply control

[cryptog]

I went to a seminar the other day (in Tokyo).
There was a presentation about Bitcoin and its issues.
One of the issue was stability.
The company behind the seminar said they were developing a stable electronic currency…
They were not aware of NuBits.
I said that NuBits solved the issue of stability by controlling the supply.
They said: what supply control? No need for that, we just do the pegging…

Which makes me wonder: is it possible to create a stable currency with no supply control…?
In other words, what about creating a central bank that issues a currency and that guarantees the redemption of each unity of currency for 1USD based on reserves of USDs that the bank has?
In that case, no need for buy/sell walls on multiple exchanges…
People would not sell below the peg and buy above the peg on those exchanges because they would believe they can go to the central bank to get redeemed?

Does it means sense?

[Ben]

Conceptually, it does, but it leaves at least two major unanswered questions:

1. Where do these reserve funds come from, and how do they increase as the supply needs to increase?

2. How are the funds redeemed? Who makes sure they are secure and accessible?

[mhps]

what about creating a central bank that issues a currency and that guarantees the redemption of each unity of currency for 1USD based on reserves of USDs that the bank has?In that case, no need for buy/sell walls on multiple exchanges

“creating a central bank that issues a currency and that guarantees the redemption of each unity of currency for 1USD” is just setting their own exchange (through their desk window) and putting up a sell/buy wall. The superficial difference is that Nu doesn’t have its own exchange. The profound difference are Nu is decentralized, with a uncorruptable global ledger, a uncorruptable voting mechanism for anonymous shareholders, and a cool community

[zoro]

central banks are all the fiat banks. are they going to implement a centralized coin then?
and it is akways better to have alot of different entities to setup the sell-buy walls than only one central entity. you minimize the risk of bank run

[cryptog]

@ben.

Good questions.

Possible answers.

1- From buyers that want to charge their wallets like “credits”. I see a system in which people would get pre-paid cards (say 100 points = 100 usds). Then, those cards credits are transferred into satoshi-based qt wallets by scratching them to reveal a private key corresponding to a public key containing the credits. Then those credits are sent over a blockchain when doing commerce. So basically buyers increase the demand whenever they ask for credits.
Those credits are spendable at e-commerce site for example.

2- Whenever you want to cash out those credits you can ask the central bank (the company that issues the cards) to give you back the cash (fiat) since its holds the cash you deposited in the first place, but for a fee.

In other words, it is digital cash over blockchain…issued by a centralized corporate entity.
Paypal or Visa debit card over the blockchain…

Sounds contradictory and looks it would implode…

[cryptog]

@mhps

I agree. The beauty of Nu is to decentralize the decision-making process of the monetary policies of a bank that is close to the idea of a financial system owned by the people for the people.

putting up a sell/buy wall.

But why the need for walls if selling below the official exchange rate incurs a loss and selling above would attract no buyers?

[mhps]

why the need for walls if selling below the official exchange rate incurs a loss and selling above would attract no buyers?

Without the buy/sell walls the official rate is toothless and will collaps faster than the Ruble.

[Ben]

Without the buy/sell walls the official rate is toothless and will collaps faster than the Ruble.

I’ll motion to launch a new RUB/NBT trading pair.

[cryptog]

I was a bit naive here, I must admit.
But it puts the emphasis on an important point.
Cryptos are easily tradable (because easily transferrable) on exchanges and there are multiple exchanges out there.
If it was not possible to trade NuBit anywhere else than at NuBit Exchange in which the only quote would be 1NBT=1USD, we would not need any walls at all.
Walls are necessary when traders are able to set the price they want and they are since we live in a relatively free world.
In a totalitarian world, a stable crypto-currency would be easier?

Anyway, it seems impossible to create a stable crypto-currency, without buy/sell walls, which implies the creation of monetary policies, which must be decided on based on votes in a decentralized system, which really leads to Nu.

That Japanese company’ technical architect that I met recently who claims to be able to create a pegged digital currency with no control of the supply seems to be ignoring the economics.

[cryptog]

@mhps. Does HK put buy and sell walls to fix UKD/USD?

http://www.hkma.gov.hk/eng/key-functions/monetary-stability/linked-exchange-rate-system.shtml
Banknotes in Hong Kong are issued by the three note-issuing banks When issuing banknotes, the note-issuing banks are required to submit US dollars (at HK$7.80 = US$1) to the HKMA for the account of the Exchange Fund in return for Certificates of Indebtedness (which are required by law as backing for the banknotes issued). The Hong Kong dollar banknotes are therefore fully backed by US dollars held by the Exchange Fund. In the case of government-issued notes and coins, which are issued by the Government through the HKMA, transactions between the HKMA and the agent bank responsible for storing and distributing the coins to the public are settled against US dollars at the rate of HK$7.80 to one US dollar.

There are indeed some fluctuations but it is very close to 7.80. http://www.xe.com/ja/currencycharts/?from=USD&to=HKD&view=10Y

EDIT: After further checking, there are indeed walls
–> The HKMA undertakes to buy US dollars from licensed banks at HK$7.75 to one US dollar (strong-side Convertibility Undertaking) and sell US dollars at HK$7.85 to one US dollar (weak-side Convertibility Undertaking).

[mhps]

If it was not possible to trade NuBit anywhere else than at NuBit Exchange in which the only quote would be 1NBT=1USD, we would not need any walls at all.

Centrally managed pegged currency is very common. If you go to a themepark or a casino, you will have to buy chips with fiat. The chips have an 1:1 ratio pegged to the fiat, and is the internal currency to that park or casino. The chips are backed fully by the fiat reserve, built up by fiat money paid by chip-buyers. I think the exchange mcxnow issued its own “chip curreny” before. No problems here. A distributed pegged currency is a different matter.

[mhps]

@mhps. Does HK put buy and sell walls to fix UKD/USD?

See here for a previous discussion of countries that peg thier currency.

[cryptog]

Yes this is what I had in mind…Facebook will have soon its fbusd redeemable for 1usd each I guess… No need for walls here either if fbusd never gets out of the closed system that fb is…
But to move fbusd out of Facebook, you will need some sort of exchange.

[cryptog]

As you can see here, Opening for Senior QA Developer @erasmospunk had in mind a pegged token backed by a reserve bank.

“I was even thinking of creating a reserve “bank” that issues tokens on CounterParty but the regulations and the centralization risk for my users were not worth it, so I gave up the idea”

But I have the feeling that in order to do so you need to be a normal bank…so you need to be regulated by the same rules that regulate banks…unless you are decentralized.
So it seems inevitable that you need to be decentralized in order to create a pegged currency in the crypto world, which is natural.

[cryptog]

https://akimbocard.com/ is a system in which people can send money to each other for no fee, like Paypal.
Facebook is preparing the same.
Line has released recently a similar system.

So as long as you stay in a closed system, you can enable zero fee transactions.
But the cost is centralization…

With Nu not only we have decentralization but also almost no fee.
That is a no brainer.

[CoinGame]

I would add that the fee in those services is allowing them to sell any data that can be collected about their users. There is still a cost applied to the work even if the system is closed. I’m not sure exactly how that specific system works though. I am fairly certain if there’s no subscription or fees we should know by now that profits are generated from the data and analytics of users.

I think that’s a fairly strong supporting argument for blockchain technologies that are cost effective without putting users personal information at risk.

[cryptog]

putting users personal information at risk.

That is a great point, @CoinGame .

There is also https://spike.cc/ in Japan recently that offers 0 fee if the monthly volume of transactions is under 1m JPY (~10k USD). Spike is a service created by Metaps, specialized in user data analytics, which matches perfectly what you have described…

[mhps]

I’ll motion to launch a new RUB/NBT trading pair.

See who gets this done first.

[Ben]

I had actually meant it in jest. I, personally, see no value in setting up a pair that would, with almost certainty in the short-term, result in large paper-losses for a custodian.