As has been pointed out by many, one of the problems with digital currencies, such as Bitcoin and Ethereum, is that they lack price stability. For example, the price of Bitcoin has jumped by more than 500% in the last year and that makes it difficult for anyone to want to spend it on something as trivial as consumer goods. Nobody wants to spend a bit of Bitcoin on a pizza when that same amount of Bitcoin could buy you a car next year. And inversely, no one wants to promise to pay employees in digital coins because they might not be able to afford to continue doing so if a tremendous price increase ensues.
Basis, a coin which was previously named Basecoin, aims to solve this problem, and the company that backs it seems to have conjured up enough funding to accomplish the goal. According to Basis CEO and Founder Nader Al-Naji, they’ve now raised a whopping $133 Million in private placement capital.
How Does the Basis Coin Work?
The Basis coin works a little differently than a standard digital currency. Instead of slowly rationing out coins as time goes on, an algorithm designed by the people at Basis decides when demand for the coin is either too high or too low and subsequently makes adjustments to the size of the coin pool. If demand for the coin is high and the price is at risk of going up, more coins will be created and distributed to the participants. If the demand for the coin is too low, and the price is at risk of dropping, coins will be pulled from the pool in order to increase competition for the currency. The people of Basis state that this process is supposed to mimic the mitigation process undertaken by central banks that manage FIAT currencies, but critics do state that they are falling well short of the complexity of the processes taken by those central banks. Of course, we all know that governments and their central banks are not flawless and that their complex processes can hurt the FIAT currency system just as much as they can help. One only needs to look at the hyperinflation in Zimbabwe or Egypt to understand just how helpful a static algorithm could be for managing currencies.
Other Stable Cryptocurrencies
Basis may be garnering the majority of the news coverage regarding stable cryptocurrencies right now, but they are not the first company to attempt to do away with the instability of digital coins. Other cryptocurrencies such as Tether and BitShares have attempted to do the same. Of course, it can be argued that Tether is not truly a pure cryptocurrency and BitShares is a complicated beast that requires more trading knowledge than most everyday consumers would have or desire.
When will Basis be Available?
There’s is not set date for the launch of the proposed ‘stable’ digital currency, but we can expect things to move forward fairly quickly now that they have funding. If you want to get the full rundown on how the algorithm that will drive Basis is designed, we suggest that you read the Basis Whitepaper.