The Bitcoin Big Bang: How Alternative Currencies Are About to Change the World by Brian Kelly

Author:Brian Kelly
Language: eng
Format: epub
Tags: Business & Economics, Investments & Securities, General
Publisher: Wiley
Published: 2014-11-17T00:00:00+00:00

Chapter 8

Building the Nautiluscoin Economy

The truth is no online database will replace your daily newspaper.

—Clifford Stoll, Newsweek, 1995

Currencies have evolved over the past five millennia from commodity backed to government backed. Seashells, animal skins, and shiny rocks have all served as currency and the de facto trusted third party. As governments gained wealth and power, they replaced commodities as the middleman. However, the temptation to devalue fiat currencies has proved to be the Achilles' heel of all government-backed mediums of exchange. This threat of devaluation makes fiat currency an inferior store of value. Since the financial crisis of 2008, many investors have reverted to the protection of gold as a store of value.

While gold has a long history of acceptance as a medium of exchange, its value is based completely on the belief that it can be converted into fiat and accepted for goods and services. There may be a scarcity value of gold, but as the demise of wampum illustrates, scarcity is not the primary driver of a commodity-based currency. When global traders needed to transact outside of North America, they quickly abandoned wampum in favor a currency that was widely accepted. Interestingly, despite the belief in gold as a currency, it is not widely accepted by merchants. In fact, digital currencies are accepted more broadly than gold and are easily transported.

The attributes of global merchant acceptance and easy transport make digital currencies an ideal substitute not only for gold but also for fiat currencies. To be clear, digital currencies do not need to replace gold or fiat to be successful, they simply need to compete with and complement existing mediums of exchange. If digital currencies can take only a fraction of the market share currently held by gold and fiat, then they will be a resounding success.

Nautiluscoin was created to solve a problem and to test a hypothesis. The problem it was designed to solve was my lack of knowledge about the inner workings of digital currencies. Prior to creating Nautiluscoin, I had very little knowledge of hash functions and secure cryptographic algorithms. I needed to get my hands dirty and learn the trade. What I did not anticipate is how much I would absorb. As part of creating Nautiluscoin, I decided to test Friedrich Hayek's hypothesis about private currencies. In particular, I wanted to test his assertion that the most stable currency would be the most attractive currency. During the initial phase of the experiment, I found that Hayek was indeed onto something as investors embraced the idea of a stable currency.

Now that I have established a liquid and relatively stable market, the next task is to develop an economy around this currency. This is backward from how traditional economies and medium of exchanges have developed. Typically, an economy develops around the barter system, then slowly progresses toward a currency-based economy. In this case, I have a currency in search of an economy. I suppose I could take out a personal ad for Nautiluscoin that would read

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