Can We Stabilize The Price Of A Cryptocurrency

Bitcoin-crypto

Like stocks, securities, commodities, and other trading assets, cryptocurrencies are a digital form of money. Demand determines their price or how many people are interested in purchasing them. 

A token with a system to reduce price swings is known as a stablecoin. A stablecoin, unlike more established cryptocurrencies like bitcoin and ether, has four ways to control its swings.

The first two US cryptocurrency exchanges to do so were Gemini and Paxos, who tethered their tokens to a more reliable currency like the dollar. 

What Do You Mean By Crypto Volatility?

Volatility measures the rate at which an asset’s price fluctuates upwards or downwards over time. An asset is considered riskier as an investment the more variable it is. 

Other methods for calculating volatility include utilizing beta and standard deviation. As a whole, cryptocurrency is thought to be more volatile than equities. 

It’s advisable only to risk money you can afford to lose initially. Earnings reports and favorable or unfavorable press coverage might raise volatility. 

Typically, very low volume and high volatility are correlated with one other (as is the case with so-called penny stocks). 

How To Stabilize Crypto Prices?

According to several analyses, 80% of all new cryptocurrency offers are fake; they claim to list the currencies on exchanges shortly, which would result in a significant increase in value and bonus-free coins that are eventually meaningless.

However, here we shall discuss some genuine and proven techniques that can stabilize the Crypto prices and fight its market volatility—

Creating An IBC

The blockchain sector is going through a development and community involvement renaissance. The particular functionality, or a certain level of scalability, that can only be provided by networks constructed to order is always needed. The combined benefit of chains with different use cases can be increased by interoperability. 

The capability of superfluid staking utilizing IBC, which will eventually be made available on Osmosis, illustrates this common interoperability. IBC is a technology that enables trustless communication across unrelated blockchains. 

With this, users are free to participate actively in the networks they wish to contribute to the security of without having to choose between receiving liquidity incentives.

Because IBC is a trustless protocol, any party can run a relayer without having faith in the parties transferring the data. 

Smart contracts used on each chain and coupled via IBC allow IBC/TAO to operate. A permissionless relay layer is used to transmit data packets of information between the chains. 

A data packet delivered across a channel verifies that the data was sent from the specified smart contract associated with the sender since each channel has two dedicated smart contracts with one smart contract link at each end.

By Making The Supply Curve More Stable

Since it is a finite digital commodity, Cryptocurrency’s price should rise over time compared to non-finite fiat currencies. Furthermore, despite having a 21 million cap on its production, Bitcoin is one of the most widely used cryptocurrencies. Therefore, supply and demand dynamics are at work. 

In contrast, Chainlink has a cap of 1 billion coins, whereas Litecoin has a maximum supply of 84 million coins.

The restricted quantity of Bitcoin and the absence of a central bank to regulate that supply comes with a price that investors must bear. That is precisely what its supporter’s claim makes it valuable. 

New Bitcoins are awarded to miners who donate their processing power to confirm transactions throughout the decentralized network. Each successful transaction now pays miners less than it formerly did since the magnitude of these incentives is diminishing over time. 

As a result, there is no elasticity in the supply of Bitcoin. Seismic price fluctuations typically pave the way for accurate price discovery. To keep track of the changing prices of Cryptocurrencies, you can check websites like bitcoin millionaire.

Fighting The Cost Of Mining

In the past few months, the price of cryptocurrencies has been volatile, but a few factors can affect their value. One of them is the cost of mining.

Cryptocurrency miners use computers to solve complex mathematical problems, verify transactions, and create new coins. Unfortunately, the more difficult these problems look, the more powerful computers are needed to solve them, which requires more electricity.

The cost of electricity has risen significantly in recent years due to increased demand for renewable energy sources. And this trend is expected to continue as countries like China and India take measures to reduce their carbon footprint.

This means miners will have to rely on cheaper energy sources, such as natural gas or coal power plants. But, unfortunately, it also means that they will have to get more expensive equipment like solar panels or windmills to make up for it.

In addition, miners will have to invest more money into buying faster computer chips. This can help their operations run at full capacity over long periods compared with older models built only for short periods during crunch times, like at Christmas when everyone wants their presents delivered.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.