Lee believes NuBits will appeal to potential cryptocurrency users because it will allow them to know the dollar-value of their coins without having to perform mathematical calculations.
On September 23, Peershares launched its much-anticipated NuBits project. Lead developer Jordan Lee and his team remained tight-lipped about the project, revealing few advance details other than its launch date and the insinuation that it would remove the volatility associated with cryptocurrencies. In anticipation of the release, the Peercoin price soared, more than doubling within a seven-day period (it has since undergone a moderate decline).
Jordan Lee says that while Bitcoin and Peercoin are important inventions, they possess inherent flaws that render then unsustainable. He says their major flaw is that they simultaneously serve as both currency and shares. The NuBits whitepaper explains why this is a problem.
Currencies must have a stable value to be effective, while Peercoin and Bitcoin have exhibited exceptional volatility. Many argue volatility will end with the high liquidity that will accompany widespread adoption. While volatility will decrease with greater adoption, it is unlikely volatility will ever be less than occurs with large cap stocks such as Google or Microsoft. This is still an unacceptable level of volatility for a currency.
However, Lee says that even if volatility could be eliminated, that would hamper a coin’s ability to function as a “share.”
Let us suppose I am wrong and that volatility will be eliminated in these networks. In that case they would serve well as currencies but poorly as shares, because they would not appreciate, nor give dividends. This would likely cause a selloff of these “shares”, thereby introducing volatility once again.
NuBits purports to avoid this problem by separating the NuBits network’s currency and voting facets into two separate entities. NuBits serve as the network currency, and NuShares facilitate the voting mechanism, and most importantly the introduction of new currency units.
Perhaps the most frustrating part of engaging in cryptocurrency transactions is having to figure out the fiat-value of the coins involved. If someone wants to buy a $15 movie, he has to divide that by the current bitcoin price to figure out how much he owes. While not incredibly difficult, this can dissuade new people from entering the market.
NuBits hopes to avoid this friction by tying the price of NuBits to USD at a 1:1 ratio. According to the NuBits System, a $15 movie will always cost 15 NuBits, no matter how much the demand for NuBits ebbs and flows. By making it easier to figure out how much the dollar-value of an item is, people less-inclined to adopt cryptocurrency may be more easily persuaded to test it out.
When demand increases, shareholders will vote to create new coins to maintain the 1:1 ratio. When demand decreases, shareholders can vote to allow coinholders to accrue interest on their investment if they agree to “park” their coins for a set period. When demand is low, speculators may see incentive to acquire and then park their coins as a high-risk, high-reward investment should demand rise again.
NuBits will enter circulation through the NuShares voting mechanism. Unlike most cryptocurrency voting systems, NuShares operates independently of the NuBits currency (though they can share a wallet).
Instead, NuShares are intended to be a source of network equity for developers, entrepreneurs, and speculators. NuShareholders can receive network revenues in the form of Peercoin dividends paid out by a custodian. NuShareholders can cast votes for actions that positively affect the Nu network. These actions help adjust the supply and demand for NuBits so that they will always remain at a long-term $1.00 US value.
The actions to vote on are Custodian votes, Park Rate votes, and Motion votes. NuShareholders will be able to vote on these three different network actions when a block is minted. By setting their vote in the client it will be recorded into the blockchain each time they mint a block. The purposes of these three categories of votes are to select custodians to maintain the network, choose interest rates for parking, and make decisions on the development of the network.
One interesting facet of NuShares is that it allows NuShareholders to choose who will receive newly-minted coins. People can submit proposals for why they should receive the coins, and NuShareholders can choose which they deem the most worthy cause. Perhaps a developer would like funding to build a project for the NuBits protocol, or a charity wants to raise funds for a cause. They can submit their proposal, and the NuShares community can debate and decide who to distribute the coins to.
NuBits is a unique idea, and it will be interesting to see how Jordan Lee and the NuBits team will work out the inevitable kinks that will arise. If NuBits are truly able to eliminate price volatility through their NuShares voting system, a somewhat uncomfortable question will arise. Is the altcoin community ready for a stable currency?
Disclosure: The author has no investments or affiliations with any of the coins discussed above.
Images from Shutterstock.
Last modified (UTC): September 26, 2014 07:28