reposted from bitcointalk.org-
I want to put one new idea out for everyone to ponder.
The path the crypto currency market will take in its development is hard if not impossible to predict in the very long term of 20 years or so. However, when we shorten the time frames up and focus on steps in the development we may be able to make some predictions with greater accuracy. Specifically, I look at the near term of the next two to five years and I see a few important trends.
Bitcoin is not going away in the next five years. Maybe it won’t always be the de facto standard in crypto but for now and in the near future it is the flag bearer.
There are too many alternate cryptos in the market now. There is too much noise in the market with currencies that don’t have and probably never will carry any real value. This brings the value of all alternate cryptos down because it creates confusion and therefore risk in the market.
In the near term there will be no viable lending market in BTC or other cryptos. Until someone buys enough of a BTC stockpile to begin a viable lending business AND they find an adequate way to secure their loans we will not see interest paid on crypto holdings or the ability to ‘short sell’ a crypto. Lending crypto is very unlike traditional lending because of the anonymous nature of the holding or the ownership itself. To secure a loan a lender would have to seek real world collateral or guarantees. This is a structural problem in the market that I believe will eventually be resolved but the how is not immediately clear. Certainly, if we were to see corporations begin widespread adoption of cryptos we could see a lending market quickly evolve but I don’t see any way this would happen without a rapid attempt at regulation by both state and supernational organizations.
The Cyprus Precedent. There is a lot of nervous money all over the world that is vulnerable to increased and questionable government taxation. There have always been owners of grey or shadow money that are always seeking a safer haven but for the first time there are depositors that include normal middle-class individuals that have played by the rules and are now vulnerable to having their savings seized.
Global interest rates will stay low for the foreseeable future. Every major central bank, with the exception of China’s, is running a massively stimulative monetary policy. This has two important effects. First, without taking credit risk, it is impossible for a depositor to earn interest on a real basis for short-term deposits. In fact, when inflation adjusted, real interest rates in many countries are negative. Second, this kind of monetary policy increases the risk of runaway inflation.
All of these trends lead me to the new idea that I would like everyone to consider. I believe there is a big opportunity for PPCoin in highlighting the 1% POS minting yield and creating a unique value proposition by defining it as the ‘Savers’ crypto currency. You hold your money in PPCoin and when you spend it you convert it into BTC. I was further thinking that we might try to brand the ‘big three’ of BTC, LTC, and PPC along these lines: Save in PPC, Spend in BTC, Carry LTC. The idea of including LTC involves the digital wallet in your smartphone and the fast transfer speeds- digital pocket cash, if you will. I don’t really like the idea of advocating for LTC but it works for PPC as it provides a paradigm and context for how an individual user (especially a new user) can understand and use cryptos. If this became the common mindset, it deals a blow to all the other alternate cryptos out there because what purpose can they serve that is not already served by the big three? Without including LTC I don’t know that we can make that argument.
Now, getting back to the savings differentiation let’s discuss the basic definition of a currency. A currency is something that is 1) a store of value and 2) a means of exchange. PPC is a superior store of value (assuming liquidity) to BTC and LTC because of better security against a 51% attack and the 1% POS mint yield. As a means of exchange it is inferior at this time because BTC has greater liquidity against all other cryptos and real currencies and is accepted by a larger number of merchants. It’s inferior to LTC as a means of exchange today because of its slower transfer speeds. I therefore believe that rather than trying to effectively compete with BTC or LTC by getting more merchants using PPC we should be focusing our efforts as a community to spreading the message of PPC as the Savers Crypto. We focus on the key positive differentiator that PPC has over all others- 1% POS minting yield- and make this the selling point. Of course, if merchants accept PPC that’s a positive but I think the opportunity lies in evangelizing the relative advantage of PPC.
Imagine for a second what would happen if people placed even 10% of their BTC holdings in PPC. This would be about $150 million USD of inflows into PPC. The appreciation of the currency would be extreme, to say the least. Now, if cryptos were to mirror the way people treat fiat currency, we would soon see much more money in savings than in liquid cash or checkable deposits. In fiat terms M2 is multiples of M1. The potential for PPC, if adopted as the ‘savings crypto’ is tremendous. Consider also, that if people are saving even moderate proportions of their crypto holdings in PPC the need for BTC as an intermediate currency decreases. That is, if everyone has it, merchant adoption will automatically increase because they need to save as well and neither they nor their customers want to have to pay an extra transaction cost of conversion to/from BTC. The path to possibly eclipsing BTC starts with an adjacency that complements BTC.
One other point to make is about volatility. When BTC trades in a range from 50 - 260 USD in just a few days, the 1% minting yield becomes irrelevant even though it beats fiat rates. A liquid market is important but a stable market is equally important. If you look at the lack of major volatility in BTC over the last week and in the longer periods prior to the last run-up and crash, this is the kind of market that would be ideal for PPC proliferation and adoption. A slow increase in BTC combined with a growing belief in the superiority of PPCoin for savers would be ideal because holders would get the 1% yield and a steady capital appreciation.
The major problem with advocating PPC as I describe is that we need improvements to the wallet. Presently, the wallet can only mint POS coins if it is unlocked. I think Sunny is already working on this. A further security improvement of ‘cold-locked transactions’ has already been proposed by Sunny though no development timetable has been released. With these two security improvements in place we might expect faster traction of PPC adoption as a Savers Crypto. I would put it to the community that right now getting a locked minting wallet in place is the highest priority for development of the currency.
Beyond the technology, there is everything else that can be done to promote this concept. Building it into the presentation and messaging of the coin on the official site, into the new designs that people have been playing with, into the conversations that we all have about PPC and crypto in general…
Thanks for taking the time to read this. I look forward to hearing your thoughts and discussing this with you all. I will be posting this in ppcointalk.org as well.