Could it be blockchain to shine in the pockets of economic unrest?
It is no secret that the blockchain is becoming increasingly divorced from the bitcoin, with which it has traditionally been associated.
And as a form of data sharing, a form of record keeping, a direct channel in transactions, some advocates say that decentralized led register technology (DLT) can be a cure-all for a frontal and central problem, since the Turkey demonstrates a recent example of daily life troubled by rapid monetary depreciation and panic:
That is to say, monetary policy.
The Turkish lira continued to fall, more than 25% against the dollar at the time of writing this document. The freefall has come despite the actions and promises of the government to stop the bleeding by increasing liquidity. The inflation rate in Turkey has exceeded 15 percent. Depreciation, of course, leads to inflation and depreciation inflation. The spiral can be difficult to overcome.
Some of the causes behind this latest crisis are political ones, where, as reported by The New York Times there were disputes between the United States and Turkey who was behind a failed coup (and individuals held by both sides in his wake) a few years ago.
Central banks can manipulate interest rates and can control the money supply to a certain extent. But these levers can prove to be ineffective, as recent events show. Even actions taken by banks are slow to stumble in a given economy – and in times of crisis speed could be essential
In reviewing the use of blockchain in a central banking world, some challenges fundamental to the nature of the coin itself (as it exists now) arises. In its most basic form, monetary policy lies in the hands of governments and currencies are rooted in the notion of "fiat". Accepting this premise means accepting a currency which, in turn, is not backed by a commodity such as gold. Fiat relies on the notion of trust, accepted for the exchange of goods and services. When trust in government, or in specific policies, falls, so can trust the monetary system.
Feeling the Money Burn
In general, between the panic, there could be an ointment (in addition to interest rates) to slow down the money supply or, in particular, oversupply. As noted above, it takes time for the policy to take effect and central banks try to assess the demand for money and can increase or decrease the amount that banks are required to keep in reserve.
Welcome to the concept of money
In an interview with PYMNTS conducted by a written exchange, Eiland Glover, managing director of Kowala, who created stablecoin that fix the US dollar, said that "centralized authorities they are fallible and may not always generate trust, and Blockchain allows us to program monetary policy in decentralized and trustless networks with secure and public record keeping capabilities. "
Blockchain, he said, can offer accurate and up-to-date data on mass monetary value within a given network. He admitted that the blockchain, working alongside an economy that still (at least) relies on hard currency, would prevent the monetary count from being accurate. "The future rise of cashless companies could change this," he said.
But an advantage looms, according to Glover. Blockchains can be programmed to adhere to certain rules and rules, in turn, can instantly implement money control mechanisms. Governments have an incentive to use the blockchain in a way that helps them maintain a monopoly power over money supply – and can take advantage of other benefits, according to Glover.
"Imagine the fees that are automatically and appropriately debited on each individual financial transaction and transported without problems, at no cost, into the encrypted portfolio of the tax authority," he projected. "Imagine the ease with which a government could" follow the money "in an investigation into financial fraud."
The intersection of blockchain and monetary policy, he said, can be seen in the concept of stablecoin, an encryption that is anchored at, for example, gold or the dollar – and, said Glover, allow you to burn money (Kowala is a stablecoin project).
"In the event of a decline in demand for a stablecoin, the new protocol rules allow the creation of network-level transactions that can instantly remove money from the money supply." Unlike money removal policies that central banks typically use, the ability to impose ubiquitous taxes during times of crisis is a quick solution to falling demand, "he said. Those taxes, which are linked to the transmission of value on networks (such as, for example, the lira versions of the stablecoins), run on different roads, as Glover explained:
"The test networks of work as Ethereum and today's bitcoins are expensive to extract and therefore miners require transaction fees to send value across the network.Our stake test consent protocol removes all these commissions under normal circumstances.When the money supply is too much big, however, the small fees automatically recur and the proceeds of this "tax" are destroyed forever, reducing the supply of money. "Merchants can profit from movements in the stablecoin, but that currency stabilizes with plenty of liquidity , and in the midst of this fire, he claimed.
When asked how this could work in Turkey, Glover said that a lira version of the stablecoin would actually fall with the "hard" version of that currency. But the transition to a more stable currency, like the dollar, would have been easier.
Overcoming the boundaries of traditional monetary policy may take some time, said the CEO.
"The market is operating slightly differently for currencies issued privately.You will still have many failures, but it will be bankruptcy at the level of individuals and private companies rather than government," he noted. "The failures will still be there, but limited to a smaller scale."