The way Cryptos are designed and how they behave may make it an inappropriate replacement for fiat currencies, particularly for people in economic and financial disorder, according to a report by FinTech and Blockchain technology research publication Diar published on Tuesday, September 11, 2018.
Significant Abasement in Purchasing Power
Diar recently published data that covers a wide range of Cryptos, from Bitcoin (BTC)and Bitcoin Cash (BCH) to ZCash and Nano. As per the data, several Cryptos, including the new ones such as Litecoin and DASH also greatly suffer from supply inflation. Besides, when you take the annual average of a token, a lot of tokens are fairly 'useless' especially on combating inflation.
For a Crypto to be essential for a country with an economy in turmoil, the purchasing (buying) power of the currency needs to stay stable, particularly in comparison to the flabby fiat currency.
According to the Diar report:
“When the inflation rate is positive, the purchasing power declines and vice versa. Bitcoin, XRP, Nano, EOS, Stellar, Cardano, and IOTA have been deflationary year-on-year while the rest was inflationary… However, if we consider year-to-date inflation, all of the cryptoassets were inflationary.”
Cryptos aren't Operative Against Economic Volatility
For instance, Bitcoin, one of the Cryptos which inflates the least, experienced over 50% inflation in 12 months. The stored value of Bitcoin is now worth less than half as much.
However, the Turkish Lira, while it declined 20% of its initial value, would be somewhat better than other currencies, especially Bitcoin, at controlling inflation.
“In a time of economic uncertainty, it can be expected that people would rather switch to a cryptocurrency with a predetermined generation
algorithm, which guarantees certainty of issuance,” said the research. “While the price can never be guaranteed, certainty is more favorable than a monetary policy decision being made by a small group of developers.”
After having reviewed the study, Dima Vol, the Global Ambassador at the
Mile Unity Foundation project aimed to promote XDR stablecoin across the sector of retail, b2b and intergovernmental payments (g2g) for faster and secure transactions with lower fees, shared his opinion with Coinidol:
“The best solution to existing problems is to allow some time for the rapidly growing sector of cryptocurrencies to mature and get stable enough. Decentralized communities will soon prove their advantages in terms of quick, effective and appropriate measures that need to be taken. I also believe that such a solution for the real economy is already found and all we have to do is raise awareness on recently emerged stablecoins that combine all the best from independent currencies and are devoid of internal reasons that cause price volatility.”
Alex Reinhardt, Venture investor, business development expert, serial entrepreneur, Co-Founder and CEO of
ELVN Crypto Messenger and Wallet, stated to Coinidol:
“I am sure the cryptocurrency market needs to be regulated. For big money to come, transparency and clear rules of the game have to be ensured. There is certainly a risk that with regulation cryptocurrency prices will initially fall, but once the rules have become transparent and clear, many of them will start growing. Their growth will be determined by the demand. Institutional investors, pension funds and others will feel safe to invest, and the industry will see an inflow of really big money boosting the capitalization of the entire crypro market.”
If a Crypto were to be applied as a hedge over other financial uncertainty, then the better ones would automatically be those with a more transparent algorithm where there isn't a rising circulating supply. These include NANO, Cardano or IOTA. Other currencies with an inflation rate that goes beyond 2.5% aren't the perfect currencies to apply as a hedge against economic volatility.