Beyond Bitcoin: A planetary stablecoin for Web 3 and beyond

Cryptocurrencies: What is in the value?

The value of all currencies stems from social consensus that establishes them as a unit, and a store, of value. For cryptocurrencies to grow and take their place alongside, or supersede, fiat currencies, they need to offer a measure of value that will be universally accepted. Such a measure of value will become ubiquitous if it offers a unique measure that cannot be easily replaced by existing fiat currencies or other stores of value. As much as libertarian values are held in high regards by current proponents of cryptocurrencies (crypto for short) they do not provide by themselves enough motivation for the long-term adoption of crypto as units of value in their current format. Arguments for the long-term viability of crypto centering around their ease of use in a digital economy do not hold as most large central banks are considering issuing digital twins to their existing fiat currencies following the introduction of the digital Yuan.

Stablecoins: Are they the answer to the crypto value puzzle?

Stablecoins have been partially developed in response to the criticisms around the perceived vapor-like nature of the underlying value of crypto. The challenge with considering the current cohort of stablecoins as candidates for universal tender is the nature of the assets that collateralise them or the algorithmic mechanisms for determining their value. This is part of the greater challenge of transforming the global economy into a Web 3 new paradigm. There is no reason to expect that the assets backing the current vintage of stable coins will retain any value in the future. A natural example of that skeptical approach are stable coins whose values are linked to real world commodities like the oil price. It is very unlikely that oil as an asset will retain any value in a future economy evolving into sustainability. The same can be said for gold. The fact that gold has been a store of value historically is a social construct as gold per se has little value in a digital economy and the technical challenges in realising the value of gold by having the underlying asset delivered results in layers of complexity and friction in a digital world. Some stablecoins are pinned to values that are maintained by supply and demand algorithms. There is zero incentive to believe such an artificially managed coin should maintain any value.

A taste of the future: Web 3 is here

Given that coins and tokens will fuel Web 3, and the increased momentum of the emergence of smart money that we are witnessing in the form of various platforms and protocols, eg, the Boson Protocol, it is hard to foresee a viable future where tokens, coins, and smart contracts do not form the foundations of the future global digital economy. Current coins, including stable coins, are vulnerable to structural changes in the market in the transition to Web 3. What could be a universally accepted unit of value in a Web 3 and beyond distributed economy? The key to answering this question lies in analysing the current trends in the nascent DeFi (Decentralised Finance) universe. A planetary Web 3 infrastructure will be based around using dApps as its building blocks in a decentralized blockchain context. The resources required to execute specific tasks will be allocated on the fly by the Web 3 infrastructure. Existing developments in blockchain distributed computing, like Golem or iExec, already offer cloud computing for resource hungry users using proprietary tokens. To optimise the usage of a global decentralised cloud computing system a resource allocation overlay above the network infrastructure will allocate computing resources to all dApps, from micro-operations to very resource intensive computations.

What is the Web 3 unit of value?

The four components required for executing a computation on a network are:

● Processing power

● Required memory space

● Storage (as swap space and persistent memory)

● Network bandwidth

Bandwidth and persistent storage will be managed by the infrastructure. Blockchain systems like FileCoin already provide decentralised persistent storage solutions. Allocating processing power and memory is crucial for any distributed computing system and the challenge of doing that efficiently will be the at the heart of the system.

How does that lead us to creating a stablecoin for Web 3 and beyond? In a decentralised economy all agents have potentially equal access to all resources as long as they can afford them. The two main assets are data and computational power. Not all data is born equal. Some sets of data are commercially valuable, eg, user’s browsing histories and buying habits for marketers or share price tick data for algorithmic traders. Other stores of data have little or specialist value only, eg, surface temperature variations in the middle of the Pacific Ocean. The variable value of data makes using it as a standard measure of value challenging. On the other hand, existing cloud computing providers like Amazon and Google, already price on-demand virtual computation. Establishing a standard around on-demand computation will set the stage for a globally accepted unit of value that is an integral part of any digital ecosystem.

Computation as a fundamental unit of value

Cloud providers have different pricing models for cloud-based computing services. In the context of an on-demand resource allocation infrastructure we view current on-demand pricing of cloud computing platform as our starting point. The pricing varies with the quality of the physical machine that will host the virtual machine used for the computation and the period of time required. The key to running a planetary wide network is to standardise and measure these values. Increase in computation speeds and deployment of parallel processors makes for an ever-changing idea of what is a “standard” machine. That by itself is not an obstacle for defining such a concept.

A standard virtual machine (SVM) will be the computer with the closest specification to the average of the machines offered by cloud computing service providers as measured by average memory and computational speed.

The capacity and price for each grade of physical machine backing a virtual machine are known in the system. The capacity weighted available processing per grade averages to provide for a standard definition of an SVM at a given point in time. The actual specification of such a machine will evolve with the development of faster and smarter computers, into the age of quantum computing and will be the average processors and their configuration, and the average memory-to-core ratio. Peer-to-peer distributed computing networks will be able to provide equivalent levels of computational power and memory to such a standard using their internal allocation mechanisms. The definition of a SVM will be updated regularly to reflect the technological changes in the market. The cost of cloud computing at every level can be then expressed as a multiple of the SVM cost, either by a centralised cloud computing provider or a peer-to-peer blockchain.

We are now ready to define a digital unit of value that can create the social consensus required among Web 3 users:

The cost of an SVM per hour is defined as the standard digital unit of value — the Moore.

This is the average cost of using computational resources equivalent to an SVM for an hour. It is calculated in a similar process to the calculation of the SVM, this time also weighing the available grades by price. (In practice this calculation will more complex.) The Moore, named after Gordon Moore, the discoverer of Moore’s Law that first described the observable exponential increase in computing power, will also be the name of the stablecoin that is based on this value. In analogy to an ounce of gold, the price of a Moore will vary, but the quantum underlying it will be well defined for any given point in time. The algorithm used to calculate the SVM and the price of a Moore will be agreed upon by a majority of the management token holders. The average SVM/h, the Moore, is a future proof universal commodity with a relevant market pricing mechanism.

A planetary cloud computing blockchain: a new coin for the ages

The blockchain that will support the Moore will have an inbuilt layer that will deliver one Moore’s worth of processing per one Moore coin. A holder of one Moore coin will have the use of a virtual machine with an equivalent computational power for a SVM for the period of one hour. The system will also provide a generic interface that will hide the actual provider of the virtual machine, whether a large cloud computing provider, or a peer-to-peer network. A supply and demand mechanism will allocate each user to a cloud computing provider, whether centralised or a peer-to-peer network.

The price of cloud computing will follow a dynamic supply and demand process that will impact the value of a Moore. In order to take the price volatility into account an averaging mechanism using an exponentially weighted moving average (EWMA) time series, a technique borrowed from finance, will be used to stabilise the value of the coin. Observations of the price of the coin historically, at periodic intervals (the time interval will be a function of the volatility of the price), and the current value of the average computing cost as a basis. Let Mi be the value of one Moore (cost of cloud computation) i periods ago, where M0 is the current Moore, SVM/h, the latest observable cost of computing in the market.

An EWMA price level is determined by the following time series:

P0 = λ * M0 + (1 — λ) *M1

P0, is the current base price (asset price) of one Moore coin. M0 is the current value of a one Moore computation, and M1 was the price one unit of time ago. The parameter λ ranges between 0 and 1 and is determined by the degree of volatility in the market. In a completely stable environment, the volatility will be zero and λ = 1. The price of the coin will be stable and is equal to the current market value of computation. In a market where supply demand pressures result in high volatility λ will reduce in value. A lower λ will increase the weight of earlier prices in the calculation creating an averaging effect that will stabilise the price. Another mechanism to take volatility into account is to reduce the sampling period as volatility increases. P0, the current price of a Moore, will be the basis for quotes from the market. The actual computational power provided will vary according to existing supply and demand. At times of low demand cheaper providers will supply the required resources pushing the coin price lower. High period of demand will have the opposite effect resulting in trading above the market average level.

The face of things to come: Finally, the network as computer

Irrespective of what other stores of value may reach the status of a social consensus as units of value in the future, for example, a litre of unpolluted clear water, computing will be at the core of Web 3 and beyond. I envisage that within the increase of the availability of hyperfast data networks and very cheap storage, more and more computational tasks will be relegated to the cloud. Most computing devices, hand held or not, will evolve towards becoming graphic interfaces with highly secure mobile wallets. The need for micro-computation will be fulfilled by dividing a Moore into very small units, like the Bitcoin Satoshis, that will offer the ability to perform micro-computing tasks on the fly using cloud computing. The Moore blockchain will serve as a universal layer over all computational devices which includes IOT devices that will be able to outsource more processing intensive tasks online, eg, processing video in real time.

The Moore will become the de-facto standard for cloud computing on demand that will endow it with the property of becoming s planetary unit of value and exchange. The Moore, together with coins like FileCoin, and data layers like the one created by Ocean, will finally deliver the network-as-computer paradigm that has long been prophesied and will be the backbone of the Web 3 digital economy.