This is a series that details the different aspects of developing a currency. The focus is to road map a path for the Hive Backed Dollar (HBD).
Here is Part 1.
In that article we discussed how money is the intermediary to the old fashioned barter system. Basically, a transaction use to be a trade of goods (or services). The rancher would swap beef for lumber. If, however, the other person was a vegan, a multi-party transaction was required to find the individual who had what the lumberjack wanted.
Hence, currency a tool to facilitate transactions. This means it is the fuel for economic growth. The capability is a combination of the money supply along with the velocity of money. Simply, the goal is to get more money flowing throughout the economy at a faster pace.
National currencies became the norm because they are able to leverage the network effect. This was done through the legal tender status which forced anyone to accept the currency within that geographic region. Of course, this opens the door up for Gresham's Law to go into effect.
Cryptocurrency seeks to reverse this. With HBD, we have the potential to provide a powerful algorithmic coin that can meet the needs of the Hive economy.
The next area we will discuss is with distribution. This might seem obvious yet it is often overlooked.
Access to the currency is vital. People are conditioned to believe that too much money is a bad thing. Depending upon the economic circumstances, it can be. However, too little is equally as detrimental.
Before getting into that, we have to understand the business cycle. That is always in operation. Because of this, we are going to see the price of assets rise and fall, regardless of the money supply (or form of money). An expansive economy, the upside of the cycle, means we have the upside to assets. The reverse is also true.
There can be a disruption, however, when the business cycle encounters too little currency. If we think about transactions, expansion means more will take place. Lacking the ability to facilitate that activity hinders economic growth and eradicates wealth.
We also have the problem of money pooling. Having it in hands of a few is equally problematic. This is why governments often discuss the topic of wealth inequality. The problem this is confusing asset value with currency. Money is not wealth but, rather, a tool to that end. It is a medium of exchange designed to stimulate economic productivity that results on all we create. Market forces then set a price on houses, cars, jewelry, and financial assets.
Therefore, getting a currency in the hands of as many people as possible is vital. On a global scale, this means penetrating a large number of countries, with as many people in each participating. If people do not have the currency, they cannot transact.
One of this keys for this, in this era, is to have a network that can access all areas of the world.
The present monetary system is a combination of ledgers along with communication systems. These two factors are, by definition, blockchain. Distributed ledger technology means we have a financial ledger that is a digital network, supported by unrelated servers operating globally.
On top of this, a wallet system can allow people from any country with an Internet connection to be involved. This means the network has to be reliable, efficient, and inexpensive.
Naturally, there is not going to be one network to handle everything. For this reason, sidechains (or Layer 2) has to mirror what is taking place at the base layer. Things such as smart contracts, exchanges, and an assortment of other features can be housed on these networks. Yet, the same standard holds: they have to be global, resilient, and open to anyone.
The present system is a series of controlled networks. Different corporations and financial institutions each have their own networks, creating an interoperable system. However, there are a lot of intermediaries, causing friction within the system. There is also a massive cost to this.
With blockchain, many layers can be removed. Blockchain can access the entire world through a single network. This is a major advantage for things such as payments which can involved half a dozen networks (at a minimum).
Hive has a rather unique way to spread its base layer coins. The Proof-of-Brain (PoB) consensus mechanism really lapped the field. We are starting to see the merging of social media and finance. This was something unheard of 7 years ago.
People on Hive can get the coins from activities such as posting and commenting. This helps the spread of the coins. As HBD gets into more wallets, the ability to construct a powerful economic system grows.
One of the keys to the strength if the US dollar is the fact that people all over the world have access to it. The U.S. runs monthly trade deficits with many countries, meaning more USD is flowing out then in. Of course in the present monetary system, this ends up going through the central bank for each country then channeled into the commercial banks.
With Hive being a peer-to-peer network, the HBD is delivered directly to the individual wallets. There are no third party intermediaries to deal with. This also eliminated counterparty risk.
New coins are created by the blockchain and distributed directly. It is a debt instrument on the balance sheet of the blockchain, not the individual. Compare this with fractional reserve lending whereby the money supply is expanded when commercial banks makes loans, a debt to the individual receiving the "new money".
Hive can mitigate risks through global distribution. Economies can be broken down into smaller pieces. For example, the global economy is made up of national ones. These can be sorted by state or province. Then we have the economic output of the cities. Finally, this can even break down into different neighborhoods.
With constrained by geography, this is little opportunity to overcome that especially at the lower levels. For Hive, the ability to access all of them at the same time exists. The coin can be used in an expanding US or UK economy or can penetrate a village in Ghana. It makes no difference to the blockchain.
The key is that the network features are available to all. That means we are dealing with 3 second block times, one block irreversibility settling in a few hundred milliseconds, and feeless transactions.
All of this lays the foundation for our next article which will delve into commerce and finance.
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