BitShares Munich chief fixes cryptocurrency volatility with smart contracts

Price-stable digital currencies have drifted in and out of the public eye since 2014 when a slew of "stablecoin" ideas attempted to merge the benefits of decentralised money with the purchasing power stability created by modern monetary policy.

On paper, the concept is simple — a protocol to autonomously adjust the supply of a digital currency based on some metric for demand. This is to manage the coin's value to prevent it from severe fluctuation or volatility.

For digital currencies, price stability is an important obstacle to overcome, said Christoph Hering, CEO and co-founder of BitShares Munich, an independent blockchain development company.

"Volatility is always good for traders," said Hering. "This is their life. Big swings is where they make their money. But regular consumers like you and me want to have stability. They want to have a medium of exchange."

Bitcoin analyst Ramiro Burgos questions mankind's ability to create a reliably autonomous method of money supply regulation, suggesting humans consistently fail at building systems that rely on manipulation-free market mechanisms.

Burgos said: "Every time human leaders take control over economic or monetary decisions, all of those decisions go wrong eventually, even if they sound good and work at first. Human nature will always find a way to complicate every process and fail at every stage of human intervention." This includes systems that purportedly stabilise a currency's purchasing power in a decentralised fashion.

Hering's company supports and employs the use of Bitshares' Graphene blockchain, which, along with a proven 100,000 transaction-per-second capacity, allows the use of market-pegged Smartcoins, as well as user and fee-backed assets.

The idea behind Smartcoins was developed by Daniel Larimer, co-founder of the Bitshares and Steem blockchains, explains Hering. They are simply a blockchain-based smart contract that works like a derivative with an objective to mimic price stability.

Smartcoins are, "crypto-assets and currencies whose value is pegged to that of real-world assets, such as the US dollar or gold," states a description at bitshares.org.

In a 2014 blog post, Ethereum creator Vitalik Buterin pointed out that Bitcoin the currency is a very volatile means of storing value, going on to highlight the central problem in trying to create a stable coin. Compared to the "simplicity" of central banking "the underlying question [for cryptocurrency] is more difficult: how do we target a fixed price in a way that is both decentralised and robust against attack?"

What's important for business owners and operators is use of a currency that they use themselves, for instance a price-stable digital version of the US dollar or euro, and not Bitcoin because of its volatility and other associated issues.

When asked whether a market-pegged digital currency simply reverts the technology to traditional problems, Hering said: "I think it drives the adoption of decentralised platforms even further because at the end we have to consider what the purpose of the transaction is — a fast, secure [and convenient] method of payment."

BitShares Munich's mainstay platform, BlockPay, provides a point of sale environment that accepts all leading digital currencies like Bitcoin, Dash, Smartcoins or Ethereum. BlockPay also automatically exchanges all incoming digital currencies into a price-stable digital version of a US dollar or the euro to protect businesses from volatility. Now Merchants have the option to keep their digital funds on the blockchain or to withdraw their money to their local bank account.

BlockPay has the potential to create a powerful digital payments ecosystem capable of being tailored down to hyper-local levels, states Hering.

"We envision a new ecosystem where businesses pay it forward and use their digital funds on the Blockchain to pay salaries, to pay their suppliers digital or purchase other products and services with their digital funds within seconds."

The BlockPay "S" version of the company's software, a free-to-download POS system for merchants or business owners — even those already operating existing POS systems — can integrate ready-made modules for their system.

Smartcoin is totally independent from the issuer, backed by Bitshares' core token BTS so that there's no counterparty risk involved, explained Hering.

"The brilliance of Smartcoins is that you can transfer them, trade them against other products and services, or dissolve the smart contract and release the collateralised BTS to sell those or create new Smartcoins tracking a different underlying asset," he said.

"As long as there is enough public market data available, Smartcoins can peg to any asset in the financial market: currencies, stocks, bonds, and much more."

Brandon Kostinuk is the communications lead at Vanbex Group. BitShares Munich is a client of Vanbex Group.