The difference between the currency circle gold standard and the currency standard

The gold standard in the currency circle links cryptocurrencies with real assets to improve stability, while the currency standard allows cryptocurrencies to become independent value stores and trading media. The former provides stability and trust, while the latter pursues growth potential and independence. The applicable scenarios depend on specific needs. When stability is required, the currency gold standard is more suitable, and when pursuing growth potential, the currency standard has more advantages.

The difference between the currency circle gold standard and the currency standard

Definition

• The currency circle gold standard: Links cryptocurrencies to physical assets such as gold to make their value stable.
• Coin-based: Use cryptocurrency itself as a store of value and medium of exchange.

Operating Mechanism

Coin Circle Gold Standard:

• The value of cryptocurrency is supported by its reserves with physical assets such as gold.
• To ensure stability, institutions that issue cryptocurrencies must hold a corresponding proportion of physical assets as collateral.

Coin Standard:

• The value of cryptocurrency is determined by market supply and demand.
• Without the backing of physical assets, the value of cryptocurrency may fluctuate greatly.

Advantages

Coin Circle Gold Standard:

• Stability: Linked to physical assets such as gold, which can improve the stability and predictability of cryptocurrency.
• Trust: The trust people place in precious metals like gold can be transferred to pegged cryptocurrencies.

Coin Standard:

• Independence: Not affected by any physical assets, the value of cryptocurrency is not affected by external factors.
• Potential: Theoretically not limited by the supply of physical assets, the value of cryptocurrency can grow infinitely.

Disadvantages

Coin gold standard:

• Restrictions: The issuing institution is required to hold a large amount of physical assets, which may limit the supply and circulation of cryptocurrency.
• Risk: Fluctuations in the value of physical assets will still affect the stability of cryptocurrency.

Coin Standard:

• Volatility: Without the support of physical assets, the value of cryptocurrency can fluctuate violently.
• Speculation: Vulnerable to manipulation by speculative activities, leading to price instability.

Applicable scenarios

• Coin gold standard: Financial areas with high stability requirements, such as payments and stablecoins.
• Coin Standard: Pursue areas of growth potential and independence, such as investments and decentralized applications.

In the end, the choice between gold standard and currency standard in the currency circle depends on the specific application scenarios and goals. When pursuing stability and trust, the currency gold standard is a suitable option, but when seeking growth potential and independence, the currency standard has more advantages.

The above is the detailed content of The difference between the currency circle gold standard and the currency standard. For more information, please follow other related articles on the PHP Chinese website!