Stablecoins: The Solution to the Volatility Problem

Cryptocurrencies like Bitcoin have come along with promising features and abilities. Although Bitcoin has shaken the world as a disruptive and game-changing technology, its volatility is a huge problem. One of the initial and most important intentions of Bitcoin was to be used as an everyday payment system. Simply put, it was intended to be a “peer to peer electronic cash system,” as titled in the Bitcoin white paper. So far, Bitcoin and other major cryptocurrencies have not been able to perform this initial important use case well. While there was initially some adoption from merchants, the adoption has been slow and due to technical issues, many merchants have dropped their support for Bitcoin and others. One reason merchants are unwilling to adopt crypto payments is the volatile price. In the current climate, one Bitcoin can be worth anywhere between $5800-$7000. To make up for crypto’s shortcomings, there is another class of cryptocurrencies that aim to solve the volatility issue that is ultimately holding Bitcoin and others back from being the everyday payment system they were designed for. This new breed of cryptocurrencies are appropriately titled “stablecoins.” Stablecoins bring the promise of solid price support that can be used as either a store of value, or an everyday means of exchange. It is for this reason that many are heralding stablecoins as having a far greater potential than Bitcoin. A stablecoin is a cryptocurrency that has stable price characteristics. Most stablecoins are pegged to the U.S. Dollar, while the upcoming Kinesis project will create coins that are backed by gold and silver bullion. If you want to know more about cryptocurrencies and their history, check out this cryptocurrency guide. The ultimate goal of stablecoins is to be an incredibly stable digital form of fiat-free cash, with the potential to solve the problem of cryptocurrency volatility. This provides traders and investors a safe haven during a market crash that can impact fiat currencies significantly. It also shields them from issues related to fiat currencies. Lack of support Due to strict regulations and banks becoming wary of cryptocurrencies, there are only a few exchanges that support fiat currencies. This makes it difficult to complete transactions using fiat-based cash. Slow transaction times It takes several days to send fiat to and from a bank account. Transfer between the ACH Bank and Coinbase wallet, for example, can take as many as 7 to 10 calendar days. Limited regulations As previously mentioned, regulations are now stricter when it comes to crypto-related transactions. This makes it difficult to purchase or pay for goods using fiat currency. When cryptocurrencies exploded in the mainstream market, their value increased exponentially, resulting in a flood of investment capital to Bitcoin and other cryptocurrencies. After the crypto mania phase, it wasn't long before more than 50% of the price of bitcoin decreased, along with the drop in media interest and its trading volume. This kind of cryptocurrency volatility can cause a large exodus of investors. It will also affect other cryptocurrencies that want to gain mass adoption status. It's hard to argue for the adoption of a currency in business if merchants can't rely on the daily value and fees associated with the currency. At the height of crypto mania in 2017, Bitcoin users were spending as much as 100$ or more for a single Bitcoin transaction due to the back log of transactions on the network. Transactions often took days to complete. This is unacceptable for business adoption. Stablecoins want to address this volatility by providing investors with a stable cryptocurrency. For it to work however, it has to satisfy the requirements of sound money. That is, it must be a store of value (SoV), a medium of exchange (MoE), a unit of account (UoA), and fungible. It must be easily moved and divisible as well. Store of value (SoV) This refers to a form of wealth which current value is maintained even to the future without any depreciation. Examples of solid stores of value are gold, silver, and other precious metals. Medium of exchange (MoE) For stablecoins to be a medium of exchange, it has to facilitate the sale of goods without using barter in the equation. Unit of account (UoA) A cryptocurrency must provide a unit of measurement that will allow its value to be defined and compared. For example, the cost of a car could be 10,000 units of a stablecoin. All cryptocurrencies can be used as a unit of account. The Stablecoin Solution Stablecoins matter because they are relatively stable in value, unlike Bitcoin and Ethereum. This is why it is often considered as a hedge against volatility, insulating you from the market volatility that is associated with cryptocurrencies like Bitcoin or Ethereum. If you trade 1 BTC for a stable coin, for example, its value will be the same even if the price of Bitcoin drops. You can also have stable coins converted back to BTC anytime. This makes stable coins ideal to use to invest in options, derivatives, and prediction markets. It is also a better currency of choice if you place a bet with a long and extended timeframe. Real Functionality How stablecoins work will depend on the type, whether its reserve-backed, algorithmic, or backed by other cryptocurrencies. The first type functions like paper money. Instead of being backed by gold reserves in a central bank, it is backed by one-for-one currency reserves that they are pegged to which in this case, are U.S. Dollars. A good example of this type of stablecoin is Tether (USDT). Even without any public proof, the 2.5 billion USDT coins that are in circulation are backed by dollars. Algorithmic stablecoins on the other hand, are controlled by an algorithm. There is software that controls the supply of the stable token, increasing and decreasing it to maintain its peg. Cryptocurrency-backed stablecoins, as the name suggests, use cryptocurrency as collateral instead of fiat money. Done on a blockchain, it removes third parties from the equation. The problem with this type of stablecoin, however, is that the cryptocurrency introduces a source of volatility that makes a stablecoin less stable than it is supposed to. As a solution, more collateral than a 1:1 basis is introduced into the transaction. For example, for a guaranteed $100 worth of a stablecoin, a larger amount of $150 worth of ether (Ethereum) must be deposited first. Stablecoins are commonly used as a liquidity tool for cryptocurrency exchanges. Many exchanges are wary of anything related to cryptocurrency because of its volatility, but stablecoins offer a solution to the problem. The Different Stablecoin Models Stablecoins are a new class of cryptocurrency that offer steady valuations and price stability. It is designed to retain its purchasing power with little to no impact from inflation. In order to maintain steady valuations, stablecoins are tied to price stable assets like gold or the U.S. dollar. Different methods are used to achieve price stability for different stablecoins. For now, there are three broad categories of stablecoins. But there are other stablecoin proposals at work and may be introduced sometime in the future. Fiat collateralized This type of stable coin uses a particular amount of a standard fiat currency as collateral. To issue crypto-coins, for example, U.S. dollars, gold, or oil can be used as collateral. A central entity is responsible for the collateral and will issue a token representing the money they hold. The ratio of the number of crypto-coins issued is also 1:1 against the fiat currency it is pegged to. This is why fiat collateralized is the most straightforward method of stablecoin creation and operation. Apart from a central entity or custodian that holds the collateral--fiat currency or commodity, this type of stablecoins require operational processes to ensure that valuations of collateral are maintained up to the mark. Processes include frequent audits and valuations. A popular example of a stablecoin using this type of architecture is Tether. On paper, it has a market cap of roughly $2.3 billion and with a daily volume that exceeds $1 billion. The token is hailed as the most stable cryptocurrency but is plagued with controversies from the lack of professional and publicly available audits. There is also TrueUSD, a flagship offering from TrustToken. It is a U.S. dollar-pegged stablecoin. It has a transparency mechanism designed to avoid issues that affected Tether. It currently has a public sale on CoinList. StableUSD, on the other hand, is another type of fiat collateralized stablecoin from Stably. It is backed by USD with every token fully backed and redeemable 1-to-1. It also offers support to multiple blockchains, including Stellar and Ethereum. Similar to TrueUSD, it aims to be verifiably transparent. Third party audits and real-time electronic bank data serve as verification of the cash reserves backing of each stableUSD. Fiat collateralized stablecoins however, have their share of problems. For this type of stablecoin to be successful, users have to trust the central entity that holds the money or collateral. In the case of Tether, trust is not exactly working out well. This is especially true with allegations about insolvency and accusations that this particular stablecoin is being used to drive up price of Bitcoin on exchanges. Crypto-collateralized Stablecoins Crypto-collateralized stablecoins depend on the cryptocurrency value that they use as collateral to maintain a stable target price against certain assets. Unlike fiat-collateralized stablecoins, which are simple but centralized, crypto-collateralized stablecoins are used in a much more decentralized approach, as they are backed by cryptocurrency reserves. In essence, these types of stablecoins work quite similar to their fiat counterparts. The only difference is, the collateral is not considered as assets in the real-world, but rather another cryptocurrency. They are extremely volatile. Thus, they are often over-collateralized (there is a huge rate of capital involved) to account for the price volatility of the underlying crypto collateral. Also, in the crypto-collateralized stablecoins system, a bulk of cryptocurrencies account for the price stability achieved by a particular stablecoin. While using these stablecoins is good for everyday situations, holding long term could be risky. There is still no account that this method has already been rigorously tested in real markets. One crypto-collateralized stablecoin is MakerDAO. Despite its increasing popularity, the implementation of such cryptocurrency has been perceived by users as complex and difficult to understand. Under the system, the user needs to deposit crypto assets into a smart contract, then receives a certain number of stablecoins. As previously implied regarding the use of these stablecoins, the cumulative price of the stablecoins he receives is lesser than the value of the crypto assets he deposited. One more major issue with using crypto-collateralized stablecoins is that if your crypto assets go through significant value depreciation, the loans you have taken out will be automatically liquidated. Non-collateralized stablecoins Unlike crypto-collateralized stablecoins, non-collateralized stablecoins are cryptocurrencies with stable prices and are not backed by collateral. Their implementation involves a system or an algorithm that contracts and expands the coin supply depending on the coin value. Basically, the non-collateralized stablecoin approach is based on the Quantity Theory of Money, which implies that “there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold.” This means that the coin supply will depend directly on the prices of the stablecoins. For example, if a coin’s value is above $1.00, the supply would increase. On the other hand, if the value drops to less than $1.00, the supply would decrease. These activities create upward and downward pressure on the coins’ value, as needed. To understand more about this, let us take a look at some popular examples of non-collateralized stablecoins. Basecoin – Launched in October 2017, this stablecoin is backed by some of the biggest names in the industry, such as Metastable Capital and Andreessen Horowitz. A re-brand of Basecoin, called Basis, applies a 3-token system using Basecoin, Base Bonds, and Base Shares to implement a system that is similar to an algorithmic central bank. When the supply decreases, bonds are offered at a subsidized rate to pay for the principal and interest in the future. When the demand increases, the supply would also increase. Thus, new coins will be created.Base Shares – Simply known as “shares” in the cryptocurrency market, these tokens come on a fixed supply at the blockchain. These coins are not pegged to anything, with values stemming from their corresponding dividend policies. When demand for such coins goes up and more coins are created, shareholders would also receive newly-created coins as long as all outstanding bonds are redeemed.Carbon – This stablecoin is built on the Hashgraph platform and is compatible with smart contracts, making it highly feasible for use in financial applications. Specifically, it is considered to be used for the decentralized applications (dApps) landscape and for the Ethereum-based games, where a smart contract compatible stablecoin would be a good catalyst.Saga - Saga is a non-anonymous stable cryptocurrency that is backed by a solid set of advisors, such as JP Morgan Chase chairman Jacob A. Frenkel, (chairman of), Cornell professor and IC3 director Emin Gün Sirer, and PHP developer Zeev Suraski. This stablecoin is quite unique from its counterparts, as it is backed by reserves and uses a variable fractional reserve, which is essentially a reserve of conventional currencies. Its supply depends on the size of the Saga economy.Reserve - Founded by Nevin Freeman, this stablecoin originated as an investment round from Coinbase. How it will be implemented is yet to be seen. Overall, stablecoins are likely to evolve over the years. The market around these coins would become more and more competitive, with gradually rising interest in cryptocurrency. The Issues With Current Stablecoin Leaders What is the most stable cryptocurrency? A better question would be what is the best stable cryptocurrency? Because there are several options. None of them are perfect, however. Stablecoins are gaining popularity over other types of digital currencies because of protection from volatility. With links to real-world assets like U.S. dollars, precious metals like gold and silver, and oil, a stablecoin gives traders mental peace, an option for easily liquidated currencies, and eases up concerns on instability. Like most things, stablecoins have their problems as well. In fact, even the best stablecoins have certain disadvantages. Tether According to its website, Tether USDT is “100% backed by USD” with a conversion rate of $1 per 1 Tether. This offers some stability in a crypto space filled with other volatile currencies. But there are reasons for concerns. Not Decentralized Although it uses blockchain technology, the fact that it is run by humans, who are potentially capable of making mistakes, make Tether less reliable. Many believe that Tether is being issued by the same people that run the Bitfinex exchange, another leading exchange that accepts USDT as collateral for trading. This led to the assumption that the 1:1 ratio is not absolute and there might be some fractional reserve lending that is happening behind the scenes. Shady claims Many fear that Tether Limited does not hold enough U.S. dollars to back the stablecoins that are in circulation. In January alone, there were 850 million new digital tokens that Tether released. While this looks good in the sense that there is more capital flowing into crypto, critics say that the cryptocurrency market might be manipulated. This is because the increasing number of tokens released coincided with the record high prices of crypto. Poses a systemic risk With the trading volume of Tether regularly exceeding its market cap, the investment research firm Weiss Ratings thinks of it as a threat to the ecosystem. This is because Tether is one of the main sources of liquidity. As the Weiss report goes, “What happens if Tether does turn out to be shaky? ... What if this large source of liquidity suddenly evaporates?” True USD This is one of the best ERC20 stablecoins on the crypto market as it is pegged with the U.S. Dollars. This can be likened to the Tether USDT, except that it is fully fiat-collateralized, verified transparently by fiat-collateralized like TrustToken, and is legally protected. The people who manage the token are previous employees of Google, UC Berkeley, and PwC. But TrueUSD might not be as stable as it’s supposed to be. In fact, its price showed some volatility, following the announcement that the token will be listed on Binance. Its price had a sudden rise at an unprecedented 40%. It eventually subsided but it did reach $1.39 per token. This led to fears that the price return will dip below $1. But just like in March when TUSD was listed on Bittrex, traders were advised not to pay more than $1.05 per token to avoid losing money. Are the bots really to blame for the price bump? According to Rafael Cosman, co-founder and CTO of TrustToken, bots that are always listening for announcements of new listings tend to “buy any coin as soon as it is listed on a new exchange” to make more profit. But he is confident that anyone who knows that the token is redeemable for $1.00 will not pay for more as they stand to lose money. People are also anticipating on how the token will fare following an audit of its financial situation. Because the token is backed by U.S. dollars, many are wondering if it has enough to back the stablecoins in circulation. Tether for instance, has failed to present a proper audit test. At this stage, stablecoins can be considered highly experimental. So, expect some highs and lows even from the best stablecoins on the market. Investors however, don’t let these concerns stop them from trading, especially in the short-term. The fact that both Tether and TrueUSD are secured against the U.S. dollars and not subject to the level of speculations that other cryptocurrencies have brings the attention of investors. Just stay aware of what’s going on with these tokens on the market before you trade. Keep an eye out for the sudden bumps and drops and don’t pay more than what you’re supposed to for each token. White standard This stablecoin is currently the only one on the Stellar Blockchain, which is known mostly for its fast transaction times. Launched in August 2018 by The White Company and Fintech with the aim of creating a seamless foreign currency monetary system for users. During the official press release, CEO of The White Company, Elizabeth White, said, “Our goal is to unleash crypto’s real-world potential, and this partnership with Interstellar is the first of many steps in not just bringing the White Standard stablecoins to the masses, while increasing the ease for consumers to purchase Stellar lumens (XLM) with USD, GPB and the Euro.” White standard offers three variants of coins, tied to the US Dollars, UK Pounds or Euros. Once all the kinks are worked out, it is touted as allowing seamless deposits, withdrawals, and transfers in all three currencies. The White Company partners with Interstellar, an integrated decentralized exchange (DEX) platform and cryptocurrency wallet powered by the Stellar protocol. Currently, they offer users access to five major cryptocurrencies: Bitcoin, Stellar Lumens, Litecoin, Ripple, and Ethereum. This partnership will integrate the White Standard stablecoins so that Interstellar will be able to allow users to instantly withdraw, deposit, or transfer through the White Standard stablecoins. It may seem like WS stablecoins are quite similar to Tether. The only difference is that the latter does not offer current audited information. However, the White Standard is backed by the USD for the same reason the USD was backed by gold. Because it’s currently the worldwide medium of exchange it becomes easily traceable into any good or service. While there are concerns about inflationary pressures on USD, they have not yet been realized and are likely far off for now. Anatomy of Kinesis: the Ultimate Stablecoin What makes the Kinesis system an evolutionary step toward a better monetary system is that it acts as a store of value and a medium of exchange both at the same time. The Kinesis currencies will soon be launched in November 2018 and will have two currency systems: KAU and KAG. These will be minted into existence and will represent precious metals, which are the bases for the cryptocurrency 1:1. This means that 1g gold is equivalent to 1 KAU and 10g silver is to 1 KAG. These will be stored and insured in third-party vaults that will be audited twice every year. the Kinesis Standard Amazingly, the Kinesis system is designed to actually work. It’s not just any metal in a vault. The workings of the Kinesis system include: Kinesis Currency Exchange (KCX) – where the coins will be produced.Kinesis Blockchain Network (KBN) – where the coins will be utilized.Kinesis Blockchain Exchange (KBE) – where coins are traded.Kinesis Digital Bank (KDB) – where transactions are held.Kinesis Commercial Centre (KCC) – where various companies are able to offer goods and services. Different users will have the option to choose any form of exchange they want for gold, silver, and other major currencies, like the euro, dollar, pounds, franc, and yen. All of these will be integrated with the rest of the world using conventional channels. These include debit and credit cards on the MasterCard and Visa networks, as well as ATM networks, telegraphic transfers, Western Union, PayPal, MoneyGram, and more. Kinesis Solves the Issues of Other Stablecoins What makes Kinesis unique is that it offers price stability, which isn’t available in other stablecoins. This currency system does this by basing its currencies to physical precious metals, like gold, which has a strong store of value for the longest time. Thanks to the minds behind it, they have gone through the list of everything that could possibly go wrong with every coin and have provided solutions to each one of them. Kinesis also has a rewarding multi-faceted system that is unlike any other. It is also hedge-free because it offers assurance on price stability, as well as trading to a wider variety of assets. This is made possible by having strong partnerships with the world’s leading electronic institutional exchange for physical precious metals, like gold and silver, ABX (Allocated Bullion Exchange), as well as Deutsche Borse Group and European Commodity Clearing. Unlike Tether, wherein its tokens are backed by the US dollar yet are at high risk of fractional bank reserves, Kinesis transactions are conducted through bullion exchange networks. Aside from that, its users are rewarded through its velocity-based system, wherein rewards are based on frequency and rate at which they are carried out. In essence, Kinesis can be considered a trustworthy stabilizing force that drives up velocity further in the cryptocurrency world. In a way, it will offer a more suitable replacement for the highly controversial Tether token. Furthermore, there is a better incentive to trade capital. the Kinesis Launch The Kinesis system has a multi-faceted yield system that is unlike any other. It provides incentives to users’ participation by attaching it to different types of yield. This means that anyone who participates in the Kinesis system receives money for every transaction, as well as for the overall rate of money-changing hands. In other words, the system provides a great reward for using such currencies. This means that this stablecoin addresses an important issue that fiat monetary systems have: the need to inflate prices and devalue the currency to stimulate activity in the monetary system. Enjoyed reading our guide? Check out more crypto related guides!

Zubair Bukhari
Zubair Bukhari

05/10/2018

What Is Cryptocurrency?

What is cryptocurrency? What are differences between cryptocurrencies? Learn more about crypto, altcoins and stablecoins with our guide. Cryptocurrency exploded in 2017, and the resulting media attention brought both praise and criticism. The resulting crypto speculation frenzy have led some to herald cryptocurrencies as “the Financial Revolution” and others to call it the ultimate bubble. As with any emerging technology, onlookers are both intrigued, and scared of the vast possibilities that crypto present. This is because cryptocurrencies and blockchain technology provide an alternative solution in some facet, to the everyday problems we all face. Cryptocurrencies are the foundation and main interest point of blockchain technology. The two are intertwined, with some stark differences. Cryptocurrencies are digital assets that can be exchanged for goods and services in place of tradable currency, like the US dollar, European euro, Japanese yen, and British pound, to name a few. The real power of cryptocurrencies comes with the ability to cut out the middle man. You do not need a central authority in-between you and the person or service you are paying. You host a wallet and have full control over your own funds. In simple terms, cryptocurrency is just like the money you put in a bank. Although with cash, you take physical coins and notes. However, money is nothing more than limited entries in a physical database of accounts, balances, and transactions, which you can only change if you meet certain conditions. With cryptocurrency, you have money that you can use to purchase items but only in digital form, over the internet or any other peer to peer exchange. The journey from concept to global phenomenon has been a rocky one. The world's largest cryptocurrency, Bitcoin, was little known for years with many rises and falls in it's price. However, in December 2017, Bitcoin skyrocketed to $20,000 per coin. It has seen a long drawback since then. Leaving many uncertain of it's future in a sea of other rising cryptocurrencies. While the price of major cryptos changes rapidly, the technology continues to develop at lightning speed. Today, there are many big players still working towards a stable, globally accessible digital currency to form the basis of a new global monetary system. The Birth of Bitcoin The cryptocurrency scene never has a dull moment for those involved. The story of Bitcoin's origin however, is very straightforward. It began only 10 years ago. At the time, certainly no one ever expected it to be the global phenomenon it turned out to be. The biggest enigma in the crypto field is the question that is still yet to be answered. Who is the creator of Bitcoin, the worlds first and still biggest crypto currency? The figure or group known as Satoshi Nakamoto unleashed Bitcoin in 2009 with the goal of creating an electronic peer-to-peer cash system. The Exciting and Troubled History of Cryptocurrencies: 2008: The domain name Bitcoin.org was registered on August 18, 2008. On October 31 of the same year, a mysterious being known online as Satoshi Nakomoto published Bitcoin: a peer-to-peer Electronic Cash System. During this time, Bitcoin had a value of a little over a cent per coin. 2009: Nakamoto sent Hal Finney, a computer programmer and friend, 10 Bitcoin (BTC) on January 12, 2009. This was the first ever Bitcoin transaction made. It was also the same year when Bitcoin’s value exploded. It grew quickly to $27 per coin. 2010: On August 15, 2010, the Bitcoin database was hacked, exposing its major flaws. An unusual transaction involving 184 billion BTC was noted by Jeff Garzik, Bitcoin developer. He said, “We’ve had a problem here.” That same year in what is now a legendary event, the world's first real world crypto currency transaction took place. A Bitcoin user named Laszlo Hanyecz swapped 10,000 BTC for two pizzas. This was both a ground breaking and ultimately very necessary step in pushing Bitcoin towards real world use cases and acceptance. Many people laugh looking back on how much those same Bitcoin are worth. While being worth only 30$ at the time, 10,000 Bitcoin today is valued at around $65,000,000. 2011: Rivals like Namecoin, Swiftcoin, and Litecoin made their debut in 2011, while bitcoin was accused of being involved in the “dark web,” especially on sites like Silk Road. But since bad publicity is still publicity, bitcoin prices skyrockets during this time before it dove down again. 2012: Bitcoin made a debut in popular consciousness when it was featured in an episode entitled “Bitcoin for Dummies” in the third season of the US drama “The Good Wife.” 2013: The blockchain split in two as bitcoin holders failed to agree on transaction rules. Two networks operated for six hours, leading to a significant drop in value. In other parts of the world, various countries had different reactions to the use of bitcoin. In Germany, bitcoin was not recognized as an official currency but as a “unit of account,” leading to taxing bitcoin-based transactions in the future. Meanwhile, in Vancouver, Canada, the first ever bitcoin ATM was installed. However, it was banned and considered illegal in China and Thailand. 2014: In one of the most infamous incidents in the history of cryptocurrency, Japanese Bitcoin trading exchange Mt. Gox went offline and filed for bankruptcy protection. Investors at the time lost everything and are still to this day fighting for their claims. There was some new ground gained in adoption however, with Microsoft and others allowing users to buy games using the bitcoins, recognizing the popularity and potential of the cryptocurrency. 2015: Ethereum as well as other cryptocurrency altcoins were introduced during this year. Coinbase, now one of the biggest and most popular exchanges in the west, raised $75 million in funding. This was the largest at the time for a bitcoin company. It was also during this time when European based bitcoin exchange company Bitstamp was hacked. They resumed days later, assuring their investors that their funds were not affected. 2016: Cryptocurrencies became more popular during this time. In fact, the number of ATM machines grew from 500 at the start of the year to 900 by the end of the year. It was also in 2016 when Uber Argentina, the Swiss national railway, and Steam, a software company, started to accept bitcoin payments. This marked even more adoption worldwide in what was starting to look like a promising new payment method. In May of 2016, DAO (Decentralized Autonomous Organization), a stateless venture capital was founded and funded on the Ethereum blockchain. This was the largest crowdfunded project ever in crypto. Unfortunately, it was hacked just a month after it was launched and all their assets were lost. This marked yet another high profile multi million dollar hack in the crypto scene and cast a spotlight on the need for increased security measures. 2017: After much debate from supporters and increased tension, the scaling debate in Bitcoin was in a way temporarily settled by the “Bitcoin cash" hard fork. This caused a split in the Bitcoin community and the miners over which version of Bitcoin to support. Today there is still the main Bitcoin legacy chain coin, and the fork known as Bitcoin Cash. In groundbreaking international news, Japan announced new laws deeming Bitcoin a legal payment method, while Skandiabanken in Norway accepts bitcoin both as a payment system and an investment asset. 2018: Major electronic manufacturer Samsung confirmed it will start making computer chips specifically to mine coins. Similarly, different European countries passed cryptocurrency regulations while others established partnerships with high profile crypto companies. It was also this year when Ripple launched an app with Santander for international money transfers. The Age Old Problems With Fiat Currency Adam Smith summarized the issue well: “The problem with fiat money is that it rewards the minority that can handle money, but fools the generation that has worked and saved money.” Former IMF (International Monetary Fund) Chief Economist Kenneth S. Rogoff wrote a book called “The Curse of Cash,” where he suggested governments completely abolish cash notes. He wrote that cash is taking away money from legitimate free enterprise and putting it into the black market instead. He also accused the central banks around the world of promoting the black market by selling paper bills. The US dollar was once the gold standard of foreign currency holdings. It held real-world value since it was pegged to actual gold bullion held by the US Treasury. However, in 1971, the relationship between gold and the US dollar was severed. This means that the entire finance industry runs on the assumptions of price, and supply vs demand, but not of intrinsic value. Thus, when the American government cannot fund their spending on tax revenue, they simply print more money. In doing so, the value of the dollar has plummeted while gold has gone up. Another fundamental problem of fiat currencies is that it forces people to accept them. In the United States, for example, the use of legal force in 1933 was used to compel the people into accepting irredeemable Federal Reserve Notes replacing gold-back money. This makes fiat currencies immoral because coercion is used to make them acceptable. Aside from that, schemes that evolve around fiat currencies allow those who control such payment systems to redistribute wealth by altering the quantity, availability, and distribution, which can be considered legalized theft. Cryptocurrency, The Solution to Fiat A group of people saw the limitations of traditional banking systems. They saw that these could endanger people’s wealth, privacy, and peace of mind. This led the development of cryptocurrency – something that cannot be controlled by a single entity. They created something that will give everyone control over such currency, which will only require internet access, not regulatory entities, geographical borders, or governments. Although cryptocurrencies may not necessarily usurp the value of traditional banking and fiat currencies, there are certain advantages that are not available to the traditional payment systems. Cryptocurrency Advantages 1. Takes away the middle man: No government or private entity will have control over cryptocurrencies. So, when you buy property or make transactions, you can do it without the need for third parties. This cuts down the time in settling payments and makes fairer transactions. Moreover, cryptocurrencies cannot be devalued or taken away from you by any government. Accessible to anyone: Not everyone has access to traditional banking systems. But with cryptocurrencies, anyone who has access to the internet can have a crypto wallet. This makes cryptocurrencies useful in underdeveloped countries. 2. Prevents fraud: Because cryptocurrencies are decentralized, this makes them fraud-proof by nature. They cannot be counterfeited unlike paper currency. Additionally, with cryptocurrencies, exchanges are made using “push transactions,” which means that anyone who makes a transaction only sends the amount of currency they want to make to a vendor and nothing more. But with traditional credit and debit transactions, which are considered “pull transactions,” anyone you send money to will be able to pull not only the payment but also your personal information. This could increase the risk of fraud or identity theft. 3. Quick and easy payments: When using cryptocurrencies, payment is done in just a matter of seconds. You don’t need to provide a lot of personal details – all you need is the wallet address of the person or entity you want to send the payment to. Because you only need to have internet access to be able to make transactions, fast settlements and lower fees are made possible with cryptocurrencies. This is also because of the elimination of the middleman that normally profit from your transactions with fees. The Bitcoin Machine The primary reason Bitcoin was created in the first place was to cut out the middleman – traditional banks. This is because they usually take a big chunk of your payment. When you buy, a house, you will need to pay a real estate agent, which is the middleman, his six percent commission. If you’re going to transfer money to a bank in another country, you’ll also need to pay a processing fee. Aside from eliminating the need to pay hefty amounts for commissions or handling fees to middlemen, cryptocurrencies will also address fraud issues when making any kind of payment. Using traditional payment systems, you’ll need to divulge private information, which could be used fraudulently. How Bitcoin Operates Transactions: Transactions are stored in the bitcoin database, known as a distributed ledger, and is shared. It can then be accessed using the blockchain, which calculates the spendable balance of each bitcoin wallet. It will also verify new transactions. Private Keys: These are pieces of data that are kept in bitcoin wallets. They are used to sign transactions or transfers of value between bitcoin wallets. They are to be used only once. Blockchains will also verify whether a particular transfer comes from the owner of the wallet. To ensure that no unauthorized transaction will be made, you need to keep your private key secured. Mining:This is a distributed consensus system that confirms pending transactions in the blockchain. It is also the process of putting all private keys in a blockchain in chronological order. Mining also allows various computers to agree on the state of the system. After that, transactions will be stored in a block that follows rigid rules verified by the network, preventing other blocks from being modified, which would invalidate subsequent blocks. Bitcoin transactions are verified by the computers mining worldwide. These computers need to prove they are real and are properly adding to the ledger by solving a mathematical problem. Because mining uses a lot of electricity, the miners are rewarded with new bitcoins for their work. This process is what incentivizes people to participate in the network and keeps it running. The Problems Bitcoin Faces Despite the fact that Bitcoin has been adopted by many merchants worldwide, it is not the easiest cryptocurrency to use. Here are some of Bitcoin limitations: Higher fees: Because of the number of people using Bitcoin, the network got congested over time. This leads to higher and higher fees as people are willing to pay more to get their transactions through faster. Developers have been trying to solve this issue and so far, fees are starting to become lower again.Not easy to use: People who are not computer savvy will have a hard time using cryptocurrencies, like Bitcoins. Aside from that, you’ll need to keep a long set of numbers (private keys) safe to be able to make a transaction.Need for electricity: Mining requires a lot of electricity, which is bad for the environment. Plus, it’s quite expensive. It is estimated that total mining electricity worldwide rivals the annual consumption of a small country.Used for criminal activities: You don’t have to use your own identity when using bitcoin. This makes it easier for criminals to use Bitcoin for illegal activities like money laundering and illegal transactions Altcoins, the Bitcoin Alternatives Altcoin is a title that traditionally refers to anything that is not Bitcoin. There have been numerous that have come and gone throughout the years. Most have tried to be competitors to the Bitcoin throne, unsuccessfully. In the past these altcoins have tried to fill a niche that Bitcoin lacks. Today there are thousands of these altcoins available, many perfoming their own functions that Bitcoin was never intended for. Here is a breakdown on some of the notable altcoins that arose to address Bitcoin's most glaring shortcomings throughout the years: Namecoin This is an older experimental open source technology that was born two years after Bitcoin. It was intended to replace the domain name system to improve security, censorship resistance, decentralization, privacy, and speed of certain components, such as identities and DNS. Unfortunately, it never really caught on, although it had some lofty aspirations: Registration is inexpensive, costing only around $0.05. Compared to the standard procedure, the costs of a domain name registration is far lesser.There's no need to pay a renewal fee to retain the domain, but you must publish a transaction with the domain name every 6 months.Management of subdomains is similar to the management of the current domain system. For example, you will have access to all the subdomains of mywebsite.bit after you registered it to the Namecoin System.Use Namecoin to propose ideas, such as voting, file signatures, notary services, proof of existence, and bonds/stocks/shares. Litecoin Litecoin was born in October 7, 2011 and went live 2 days after, sometime after Namecoin. It was created by Charlie Lee, an ex-Google employee, who envisioned creating a lighter, cheaper version of Bitcoin. While Bitcoin was considered “gold”, Litecoin was the “silver”, a means for cheaper transactions. Both Bitcoin and Litecoin use proof-work consensus mechanism, helping safeguard the networks from attacks and abuses. Miners solve difficult cryptographic puzzles through their computational power. The main difference between Litecoin and Bitcoin lies in its mining procedure. With Bitcoin, you need a very powerful computer to mine, which are called ASIC miners. In fact, whole warehouses have been built to process Bitcoin mining. Experts believe there is a risk in this practice. Bitcoin’s total supply could be controlled by a small number of people – something that will contradict the reason cryptocurrency was created, which was to spread wealth evenly to all people. Charlie Lee created Litecoin to be mined using ordinary computers. This means that more people could get involved. Bitcoin uses SHA-256 algorithm, which favors processing power when mining cryptocurrency. Litecoin, on the other hand, uses “script algorithm,” which prioritizes those with high-speed random access memory rather than with processing power. Litecoin is the second most forked cryptocurrency and, besides the mining puzzle, it differs from Bitcoin with some parameter changes. For example, the time between block creation is 4 times shorter than Bitcoin, which takes 10 minutes. Dogecoin DogeCoin is a somewhat notorious cryptocurrency that started as a joke but quickly spread as a huge community grew around the new coin. It was born from a meme that was popular at the time, hence the Shibu Inu dog from the “Doge” internet meme on its logo. Dogecoin was created by Billy Markus and Jackson Palmer on December 6, 2013 with the intention of having an interesting digital currency that would reach more people than Bitcoin. In fact, it supported several marketing campaigns and public events. Some of the events it sponsored were as follows: A NASCAR driver installed Dogecoin logo on his carA community that raised over 30 thousand dollars to support the Jamaican bobsled team to let them travel and compete in 2014 Winter Olympic Games Another interesting difference between Dogecoin and other cryptocurrencies was the notion of random block rewards. With Dogecoin, each block bonus is random instead of being fixed, depending on a pseudo-random function used on the previous block hash. This allows miners to determine whether a reward is low or high, giving them time to mine other cryptocurrencies instead. Unfortunately, this feature was removed a few months later. Today, this cryptocurrency’s block reward system is fixed as all halving events have been completed since February 2015. Ethereum Ethereum is the first cryptocurrency that allows smart contracts to be created using a Turing-complete programming language. It was developed with the idea that contracts can correspond to a computer program and can be fulfilled and applied using a series of conditions that need to be met. These contracts are known as "smart contracts" and are a foundational principle in Ethereum. For a smart contract to be installed and run on a peer-to-peer network, users must pay in Ether. Ether serves as both the contract fuel and cryptocurrency of the Ethereum network. Some other uses for the Ethereum network are financial markets, electoral systems, registration of domain names, and crowdfunding platforms among many others. Ethereum also rose to prominence through 2016 and 2017 as being the #1 platform for other businesses to build their own cryptocurrencies and ICOs with. Monero Monero is a cryptocurrency that operates in a private, secure, and untraceable manner. It uses a ring signature algorithm where multiple signatures from participants are needed for monetary exchanges to be made. A transaction may be linked to a group of users but will not be traced back to them. This currency is also fungible, which means every coin circulated is completely identical to other coins in circulation. To ensure privacy, Monero’s privacy protections require a sender to specify a payment ID of their choice. This way, the receiver will have no idea about the source of funds. You can also generate an integrated address along with the payment ID for faster transactions. Cardano Cardano is a third-generation cryptocurrency designed to protect user privacy while allowing regulations to be imposed. Since its start in 2015 its roadmap continues to evolve. At the beginning of 2018, it finally hit the spot in the top ten market cap cryptocurrencies. Unlike other early born cryptocurrencies, Cardano is high speed, allows money ownership, security, and pseudonymity, supports the side-chain concept, and allows for extensible applications, such as gaming and gambling, identity management, and verifiable computations. What makes Cardano different from Bitcoin? It has an innovative multi-layer architecture that protects an individual’s rights to privacy in financial transactions while integrating regulations. Cardano Settlement Layer (CSL) is a stand-alone blockchain with ADA as a token. It stores and accounts for transactional value and supports a Control layer extension. In gaming and gambling, the settlement layer helps verify how honest the numbers were generated and the outcomes of a game. Ripple Ripple was released in 2012 by Chris Larsen and Jed McCaleb. It has many conceptual differences with Bitcoin in that it acts as a cryptocurrency too, but is more focused on being a digital payment network. The aim is to "do for payments what SMTP did for email, which enables the systems of different financial institutions to communicate directly." This allows banks and other financial institutions to incorporate Ripple into their own systems. Ripple was designed to operate on an open source and peer-to-peer decentralized platform that allows users to conduct financial transactions in any currency, be it in litecoin, bitcoin, USD, Yen, or other. How Ripple works can be a little bit complex. For example, Person A wants to send a payment of $100 to Person B who is from another city. Person A does this through Agent A with a password that will require Person B to answer correctly. Agent A will alert Person B’s agent, Agent B, of the transaction details, consisting of the password, recipient, and the amount to be reimbursed. What makes the process complex is that the funds that Agent B will transfer to Agent A, Person A’s agent, will come from his/her own account. This means that Agent A owes Agent B the amount of $100. Agent B can make a record of the transaction also known as IOU, which Agent A would pay on an agreed day, balancing out the debt. All of these activities will be done through a medium called Gateway, which serves as a link in the trust chain. This medium also works as a credit intermediary that sends and receives currencies over the network. Given this example, the Ripple network requires trust to initiate such transactions. Unlike Bitcoin and other cryptocurrencies, Ripple does not run with a proof-of-work or proof-of-stake system. The Future of Crypto Bitcoin’s birth and the subsequent cryptocurrency evolution that has gone on since 2009 is stunning. In less than a decade, there has been so much real-world accumulation of data that it becomes much easier to forecast how cryptocurrency will evolve en-route to becoming a viable global currency alternative. Last May 2018, Tim Draper, a famous venture capitalist, predicted the fate of Bitcoin. He said that it will reach $250,000 by 2022. Draper also made a prediction in 2014, saying that Bitcoin will be worth $10,000 in three years. His first prediction did come true because BTC hit a $10,000 mark in 2017. In fact, it made an all-time high value of $19,783 by the end of 2017. When asked by Rachel Wolfson, a Forbes contributor and cryptocurrency writer herself, what his basis for his prediction was, Draper said that it “based on the idea that Bitcoin was going to be easy enough to use in the future and that people would be able to start trading with it and using it as a store of value.” Draper also believes that more and more people are going to start spending currencies in everyday situations just like credit cards. He also said that cryptocurrencies will completely eradicate fiat currencies. It is true that cryptocurrency has had its fair share of ups and downs. But the trends of the market make it easier for people to make virtually accurate predictions of what to expect in the near future. Experts predict that Bitcoin and other digital currencies will have more patronage from institutional investors. More and more governments are looking to regulate cryptocurrencies, giving investors more confidence in putting putting their hard-earned money into them. In fact, more people are acknowledging cryptocurrencies’ potential as a viable asset for enticing returns. However, other experts believe that despite the measures being taken to regulate these digital currencies, there are still so many factors that make them volatile. Lack of institutional capitalNot enough intrinsic valueImplementation of regulations Those who have their eyes on the cryptocurrency market believe that as cryptocurrency becomes more popular, there should be a rhythmical pattern of its volatility. Stablecoins - The Next Evolution Cryptocurrencies are believed to be volatile no matter what will be done to address this issue. This is the very reason Stablecoins have been created. Stablecoins are a form of digital currency that were created to specifically address the volatility of cryptocurrencies. Currently, there are two distinct categories: fiat-backed Stablecoins, which are backed by real-world fiat currencies, like Euro, US dollar, and British pounds, and crypto-backed Stablecoins, which are backed by a second cryptocurrency. Another kind of Stablecoin is believed to become mainstream very soon. These Stablecoins will be backed by commodities like oil, and precious metals, namely gold. An upcoming Stablecoin is expected to be the leader in this emerging sector of cryptocurrencies. This new Stablecoin is Kinesis. It is designed to offer rewards to its users, as well as offer a flexible and reliable digital monetary system. Kinesis combines stability, cryptographic technology, and yield, making it easier for users to spend and at the same time, maintain their token value without the fear of volatility. The Kinesis team said, “Under the Kinesis Monetary System, we can take the greatest store of value, gold, make it an efficient medium of exchange via blockchain and cryptocurrency technology, then stimulate money velocity and economic activity through a multifaceted incentivizing yield system. Kinesis is not abstract or theoretical, it has been meticulously planned.” There has long been a need for an instrument like these Stablecoins. Exchanges in particular are in dire need for an asset that can make an appropriate pairing for other cryptocurrencies. While USD has long been the go to, Stablecoins provide all the functionality and features of normal cryptocurrencies that USD simply cannot compete with. This will enable the onramp of millions of dollars from investors that cannot trust the volatility of other cryptocurrencies as well as finally providing one of the initial purposes of crypto, a useable store of value for everyday purchases and exchanges. These are some of the concepts highlighted in the original whitepaper written for Bitcoin. Stablecoins will usher in the next era of cryptocurrencies and will lead to the mass adoption in everyday situations that crypto has been fighting for since the beginning.

Zubair Bukhari
Zubair Bukhari

02/10/2018

Why the Kinesis Blockchain Network was forked from Stellar

Following a number of prototypes and proof of concept builds, the Kinesis team determined that the most effective and fit-for-purpose selection for a blockchain network for the kinesis currency suite was to use the Stellar network forked to form a bespoke blockchain network. There was one defining objective that needed to be met with this choice, and this is the ability for Kinesis currencies to function as the high velocity, globally used currencies that form the basis for the Monetary System that Kinesis is pioneering. Stellar met these primary needs in a number of ways, both technical and algorithmic, but at the core of the decision lies 3 overarching reasons. 1. The speed of the Stellar network: The one obvious influence on this is of course hardware. The hardware upon which a network is hosted of course will have a bearing on the processing capabilities, but there is no accurate measure of this influence on network speeds prior to it being used in a network the scale proposed by Kinesis. The need for extreme flexibility here has been addressed by Kinesis through sophisticated designs in Cloud Technology. The other and more pertinent factor in network speed is, of course, its specific model of data propagation and cryptographic algorithm. In this regard, there have been a number of closely regulated tests performed on a number of blockchain networks. The outcomes of these give a good idea of the comparative average estimated speeds of the networks under load. The results of these tests place Stellar at the forefront of network speed, outstripping competitive networks not just marginally but by orders of magnitude. In an interview with the blockchain-focused podcast Epicenter, Stellar founder Jed McCaleb suggested ~4000 transactions per second was within the capabilities of the Stellar network. Following a number of experiments with stellar networks on various scaled hardware, the outcome of estimated speeds was between 3000 and 4000 transactions per second. At this stage, this remains an estimate but with higher speeds anticipated. Compare these numbers to those obtained through experiments of competitor networks: · Bitcoin’s 3.3 to 7 transactions per second, Bitcoin graphical statistics. · Ethereum’s average of 15 transactions per second, Ethereum Transaction Chart, Etherscan, 2018 · VISA’s 1,736 average transactions per second at current volumes and 24,000 transactions per second actual capacity, VISA, Comparison to Visa, These figures will make it clear why Stellar was the top choice for the Kinesis blockchain technology and the ability for the fork of this network to cater to the high velocity of a fully fledged currency. 2. Stellar Consensus Model versus Mining Model: A key characteristic of the Kinesis and Stellar designs is that it does not implement the ‘mining’ model of blockchain like bitcoin and Ethereum do. The Stellar network utilises a purely Consensus model instead. The consensus model requires a specific number of nodes to reach consensus in order for a transaction to be persisted to the network, so transactions can only be propagated on the network if a number of nodes agree that they are authentic and comply with their calculations. This is quite different to the fact that extensive mining activities are required to propagate transactions in the Bitcoin or Ethereum models. This makes the propagation of new data to the network extremely costly to processing power and creates the possibility for run-away fees to do so. The Kinesis network also ensures that it is not possible for external parties to add false nodes to the network by ensuring that consensus is reached across trusted nodes only. Inauthentic nodes will simply be excluded from the process, ensuring that consensus can at all times be trusted. 3. Stellar Fee Accumulation Model: The Kinesis monetary system offers unique yield-bearing characteristics. To achieve this the transaction fees in the cryptocurrency need to be collected transparently and managed centrally in the network. In a mining model, the fees are allocated and earned by the miners who undertake the processing overhead of mining the data propagation, meaning that fees cannot be offered across a broader range of network participants. Additionally, the currency demand incentivises mining by the fact that the fees are directly allocated to miners only, resulting in fees varying unpredictably and escalating rapidly in this uncontrolled model. Where a mining model allocates transaction fees only to the miners, the stellar model utilised a consolidated fee accumulation approach across the entire network activity, and in this way, the fees can be accumulated for broad distribution to the participants of Kinesis. Additionally, the fees in Stellar and hence Kinesis are linked linearly to the actual transactions and calculated accordingly in a static manner, not artificially manipulated by mining. In this way the Stellar model allows Kinesis to prevents the run-away effect that mining has on fees by attaching fees to transaction activity itself, so those who transact with the kinesis currency will have predictable, transparent, and exceedingly affordable fees attached to their activities. The accumulation of fees in the Kinesis fork of Stellar is held securely in an off-chain account so that they remain secure until such time as they are distributed to the accounts of revenue earners. The fees accumulated, being part of the transparent blockchain processes, are visible ensuring that there is no way for them to be manipulated giving the network participants additional confidence in their revenue share. Why Fork the network: The final point to discuss is why the choice was made to create a bespoke blockchain network rather than use Stellar as it is. In the Kinesis currency designs, Kinesis itself is to form the underlying base currency in the blockchain system. To achieve this Kinesis blockchain needed to cater to a unique set of cryptocurrency characteristics. Regarding the base currency, on the Stellar blockchain one transacts using Lumins as the base currency and fees would be accumulated in Lumins. In the Kinesis blockchain, one transacts using Kinesis itself as the base currency. Fees are accumulated in Kinesis, for distribution as Kinesis coins, into revenue earners’ Kinesis blockchain accounts. The second important reason was to allow for the customisation of the fee mechanism to provide for a fee as a percentage of the transaction value. This is a custom feature of Kinesis and is one of the first blockchain networks to present this form of transaction fee calculation in the core network code. Again it supports the concepts inherent to the Kinesis system where velocity increases yield in the Kinesis currencies. While there are a number of other factors that were assessed through a variety of proof of concept experiments that lead to the choice in Stellar and the decision to fork the network to form a bespoke Kinesis Blockchain, these above hold the highest importance in achieving the true currency characteristics of a globally inclusive, transparent, reliable and high-velocity Monetary System on offer by Kinesis.

Zubair Bukhari
Zubair Bukhari

26/06/2018

The Kinesis Consensus Model and Trusted Nodes

It is often asked of us at Kinesis how our blockchain network, forked from Stellar, differs from the Bitcoin and Ethereum networks and what it means that these networks are built with different blockchain models. Kinesis Blockchain Network (KBN) is a fork of the Stellar network which utilises a consensus model to persist its transactions, known as its ledger. In KBN, 5 Trusted nodes are needed to reach consensus to have a new transaction persisted to the network. This means that 5 separate nodes, trusted by the network, need to agree that the new transaction has been arrived at by following the network’s cryptographic algorithm and has not been artificially created. Every node in the network is aware of which other nodes are Trusted nodes. Since the KBN is a public network it does mean that nodes can be added to the network by external parties. These nodes can legitimately hold the network’s transactions and historical data, but none of the existing Trusted nodes will recognise this new node as Trusted and hence it will never participate in consensus and hence it will be unable to contribute new changes to the network. This is the consensus model of the KBN, and Stellar, blockchain networks. In this model, the fees are placed on individual transactions and are accumulated by the network, rather than with individuals. This is different to the mining network models of Bitcoin and Ethereum, where any number of transactions (blocks of transactions) can be added to the network through ‘mining’ activities, ie through running the cryptographic algorithm using vast amounts of processing power to arrive at the new chain data. Fees are earned by those performing this processing. It is in this way that the demand for transaction propagation can increase fees to extraordinary levels in order to earn more for the mining activities. This is the primary difference between these blockchain models. In consensus models trusted nodes in KBN can reach consensus about the propagation of change to the network transactions. Transactions are not added through the mining of new blocks of transactions that are added to the network. Mining also has no concept in the KBN consensus model, meaning that there is no risk of run-away fee escalation, and additionally the fees in the KBN, as per Stellar, are accumulated in a fee accumulation calculation that can then be distributed to participants. In the mining model, this would not be possible because fees are paid directly to the miner who works to add the transactions. In the context of an actual currency that anticipates large usage and high velocity of usage, the mining model would be prohibitive. The fee structure would not support a linear fee accumulation based on this velocity and would lead to processing challenges which in turn would slow the network down. The Stellar consensus model was selected to Kinesis because it allows the linear and central accumulation of fees per velocity and use of the actual currency and not per cryptographic process, it also allows for significantly higher speeds in-network propagation.

Zubair Bukhari
Zubair Bukhari

25/06/2018

How Kinesis leverages Cloud Technology to its advantage

As the Kinesis team has designed and built out their Kinesis Cryptocurrency, the true objective and vision has remained front of mind; that this is to be a globally accessible, usable and reliable digital currency forming the basis of a new Monetary System. As a result, a number of core characteristics were a top priority, with one of the highest focusing on security and reliability. This involved careful design and configuration around the way the Kinesis systems would be hosted and supported. The KBN is hosted in the cloud, on Amazon Web Services, in doing so makes full use of all security factors and hardware redundancy that the cloud solution affords. Hardware failure and redundancy is handled seamlessly in AWS as part of their IaaS (infrastructure as a Service) offerings, as is the quality of the hardware used. Cloud hosting provides access to advanced infrastructure strategies that would otherwise not be rapidly possible or cost-effective to achieve independently. For the KBN, the AWS platform has been architected specifically to ensure robust network stability and uptime assurances. To ensure this, not only is the Kinesis ecosystem hosted in the cloud on redundant high-quality hardware but additionally, the network is is designed to be distributed over 3 global regions of the AWS global network. This provides triple redundancy in the network for fail-safe operations. With the KBN being a fork of the Stellar network, the consensus model forms the mechanism through which the network is propagated. In the KBN design, 5 nodes are required to reach consensus to propagate any change to the network. Additionally, the network is configured such that only 3 trusted nodes exist in each region which means that at least 2 regions need to contribute trusted nodes for consensus to occur. This not only provides triple redundancy using 3 regions to protect against any failure or breach but also means that in order for the control to be lost of the entire KBN, an external entity would need to coordinate an attack on 2 regions simultaneously to incur any disruption to performance. Additionally, the loss of one entire region will have no effect on the network operation, with a rapid restore being automatically initiated in the failed region. In the highly unlikely event that 2 regions of AWS fail or are unable to contribute nodes to the consensus process, the transactions will be safely queued for consensus until two regions and 5 nodes are again available to participate, thus preventing data corruption. This combination of configuration and IT strategy ensures Kinesis the ability to commit to its high standards of system up-time and reliability, along with presenting a network infrastructure with an exceptionally low chance of compromise.

Zubair Bukhari
Zubair Bukhari

25/06/2018

The monetary system for a successful and sustainable future

In the same way, our sun unconditionally delivers an indiscriminate share of energy to planet Earth that stimulates life, we present a comparative energy system to stimulate the movement of money, assets and hence overall commerce and economic activity in a fair, honest and rewarding process. It is an entirely new monetary system, which is based on movement, kinetics and velocity. We name the system Kinesis. The Kinesis system is an evolutionary step beyond any monetary system available in the world today. It enhances money as both a store of value and a medium of exchange and has been developed for the benefit of all. Core to the mechanics of the system is the perpetual incentive and thus stimulus for money velocity. Outside capital is attracted into Kinesis via a highly attractive risk/return ratio and then put into highly stimulated movement, promoting commerce and economic activity. This is achieved through structuring money to represent 100% allocated title of an asset and then attaching a unique multifaceted yield system that fairly shares the wealth generated by the system according to participation and money velocity. Aside from offering the greatest store of value and striving to provide the most efficient medium of exchange, Kinesis is a monetary system focused on: minimising risk; maximising return; stimulating velocity and maximising the rate of adoption. Kinesis defeats Gresham’s Law of Money that asserts “bad money drives out good”, by highly incentivising “good money” to circulate and be utilised as an effective medium of exchange. Someone who values money over other money is inclined to hoard it and not use it as a payment currency, but rather use the less valued currency for payments. This model has been broken in the Kinesis system as the reward for using the valued currency is so tremendously strong. The primary currency chosen for the Kinesis monetary system is a kinetically charged physical gold-based currency. Gold being the greatest store of value, indestructible in every sense, physically rare in quantity and has been appreciated by human civilisation as money for longer than anything else. It is the money created by our universe and not by people. It is created by a rare cosmic event of two neutron stars colliding, so rare that the first time this event was witnessed by humankind was 17 August 2017. Hold gold in your hands and you can feel its energy. It is the colour of stars, it is the money of the universe. Gold is the undisputed champion of fair, honest and sustainable money. Put allocated gold on a kinetically charged decentralised rail system and you have a very special monetary system. We believe this is what we have achieved, and a lot more. The Kinesis system can be overlaid on top of anything that can be standardised, traded and stored as value. Accordingly, we are developing a kinetically charged digital currency suite with allocated title of bullion, fiat bank notes, cryptocurrencies and other assets that are physically and digitally securely stored in our allocated Kinesis banking and asset management system. By attaching a yield to digital currencies, risk/return ratios can be forecasted and virtually all currency and investment asset markets can be targeted and infiltrated. As such, over time we plan for more currencies and assets to be added, ultimately infiltrating more markets spread across the world. Kinesis will attract capital from: Cryptocurrency markets - Currently little to no yield The gold and silver markets — Currently little to no yield Fiat currency markets — Low to negative yield via debt-based interest rates Investment asset markets — Comparatively low yields for the market and property investments Ultimately, if someone can get the same asset at the same price, but with significantly lower risk and higher return, it makes little sense for them to not choose the asset with the better risk/return ratio, particularly when significant returns are on offer. As the Kinesis monetary system is one that allocates title directly to the ultimate beneficial owner, where banks conversely hold legal title of their customer deposits and put those deposits at risk, the Kinesis system is in fact much less risky and with much greater return than legacy alternatives. With global low to negative interest rates, bail-in provisions, depositors’ insurance being removed, and with banks holding legal title to their customer deposits, it makes no logical investment sense to choose risk and nil-to-negative return over the alternative Kinesis system with negligible risk and high return. In comparison to legacy fiat money and fractional banking systems, Kinesis seems too good to be true, but it isn’t. Once clearly understood, Kinesis will lead a highly disruptive paradigm shift in money. Kinesis has taken the very best properties of both old-world money and new-world innovation and combined them together to power banking and commerce in a new fair, inclusive and incentivised way. The result is something extraordinarily powerful that will change the way we all view money forever. The primary elements of Kinesis are: Gold & Silver — The primary currencies offering allocated 1:1 title to physical gold & silver — the greatest stable and definable stores of value for use in commercial and private transactions and investment. Yield — A perpetually recurring yield generated from economic activity, not from debt based interest like fiat currency — providing definable value via Net Present Value (NPV) calculations for use in commercial, institutional and retail investment. Cryptocurrency technology — Can only be enhanced. Blockchain peer-to-peer decentralised distributed ledger technology — Blockchain may become obsolete, but distributed ledger technology can only be enhanced. Kinesis can never be destroyed as these elements will never go away, never be valueless and can only be enhanced. Nothing can take away intrinsic asset value and the value of future cash flows, and technology will only ever be enhanced. Gold and silver have survived the greatest test of all, time, and so too will Kinesis. Other cryptocurrencies with value determined by the anonymous decentralised blockchain payment capabilities and their controlled supply scarcity are all at risk of losing value as their initial founding value proposition is diluted by others coming into the market with enhanced solutions. This is evidenced by Bitcoins’ dominance continuing to fall and has been witnessed in many other industries and markets throughout history as competitors rise. A major contributing factor to the volatility in cryptocurrencies is that they are impossible to value. By intrinsically backing a currency, hence back-stopping the value and defining the risk, and then placing a yield on it, hence defining the return and providing superior value, then a currency which is safe, stable and rewarding is created with a highly attractive investment risk/return ratio attached. This form of currency has necessary real-world application in both commerce and private transactions, along with attracting capital from institutional and retail investors and savers. This is not just a currency, this is a new parallel monetary system to sit alongside but integrated into the legacy problematic centrally controlled fiat and fractional monetary and banking systems. Kinesis is the undeniable superior alternative. This model is highly revolutionary alone, however, to take it the next step further, already in place is a highly disruptive retail and institutional commercialisation strategy with unique distribution and committed adoption from day one of launch. Pre-existing investment commitments are in place for the Kinesis currency suite which will surpass the largest ICO to date by a significant multitude. Kinesis is being developed and being brought to launch by a consortium of industry leading organisations in the precious metal trading, mining, refining, exchange, technology, blockchain, mobile banking, vaulting, postal system and marketing spheres. From launch the system will have extensive institutional and retail distribution, integration, liquidity and adoption. Our liquidity, which will be provided by professional bullion market participants and others, will enable billions of dollars of value to efficiently enter and exit the market. Direct and indirect integrations will provide for immediate adoption into hundreds of millions of users. With the evolution of blockchain, cryptocurrencies and mobile devices, the people of the world have been presented with a profound opportunity. It’s an opportunity to apply empowering creativity to money and be part of a person-centric revolution. We have now been enabled to adopt and support a system that individually and collectively benefits us all based upon nothing more than participation. This system combines new world decentralised technology with the oldest, fairest and most sustainable form of money, to empower and serve the interests of us all equally and capitalistically. Welcome to Kinesis, the equally all empowering monetary system of the future.

Zubair Bukhari
Zubair Bukhari

30/03/2018