Can Bimetalism Lessons Help Long-Term Stability of Bitcoin and Privacy Coins?

The cryptocurrency market has been on a downward trajectory since the end of 2021. In early May 2022, it eventually led to a decline, with an equally severe impact on traditional markets. The recent depression has removed some of the speculation in the market. But this restructuring is different from the past. There are still far more active users using the Bitcoin network than we have seen in past cycles. More holders and true believers passed the other side. However, this has increased over time, one of the concerns some people have with Bitcoin (bitcoin) may affect its adoption. Privacy coins can provide economic incentives as a solution, not just utility.

At various points in the first half of 2022, both are Crypto market rebounds and huge dumpMonero and other privacy coins (XMR), dash (sprint) and Zcash (ZEC) performed relatively well compared to other altcoins.does this mean that there is a Potential needs interested in cryptographic privacy?

The Bitcoin Standard Is Finally Here (Well, Not Yet)

For the sake of discussion, let’s assume Bitcoin succeeds. Bitcoin is now the world’s major currency. But due to the pseudo-anonymous nature of the Bitcoin blockchain, anyone can see all transactions from each wallet. For every cup of coffee purchased, the buyer’s spending habits, where they spend it, and all the other dystopian traps of the 1984 nightmare are a reality. This nightmare gave birth to companies like Monero, Zcash, Dash, Decred (DCR), Secret (SCRT), and Horizen (ZEN), to name a few. Some of them have similar qualities to Bitcoin. Zcash is modeled very similar to Bitcoin, with a 21 million hard cap supply and Runs via proof-of-work.

Is it impossible that one or both of these blockchain protocols will be adopted as an “everyday” transaction currency to complement the Bitcoin standard? Protocols like Monero and Zcash either have low inflation or capped supply. They act with their token economics and don’t promise to do more than just act as a medium of exchange and store of value, other than, of course, protect the privacy of users.

related: Loss of Privacy: Why We Must Fight for a Decentralized Future

Bimetalism: What is that and why does it matter?

Bimetallicism is a concept long ago and before the advent of cryptocurrencies. As the name suggests, the idea behind bimetallicism is to use different types of precious metals to offset the rate of price inflation relative to another. Traditionally, gold has silver and vice versa, which can balance out the other if one starts to have too much purchasing power. For example, a horse is worth 1 gold or 10 silver (gold and silver are rare to varying degrees, but still have different intrinsic qualities in terms of utility). If a horse is now equal to two gold in a year’s time, there may be only 12 silver coins, making the trade more favorable for silver holders and putting pressure on the inflation price of gold. This bimetallic arrangement works theoretically when you have similar mediums of exchange (like two precious metals). Grisham’s Law came into effect when the state introduced fiat currency into the mix, and retaliated.

Grisham’s Law states that bad money drives out good money. If the holder owns fiat currency or bitcoin, they are likely to value goods/services more than BTC and trade off a potentially unlimited supply of fiat currency. This means Bitcoin will sit idle in people’s wallets forever, unused, undermining some of the value proposition of the world’s sound decentralized currencies. If we assume that the world is moving towards a digital medium of exchange, it does not change the laws of the economy.

There will still be adjustments to the price level of tradable assets. In order to control these different mediums, other assets may be required as substitutes. But if we don’t want Grisham’s Law to work again, there must be assets similar to Bitcoin that offer different value propositions. Enter privacy coins.

related: Gold, Bitcoin or DeFi: How can investors hedge against inflation?

Private issues

Bitcoin can be a unit of account, medium of exchange, store of value, and other qualities that fit the Gold 2.0 narrative. Bitcoin’s traceability is a nice feature that has its we see now Bitcoin Backed Loans, assuring creditors of the transparency of the existence of funds is an important use of the chain. But do you want the barista to know that you shop at the antique store every Wednesday? Do you want your boss to know about your personal finances? Or anyone who cares about viewing your payment history?

This is where the idea of ​​bimetallicism or “dual cryptography” can step in and solve these problems. If Bitcoin is adopted along with one or two different scarce and limited mediums of exchange (privacy coins), these can help keep the purchasing power of goods/services constantly “fluctuating” against each other. Of course, this is in the future where Bitcoin becomes the world’s major currency.

Because these different protocols have different properties (just like gold and silver), they can serve different functions in a user’s life. For everyday transactions, users can enjoy the privacy that privacy coins can provide, while taking advantage of all the benefits of decentralized ledgers and blockchain technology. When users wish to transfer funds to a wallet with a public address, they can choose to keep the funds in Bitcoin. Perhaps, with features like on-chain atomic swaps, this could be easier than decentralized or centralized exchanges.

Satoshi Nakamotothe mysterious inventor of Bitcoin, once wrote: “For greater privacy, it is better to use a Bitcoin address only once.” For crypto users in 2022, creating a new BTC address for every user is rather impractical, let alone Bitcoin is The world of standard mediums of exchange is gone. Users must either attempt to create a Bitcoin Improvement Proposal (BIP) to change Bitcoin to include features that enhance privacy, or coexist with the option in the “Double Encryption” setting with one or more privacy coins. The latter has the additional economic benefit of keeping inflationary pressures low over time.

These are just some ideas for the future, and the larger crypto community needs to consider these potential issues as we move forward. Economics played an important role in the creation of Bitcoin and the cryptocurrency revolution, and it should also be a great source of information for its future.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.

The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Michael Tarborn is an economist at Cointelegraph Research. Ph.D. Candidate, engineer, economist and business strategist, he also provides strategic consulting to companies focusing on the DeFi and blockchain space. Michael co-authored several reports for Cointelegraph Research and authored a quarterly VC report published on the Cointelegraph Research Terminal. his Ph.D. The paper is about DAOs and their practical applications in the business world.