Topic: The next step towards price stability: We back bitcoin (Read 2387 times)

In the long run it's actually not interesting if it's volatile in respect to fiat, what's interesting is stability in respect to the goods I can buy. Maybe in the (distant?) future, the tables will be turned. We will know more or less what we can buy for one Btc, whereas we really don't know what one usd will will buy us. That's when the old farts and laggards finally cave in and give up on fiat. Here's to hoping

These are good considerations... I think, eventually you have to trust something, in bitcoin you have to trust the cryptography behind it won't break and the hash power is distributed enough to avoid a 51% attack, so it is not trustless

Fiat money reserve can be distributed, spread among millions of users, so the risk of confiscation is zero. But to guarantee the validity of this reserve is difficult, to make sure this distributed reserve is buying when price dropped to the threshold is even more difficult. I remember that someone has mentioned a P2P artificial intelligence code that will accept bitcoin and automatically clone itself, maybe these kind of code could be setup for each one who are providing the backing for bitcoin, so the code use exchange's API automatically buy coins when the threshold is hit  

But anyway, such a backing, even orally promised, could greatly improve the credibility of bitcoin. This is similar to FDIC promising that account holder will have enough insurance coverage when a bank went down. In fact, if many banks went down, FDIC won't have enough money to cover it. But with this promise, majority of people won't take out their money in the banks when a crisis hit

The money is all about confidence, banks using many tricks to improve people's confidence, so should we. And the strongest confidence will come from a large group of people who are willing to back it with fiat money reserve

Currently we have the largest network back its security, but there are nothing back its value. Unless it becomes the only currency in circulation or a popular investment target, the demand is very uncertain. For normal people, it always feel that the value of bitcoin is floating in the air: can be anything, can be nothing. With a backing, such uncertainty is gone

Recently the price is way too stable....yawn.
However, it's hard to be against a solid floor price.

There is another reason for creating such a backing: Central banks/governments around the world will not be happy about this competing currency (It means they will lose the power to tax people by inflation through using fiat money)

The first thing they will try (when they were threatened) is to prevent fiat money flow into bitcoin, like what Chinese central bank did. It already showed its effect

If that does not work, to be more aggresive, they could use their large fiat money reserve to first buy lots of coins slowly, and dump them all on exchanges in a very short time. They can even use lots of fiat money as collateral to borrow coins and short the market. That will crash the market

Because most of the people don't care to maintain the exchange rate for bitcoin, thus under such a scenario, the price could go down to almost zero, thus totally wipe out the bitcoin economy (bitcoin economy is very fragile, because it is mostly dependent on the exchange rate, if exchange rate goes down to $1, then millions of bitcoin holders will lose most of their wealth

Of course, if you have some large enterprise provide bitcoin only sale at a fixed bitcoin price (for example a Tesla costs 100 coins no matter what the exchange rate is), then exchange rate will be pushed back by large amount of car buyers if it drops too low. So another way to stabilize the exchange rate is lots of bitcoin accepting business with fixed bitcoin price. But so far we have not seen any such business

So the most effective way to stabilize the exchange rate is to directly provide buying support on exchanges