[_7fvc]

I don't think cryptocurrencies will replace fiat completely. They're still crypto. They have fixed rules. We still need currency "bridge" between crypto and the real world. Cryptocurrencies offer decentralized options which can address problems with money distribution.

[CameronNemo]

Why can't they replace fiat? Why can't crypto be minted to represent real world assets (like batches of nuts or nickel, not magic pieces of paper)?

[_7fvc]

Because real world assets don't get minted like crypto. They are tied to physical world. They are volatile. Bitcoin produces a block every 10 minutes. It's a fairly precise schedule. On the other hand, real world assets grow and contract at unpredictable rates. Even gold mining fluctuates. The real world is volatile. The BTCUSD peg is free floating. It's also volatile.

Crypto is rigid. Real world is volatile. It's hard to create a stable peg between crypto and the real world. So some kinds of bridge currencies are necessary. Fiat or some forms of digital fiat will continue to exist.

Bitcoin is a deflationary (disinflationary) asset. The BTCUSD peg is volatile. We need better money instruments to reduce volatility. I think an inflationary crypto can help.

[CameronNemo]

I'm not saying it will be an exact peg. I am saying that colored coins can represent specific batches of a real world asset. For example gold mined from a specific mine by a specific company from date x to date y. That company would also create the colored coins that represent a claim to the gold mined. They could even mint the coins ahead of time and they would act as futures on the output of the mine during that time.

[_7fvc]

It's difficult to build layers on top of the Bitcoin blockchain. The base asset, Bitcoin, is volatile. Its volatility affects the assets on 2nd layers. There isn't a one-one peg between the 2nd layer and the base chain. You'd need to trust an oracle. In your gold example, you'd need to trust the miner for authenticity and their books. For use-cases with oracles, it's more efficient to use a database. There's no need to use a blockchain.

Some projects on Ethereum, like DAI, have explored these use-cases. I think they have not been successful. DAI requires high reserve ratio (1-1.5) to manage the volatility of the base chain. You're using 1.5 USD to get 1 USDDAI. It's not very efficient. I'm less excited about assets on blockchain. I think the market is not ready. We need to reduce volatility first.

[delaaxe]

BTCUSD is a pair, not a "peg"

[_7fvc]

Sorry, it's not a guaranteed peg. It's more like a conversion.