In a Nutshell: One thing Bitcoin and other cryptocurrencies have in common is price volatility. Various stablecoins promote themselves as an antidote to that problem, but they typically involve extra expenses or security risks. BitBay has built a different solution based on dynamically controlling the supply of its $BAY coin with the consent of coin holders. When combined with BitBay’s decentralized marketplace and efficient system for executing smart contracts, its dynamic peg system forms a viable basis for transactions between parties with a coin that is less prone to price spikes.
Analysts have alternated between heralding cryptocurrencies as a financial paradigm shift and cautioning that they may be too good to be true. That uncertainty and lack of consensus may be part of the reason that crypto has yet to gain mainstream traction.
But it’s another problem — price volatility — that has been cryptocurrency’s most significant challenge. That’s the problem the team at BitBay set out to solve in 2015.
Cryptocurrencies, including Bitcoin, are finite, meaning they have an absolute limit on the number of coins in circulation. In that sense, crypto works more like gold, not modern fiat money that can fluctuate in supply. Consequently, investors using crypto to grow their bank accounts often drive crypto prices wildly up and down as they enter and withdraw from the market. That’s a turnoff for consumers.
Hundreds of stablecoins have entered the crypto space to counter those volatile tendencies. But, according to BitBay Operations Manager Bjørn Alsos, they’re not as viable.
“We’ve had four or five years to work on this now, and we’ve rejected most of the models investors see out there,” he said.
Asset-backed stablecoins are fixed, or pegged, to a store of assets, or fiat currency.
“But most of them are not safe because someone has the key to the safe where the asset is,” Alsos said.
On the other hand, algorithmic stablecoins use systems that are supposed to incentivize investors to rein in the price. Those incentives cost money, which is paid out to the investors, who now have more coins to sell and drive the price down.
BitBay takes a different approach. The price of its coin ($BAY) is stabilized by coin holders who control its supply.
“We decided to make a coin where the supply reacts to the demand,” Alsos said.
Dynamic Peg Controls the Coin Supply and Protects Value
Use of the term “stablecoin” to describe BitBay’s offering is a bit of a misnomer, Alsos said, because $BAY is totally decentralized and thus distinct from common asset and algorithmic solutions. BitBay uses what it calls a dynamic peg system that relies not on a centralized authority, but, in effect, on democracy.
The dynamic peg functions by subjecting the supply of $BAY into the market to the consent of its users. Every user has two balances of $BAY, liquid and reserve, and they can vote to freeze a portion of the liquid supply during a downturn. Conversely, a vote to unfreeze part of the frozen amount increases the quantity of liquid coins and pumps the price. Through this process, supply elegantly adapts to changes in demand.
BitBay users can protect their investments in the currency while also encouraging its stability and adoption. And because voting behavior defends $BAY against price crashes, the coin can become a reliable choice for merchants and consumers, not just investors and exchanges.
“Unlike anything we have ever seen before, there is an incentive for users to actively contact the system,” Alsos said. “And it’s constructed in a way that makes it very hard for market movers to play their ordinary games. They’re almost guaranteed to lose unless they change the game substantially, and if they do that, they’ll help us achieve our targets. So it turns everything upside down.”
A Full Marketplace Based on Unbreakable Smart Contracts
BitBay has also been working on situating $BAY within an ecosystem built on a secure blockchain foundation, but one that is nimble enough to accommodate a variety of practical commercial use cases.
A smart contract system enforces BitBay transactions and removes incentives to break the contract by, essentially, punishing dishonesty.
The solution uses a double deposit escrow arrangement where buyers and sellers lock an agreed-upon portion of $Bay in a joint account. When both parties are satisfied with their transaction, they individually release their $Bay back to each other. But, if something goes wrong on either end, both parties lose because at least one of them will refuse to release the deposit, and it will time out.
The complex technical underpinnings of the system also ensure the underlying platform remains efficient.
“Unlike most other attempts to build smart contracts, ours don’t bloat the blockchain — and that’s more important than most people know,” Alsos said.
Its decentralized marketplace is fueled by the stable $BAY currency and resides atop the double deposit escrow smart contract system. It is composed of a free multiplatform application suite that gives entities looking to make transactions everything they need to get up and running. The source code itself is also available.
Ready-built smart contract templates facilitate the buying and selling of $BAY or any other item of value while enabling users to hold auctions, build secure systems for hiring remote workers, and even barter between themselves.
And soon, the entire BitBay platform will be available on mobile devices.
“We have seen the use of mobile grow so much and, likewise, a massive decrease in desktop platform use,” Alsos said. “When it’s web-based, it will be possible for anyone to start their own business based on our technology. And you can do that without knowing anything about blockchain or cryptocurrencies at all.”
BitBay: Securely Buy and Sell Without a Central Authority
As investors and consumers seek stability in the cryptocurrency market, the BitBay ecosystem is proving itself a more reliable alternative to stablecoins. And its marketplace is evolving into a complete crypto ecommerce solution in a true peer-to-peer environment.
Unbreakable smart contracts enable transactions without the threat of fraud, and an easy-to-use suite of tools can cover the vast majority of retail use cases. Behind it all stands $BAY, firmly backed by the BitBay dynamic peg.
BitBay aims to bring commercial potential to everyone, everywhere — without the need for central authorities like banks or even governments.
David Zimbeck, the original developer of the dynamic peg solution, envisions a world where crypto provides underbanked and underserved populations with a level playing field.
“Traditional currencies for practically all of modern history have been known to be shrouded in secrecy, and abusive of their monopolistic and hierarchical power,” he wrote in the paper. “This has caused a loss of freedom and happiness for all of humanity. The decentralized peg is perfect for small projects, indigenous tribes, impoverished nations, small companies, and abandoned currencies. It obliterates volatility — allowing for healthy and stable growth and directly responding to the needs of the people invested in it.”
Alsos agreed with those sentiments and said that BitBay is positioned to change the industry.
“It’s going to be quite a revolution,” Alsos said. “When you combine the marketplace with the stability we think the peg will give us; we might have what everyone has been waiting for.”