Cryptocurrencies, it should be recalled, were intended to not have an intermediate financial authority in any given transaction. The Blockchain is limited to the two participating parties and everyone else who has access to the Blockchain. From here, the concept of a Triple-Entry Account Bookkeeping becomes a feasible methodology distinct from conventional Double-Entry Account Bookkeeping. But the fact that there is no financial authority also renders the Blockchain vulnerable to rapid fluctuations in the value of a Cryptocurrency. The unpredictive qualities are what deters any Cryptocurrency from being widely accepted outside of its own Blockchain, hence no Cryptocurrency has ever been able to match the financial firepower of the central banks. The additional vulnerabilities to Speculation and their swift integration into the financial markets, which rely on the fiat currencies issued by central banks, demonstrates their characteristics as being beholden to Kapital under the Incentives of Supply and Demand.
Even so, the fact that Cryptocurrencies in general do not wield the Incentives of Supply and Demand as well as fiat currencies has given rise to the recent emergence of “Stablecoin.” The Stablecoin is a class of Cryptocurrencies whose value is either pegged to Commodities like gold and silver, currencies like the US Dollar, another Cryptocurrency such as Ethereum, or backed by an algorithm programmed with the Incentives of Supply and Demand. By backing its value to one of those four, a Stablecoin will be able to mitigate the volatilities normally associated with most Cryptocurrencies. That in turn allows its value to remain consistent for the foreseeable future, creating a semblance of stability. They are also able to exhibit characteristics such as being a Store of Value, a Unit of Account, and a Medium of Exchange because of the fact that they are backed by something besides the Blockchain itself.
“Being based on the blockchain allows stablecoin holders to take advantage of numerous opportunities. The first stablecoins were issued as fiat currency replacements on exchanges and gave investors a safe haven away from the volatility of other crypto assets.
Stablecoins can now be used to lend for rates better than those offered by traditional savings accounts or take out cryptocurrency-backed loans in the decentralized finance (DeFi) space. While stablecoins may earn higher yields than traditional savings products, it is crucial to note that stablecoin offerings do not provide any government-backed insurance.
Stablecoins have been issued on various blockchain networks that support smart contracts and are widely used throughout the DeFi space and on exchanges. Blockchain networks that support smart contracts allow applications like decentralized exchanges (DEXs) to be built on top of them. Decentralized exchanges are marketplaces where transactions are made directly between traders.”
Any Stablecoin that is backed by a fiat currency will most definitely be pegged to the US Dollar. This is not surprising insofar as the US Dollar continues to be remain as the world reserve currency, besides being redeemable in a 1:1 currency exchange. Conversely, those backed by another Cryptocurrency are going to rely on some combination of Bitcoin and Ethereum as in the case of Wrapped Bitcoin (WBTC). As for the ones relying on an algorithm, a seigniorage model is employed to account for the difference between their value and the cost to produce them under the Incentives of Supply and Demand. To quote the aforementioned article:
“Non-collateralized or seigniorage-style stablecoins destroy and inflate supply on-chain to maintain their peg. No collateral is used to mint these stablecoins as they are self-collateralized. For instance, let’s assume the value of stablecoin A is $1.00. The price lowering to $0.70 shows that there is more supply than demand for a stablecoin. The algorithm buys stablecoin A with seigniorage, reducing supply and bringing the price back to $1.00.
If the price remains below $1.00 and there are not enough earnings to buy more of the coin’s supply, seigniorage shares are issued. It means users are effectively investing in the expansion of the supply of non-collateralized stablecoins. On the flip side, if the price of a stablecoin rises above $1.00, the algorithm generates more tokens, increasing supply until the price falls below $1.00. The profits are referred to as ‘seigniorage.’”
However, as the same article would later state toward the end, Stablecoins backed by an algorithm are vulnerable to Ponzi schemes:
“Algorithmic stablecoins can often lead to Ponzi schemes where new tokens are only created through new users depositing collateral. A Ponzi scheme is a type of fraud that generates returns for investors with funds from new investors and eventually collapses when new investors stop making investments. This means the value of these assets can quickly implode if new users stop coming.”
And it should also be stressed that any Stablecoin is also at risk of being defaulted, which can come as a consequence of those which are backed by gold and silver or the US Dollar. It really depends on whether the Stablecoin is capable of being redeemed for either form of Kapital, be they gold and silver or US Dollars. To quote The Work-Standard (2nd Ed.), “How much gold is there in existence?”
In any case, suppose for a moment that there is a Cryptocurrency, somewhere in the world, whose value is not backed by any Quantity of Kapital but by the Quality of Arbeit. Let us refer to it as a “Sociable Cryptocurrency” in reference to Sociable Currency, the formal designation for any currency pegged to the Work-Standard. What happens if a Cryptocurrency becomes pegged to the Work-Standard? Would the effects described in The Work-Standard operate under similar, if not identical, characteristics as an actual Sociable Currency? Would it rely on a “Blockchain” or a Blockcycle, a “World Wide Web (WWW)” or a national Intranet for its digital infrastructure?
The concept of the Stablecoin, by its very design and aim to avoid the volatility of most Cryptocurrencies, suggests that it might be more compatible with a Blockcycle and an Intranet. It implies the presence of a central monetary authority not only issuing the “Sociable Cryptocurrency,” but also overseeing an entire Blockcycle within an Intranet. This is because the idea of pegging a digital currency to the Work-Standard, in addition to its usage, involves the Life-Energization Reciprocal Electrification (LERE)–the digital extension of the Life-Energization Reciprocity (LER), and the Command-Obedience Account Bookkeeping. In essence, the Intents of Command and Obedience are what shall govern a hypothetical Sociable Cryptocurrency because it will be using Arbeit and Geld instead of Kapital and Schuld.
By being pegged to the Work-Standard, the Sociable Cryptocurrency will facilitate the creation of Digital Arbeit from computer networks providing digital services on the national Intranet. The Digital Arbeit gets sent off to the LERE Refinery, converting it into Digital Geld, before transferring it to the Council State’s Financial Regime. The Financial Regime, particularly the central bank, converts the Digital Geld into Actual Geld, so that it can be accounted for in the Life-Energy Reserve. Anyone who has read The Work-Standard (2nd Ed.) will recall the actual details from “The Tactical Logic of Technology” Entry, where I went into great detail describing how the LERE Process operates in the national Intranet as an extension of the LER Process.
At the same time, the Stablecoin is still designed for a decentralized financial model in mind. And yet the potential is also there for that same decentralized model to become centralized, if given the right opportunities to do so. Those two traits are what convinced me to conclude that a Sociable Cryptocurrency could be a viable way to run small scale experiments to demonstrate actual applications of the Work-Standard in practice. An historical precedent created by experimentation on what has, up until then been, only theoretical discussions can give credence to a proof of concept for the Work-Standard’s feasibility as an actual alternative monetary system.
There are other advantages to running a small scale experiment besides the possibility of providing an historical precedent or fine-tuning any potential flaws. It spares the burden of having to convince any central bank from running their own experiments, only to cause financial instability and economic turmoil to the nation relying on its issued currency. If one is not catching on to what I am talking about, I am referring to a scientific experiment involving an experimental group relying on the Work-Standard and a control group relying on other currency models. Deploy the Work-Standard on a scale suitable for a controlled experiment, record the results, draw conclusions, then publish the results somewhere in a formal document. Any economic theories, Socialistic or otherwise, can then be drawn, thereby giving greater credence to the Work-Standard. Whenever I get a chance, I will probably describe the experiment in greater detail in a future post.
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