Everything You Need to Know about Dollar-Denominated Cryptocurrencies
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A well-known obstacle to the greater popularity of Bitcoin as a medium of payment is the
high volatility of its exchange value.
This volatility results from its built-in quantity
commitment: because the number of Bitcoins in existence stays on a programmed path,
variations in the real demand to hold Bitcoin must be accommodated entirely by variations
in its unit value.
When demand goes up, there is no quantity increase to dampen the rise in
price; and vice-versa for a fall in demand.
Not surprisingly, several cryptocurrency developers have thought of creating a
cryptocurrency with a price commitment–namely a pegged exchange rate with the US
dollar–rather than a quantity commitment, in hopes of greater popularity.
The aim is to
create a system in which dollar-denominated payments can be made with the ease,
security, and low cost of Bitcoin payments, but without the exchange-rate risk.
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