Speculators rushed to Bitcoin and several of the alt-coins in Digital Yuan the hopes of getting in early and profiting handsomely, but regular people haven’t taken to them.
There are several reasons for this, but one of the most significant is the price volatility of cryptocurrencies.
So, why do prices fluctuate so drastically in the first place? Supply and demand play a significant role: Even though most cryptocurrencies have a fixed total quantity, the order for the coins is unpredictable and continually changing due to speculation.
Of all, talking about the issue is one thing; coming up with a solution is quite another.
What is the Significance of Stability?
Cryptocurrency isn’t the only thing that has to be stable. To be utilized as a reliable trade means, every currency must be tough. The more that values fluctuate, the less likely regular people will use coins for routine transactions.
People are not yet acclimated to perceiving cryptocurrencies as real money, whether they hoard the coins to expect that values will climb drastically soon or avoid using them entirely for fear of losing all of their worth.
Worse, price volatility wreaks havoc on everyday money services like remittance, currency conversion, and ATM use. Businesses must hedge their risks by charging high fees to utilize bitcoins.
To convert to fiat cash, Bitcoin ATMs might charge up to 15%. It wholly violates the aim of cryptocurrencies, which was to provide a less expensive and more flexible alternative to traditional payment systems. Why would the typical individual use them if they have no benefit over government-issued money?
Patience is a Valuable Asset.
Bitcoin has been plagued by price volatility since its inception. Why have cryptocurrencies not addressed the issue of volatile pricing despite everything we’ve learnt over the last decade?
Human nature, as it often does, gets in the way. In a world where individuals would rather play the market and seek quick pleasure by reselling their coins for as high a price as possible. It’s challenging to recover from the impacts of speculation without meticulous preparation from the beginning of a cryptocurrency’s existence.
The First Phase entails establishing a Stable Ecology.
When creating a cryptocurrency from the ground up, you must first lay a strong foundation. The currency may expand and self-correct as it grows on this base.
Estimating Demand
The ability to accurately estimate demand is the first element of the jigsaw. The primary source of price volatility is demand uncertainty since one user’s intentions are unknown to the other. Having a mechanism to determine the actual demand for a currency would go a long way toward resolving this issue.
However, the problem with anticipating demand is that speculators may create phone orders. It is the crux of the issue: since there is so much speculation, the cryptocurrency’s price will not represent its actual use and demand. It just becomes a bursting bubble, and no one wants to risk their hard-earned money on it.
Traditionally, having a central bank was the answer to the issue of stability. The government may thus manipulate the money supply at a whim by inflating it. Cryptocurrencies are by definition decentralized — which is one of their benefits — and without a central bank, they need a whole different strategy to reduce volatility. They must do it without jeopardizing the users’ freedom and resorting to inflation.
A decentralized community prioritizes cooperation over rivalry.
“We stand Together, apart we Fall.”
What if there was a currency that rewarded individuals for working together? What if, instead of greed, individuals were motivated by a desire to grow? A network of cooperative enterprises and services would function together as a single entity under the ideal scenario. This joint would democratically design the coin (shaped, not controlled). Every user would be rewarded for contributing to the network’s overall growth, and the usage of a blockchain would make the process more transparent.
Instead of speculating on the internet, individuals would purchase and sell currencies through local exchanges. The whole community would vote on when to raise the coin’s price, keeping things democratic and avoiding sudden price spikes.
Local Official Exchanges
It may make a huge difference as YuanPay Group to look other users in the eyes. Face-to-face exchanges at trustworthy places make it easier to restrict the selling of a currency, which may operate as a throttle to assess demand. People on the “front lines,” who can experience the genuine need for the money, may vote to raise the price. Consistency is also achieved by having consistent venues to exchange currencies. It eliminates the guesswork of figuring out where you can purchase and sell your money.
The benefits aren’t simply merely financial, though due to their penchant for attracting dishonest individuals. A cooperative network based on face-to-face trades would help legitimize the currency since unethical or illegal enterprises might be expelled from them. Of course, such businesses may still exist, but they would never be cooperative members.
The Dominance of Local Exchanges
This strategy can only succeed if many more local exchanges than internet exchanges. It would imply that the local businesses would determine the currency’s price.
Early Marketing may be Harmful.
Marketing is a potent force that should be managed with caution. On the one hand, creators understandably desire to raise funds as soon as possible. It will increase the coin’s price, help pay for infrastructure, and enhance the coin’s growth. On the other hand, historically, the first cryptocurrency investors have been of inferior quality – these are the speculators that doom the currency in the long term and frighten off ordinary consumers.
The capital injection is required to maintain the currency steady during speculation, which may be complex. Take Bitcoin, for example: With a market capitalization of almost $20 billion, it would need a significant amount of cash to maintain a steady floor.
Slowly and Steadily is the way to Win the Race.
Cryptocurrencies are still in their infancy, and it’s difficult to predict where most major currencies will go. What is the “finish line” that they want to reach? What will be the outcome? Most cryptocurrencies have no direction other than market whims, so it’s impossible to predict where they’ll end up. There are, however, a few intriguing currencies that have invested in tactics that guide them in a certain way.
