Is volatility a problem for IOTA?
The following statements are based on my own considerations and do not have to come true.
First we have to clarify what volatility in the crypto market means.
Volatility shows the fluctuation intensity of the price of a currency within a certain time period. The higher the volatility the more the price moves up and down. Volatility is always measured relatively – One currency (crypto or fiat) behaves volatile in relation to another currency. For example, the foreign trade value of a cryptocurrency can be determined. This indicates how much fiat money you get for your cryptocurrency.
The trading volume on the crypto market is currently still very low. Therefore the volatility is much higher than for example on the foreign exchange market, which has a much larger volume (about 350 times the daily turnover). But also on the foreign exchange market there is sometimes high volatility. This could be observed not so long ago with the national currencies of Venezuela or Turkey.
Let’s take a look at the supposed problem of volatility of the IOTA token.
Many users see a problem in the fact that if, for example, I put the equivalent of 50 euros in IOTA tokens on the car wallet today. In three weeks’ time when I refuel, the car wallet could only have the equivalent of 30 euros because the price of the IOTA token on the stock exchanges has fallen sharply in relation to the Euro.
If the IOTA token were to be used as an old conventional means of payment (money as a store of value) this would certainly be a problem. Which buyer would like to issue IOTA tokens today on the assumption that the purchasing power next week will be 30% higher? Or what retailer wants to accept IOTA tokens today when the value could be 30% lower next week?
But the IOTA token is not like conventional money. Our civilization has entered the digital age. In the future everything will be globally connected and the most different systems will have their own wallets and pay each other in almost real time. Tokens will be bought autonomously the moment they are needed. IOTA is an unrivaled, open, free of charge, decentralized and ultra-fast clearing system.
Accordingly, the globally connected systems will be able to convert various values such as IOTA into Euros, USD or Rubles in the background. For this purpose, service providers (banks, stock exchanges, etc.) will certainly be found who will be happy to do this for a small fee. This might already be possible with the next wallet generation. The new wallet will be a platform that allows third party apps to offer different services.
Free your mind
Personally, some people lack the imagination for the technical possibilities and the ingenuity of resourceful entrepreneurs. Here is an example: Why does a car, machine or mobile wallet have to belong to the owner of the physical object? The wallet could also belong to a major provider (financial service providers such as banks, manufacturers such as VW, Samsung, …), which offers all payment transactions as services and collects the invoice amount as fiat money from the bank account at the end of the month. These large service providers would also have other possibilities to keep the price stable within their own account, for example by using hedges. Another possibility would be a Smart Contract that has access to a kind of money deposit (FIAT / stable coin) and permanently adjusts the equivalent value in Euro or another currency at the IOTA address based on the current exchange rate.
Most of the technical processes of the service providers will run in the background and the customer will not even notice which different technical transactions are running in the background using the IOTA technology. Today nobody knows how NFC works at the cash register. It just works. Let’s take the example of the e-charging station and take the idea a little further. The payment at an e-charging station would be done at IOTA using IOTA Streams. To do this, a private IOTA Stream channel is opened between the vehicle with the built-in car-wallet and the e-charging station to establish a data stream. Now, payment is made per data point with IOTA micro-transactions and payment stops as soon as no more power is received. During the charging process, the vehicle could purchase IOTA tokens in real time from a service provider (e.g. bank) to pay directly. The only requirement is that the car wallet and / or charging station have direct access to a stock exchange, either directly or through a financial service provider, to make conversions. This could be, for example, the charging station operator’s house bank, which keeps the Fiat accounts anyway. If the bank earns a small margin for this autonomous conversion order this is perfectly fine. The customer only sees the paid Euro amount at the charging station and in his vehicle. (see Jaguar Display)
Another possibility is the Digital Asset. This is tied to a specific purpose and would be immune to volatility. If I buy a Digital Asset ticket today for a concert in three months it doesn’t matter what the value of the IOTA token is in three months. The ticket has already been paid for. So with the Digital Asset ticket I will always have access to the concert.
What else could limit the volatility?
To increase the volume of transactions the ecosystem has to grow over time. As the adoption of the technology increases the demand for and trade of the token will also increase significantly. As supply and demand from as many applications as possible level off the high volatility will also decrease. However, this will still take a few more years during which we will see some strong volatility in the price.
Last Updated on 16. February 2021