Bitcoin’s Volatility Problem: How ndau, a Buoyant Cryptocurrency, Has Solved it in a Way Stablecoins Can’t
[TLDR: see below - What is ndau and how does it solve Bitcoin’s volatility problem?]
If you follow Bitcoin and blockchain technology, you know Bitcoin was released into the world as open-source software in January 2009 after having been introduced in a whitepaper in late 2008 as “A Peer-to-Peer Electronic Cash System.” Within the whitepaper you’ll see the words “money,” “cash,” “transactions,” and “payments” in several sections.
So we know from the author or authors, under the pseudonym Satoshi Nakamoto, the vision for Bitcoin was digital cash or digital money to be used for peer-to-peer transactions and payments. We have seen money in many forms through the ages, but the ideal characteristics of money are durability, portability, divisibility, uniformity, limited supply, and acceptability. Economists agree money has three primary functions: medium of exchange, unit of account, and store of value.
While the number of participants in the early Bitcoin ecosystem was relatively small, peers began using it to prove out its ability to serve as a medium of exchange. Famously, on May 22, 2010, a programmer purchased two large Papa John’s pizzas for 10,000 bitcoins, worth about $30 in total at the time. While the lucky recipient, if still holding those Bitcoins would now have approximately US $50 million in Bitcoin, this would be more akin to hitting the lottery — as opposed to having “stored” the approximately $30 in value that those Bitcoins were worth when they were used as payment.
According to The Economist in 2014, Bitcoin was functioning best as a medium of exchange. But it had yet to prove itself as a unit of account or store of value. With an average volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the US dollar, it’s easy to see why it couldn’t be considered a way to store value for future use.
Fast forward to 2019. If you take a survey among Bitcoin enthusiasts about what Bitcoin is and its primary uses, you’ll consistently hear “Bitcoin is digital gold” and “Bitcoin is a store of value.” This narrative began to surface about 2016, gained momentum in 2017 and is widely parroted in the Bitcoin community today. Why are we hearing this so widely referenced today? I believe it’s because Bitcoin has failed to gain wide adoption as a medium of exchange, and people who HODL Bitcoin need a narrative that encourages others to join into the ecosystem. If you don’t personally need Bitcoin to make payments, then why should you own it? Well, if it’s “digital gold” and a “store of value” (that went up 20x in a year) then how could you resist?
As of this writing, Bitcoin is worth approximately US $5,219. However, by the time you’re reading this, its price will undoubtedly have changed. Will it move upward or downward? Nobody knows, but we can be certain it will continue to see plenty of volatility. When it’s up, there’s great euphoria amongst Bitcoin hodlers.
But what happens when the value of an asset goes up in value too quickly? Let’s take a look: following its hyperbolic run-up in price in 2017 from under US $1,000 to nearly $20,000, we’ve since watched it lose over 80% of its value in 2018 — dropping below US $3,200.
How would you feel about your “store of value” if you put US $575,000 into Bitcoin at the end of 2017 because you wanted to store it away to pay cash for your 2020 Lamborghini Aventador right about now? Well that’s not going to work with your Bitcoin currently valued at about $150,000… On second thought maybe you want to “store your value” for another year and save up for a 2021 BMW i8. Hey, it’s a lot better for the environment anyway…
I’m personally a big fan of Bitcoin and probably always will be. While I appreciate it for its revolutionary design, and I’m very bullish about its prospects into the future, I’m going on record now with a position you’ll rarely hear from other Bitcoin enthusiasts:
“Bitcoin is simply NOT a reliable store of value.”
Anyone who claims that Bitcoin is a store of value should simultaneously provide this disclaimer: Don’t rely on Bitcoin as a “store of value” unless you you want a wildly fluctuating market to dictate when you’ll be permitted to access that value.
In today’s crypto ecosystem we see several projects attempting to provide solutions to Bitcoin’s volatility problem. Stablecoins have become all the rage.
To date there have been more than 100 projects which have stated an intention to build out a stable digital currency. As outlined on Stable.Report these projects generally fall into 3 categories:
Asset Backed On-Chain:
Backed by cryptocurrencies such as Ether, it is dependent on the stability of the cryptocurrency on the other side of the equation.
Backed by a “regular” fiat currency such as USD or euro, precious metals or other real-world assets. It requires trust in an opaque and centralized third party to hold the collateral.
Relies on a combination of algorithms and smart-contracts to maintain price equilibrium, it requires continual network growth and investment to provide capital and support a falling currency value.
Each of these constructs are interesting in their own right, and have the potentially to solve the problem of volatility. But at the same time, I’m confident that many will fail, and all that I’ve seen which are intended to maintain a stable value of US $1 (or Euro, etc.) are a lousy store of value due to inflation. Here’s a quick look at how the value of a dollar has performed since the Federal Reserve began helping us with it in 1913. Spoiler alert: your dollar is worth about 3 cents — but you already know that.
So where does this leave us? How can we enjoy the benefits of a decentralized cryptocurrency enabled by blockchain while preserving wealth and giving us a true store of value?
One particular digital asset, ndau, which I first learned about in late 2017, provides holders with several volatility reduction features for the long-term store of value. The ndau project is fascinating and is elegant in its design, but also by necessity it’s complex. It took me awhile to understand it, but I was eager to invest the time because there were several incredibly talented computer scientists, economists, academics and developers involved in the design and creation of ndau. Some of them I’ve known for a couple of decades, and collectively they have authored more than 40 technology patents and built companies valued at more than a half-billion dollars. Ndau is a solid project with a solid team. I had to know how a cryptocurrency could actually be buoyant and I was willing to open my mind and take the time to learn.
The design of ndau provides stability but it can rise in value as demand warrants. Once the price of ndau rises, it resists downward volatility and can rise again. This property makes ndau go beyond the traditional notion of a stablecoin. It represents a new category of cryptocurrency - a buoyant cryptocurrency or buoyant coin.
Ndau isn’t an ICO. The development was funded in early 2018 with a $3 million investment led by Cosimo Ventures in Boston.
Ndau is different than any crypto project I’ve seen in several regards. The proceeds from the sale of the cryptocurrency don’t go to the founders, advisors, marketing expenses, bounties etc. The funds go into a not-for-profit endowment which then has the resources to manage a monetary policy to benefit the holders of ndau. The endowment also enables ndau to have a floor price which is designed to increase based on additional ndau issued along with the financial performance of the underlying investments (which are traditional investments akin to a university endowment — not Ethereum or the like). There are other means by which the ndau price is able to be buoyant. They are varied — ranging from demand-based issuance, incentives to hold, and burning of supply — all of which are embedded into ndau’s blockchain protocol to work in concert. You need to be willing to put in the work and delve into the details to fully understand it. It’s a paradox. If you skim through it and decide to formulate an opinion because your mind isn’t open to something new, then your impression of ndau will be virtually the opposite of what it actually is.
You don’t need to be “highly technical” to understand the ndau whitepaper, you just need to be truly open minded to discovering something you never before would have believed possible — something that initially “sounds too good to be true” — probably just like the first time you heard about Bitcoin and couldn’t contain your skepticism… and If you’re old enough, you can probably remember many other things that sounded “too good to be true” that are now enabled by the internet and are commonplace in our everyday lives.
Once I fully understood understood the design of ndau, the part that was most mind-bending is that an attempt to attack it would actually make it stronger. I’d like to see how George Soros would try to navigate that…
The unique design and the properties upon which ndau has been built, and the way it leverages blockchain technology along with decentralized governance and an endowment, make it unlike any other money in the history of the world — including other cryptocurrencies.
To fully appreciate ndau, read through the ndau whitepaper. Once you “get it” and fully understand how it has been designed to be buoyant, you won’t be able to get it out of your head. Ndau is a revolutionary cryptocurrency — the first of its kind to be designed as a long-term store of value. And the implications are profound.