In one of the articles I wrote in late 2017 was on Bitcoin and comparing it to Tulip-mania or digital currency for the new generation.
This article was initiated by UQBS marketing on requesting for me to write about the Top x3 trends for 2018. One of those trends I wrote on was in Bitcoin; however, by the time the Tulip-Mania article was written and accepted in the Studies in Economics & Finance it was already the end of 2018, in which some of the comments that I made in late 2017 about crypto-assets and Bitcoin were recognized and addressed especially around the difficulty in using Bitcoin as a form of exchange/currency when it was so highly volatile. One of the cryptoassets that have arisen to address this issue is Stable Coin.
Thus, I will discuss the Dai Stable coin.
Dai promises that is is a completely decentralized Stablecoin. Dai is linked to Ethereum. Before we delve into Dai, let's have a quick summary of Ethereum.
Ethereum is most commonly known as Bitcoin's competitor but it is different in several respects. Both Ethereum and Bitcoin are based on blockchain technology, but applied differently as follows:
Decentralized platform running smart contracts. Whereas Bitcoin is more about being a digital currency, Ethereum is really about being a decentralized platform. Using Ethereum, one can create Distributed Applications (dApps) and Smart Contracts. As Ethereum is a platform, it can host multiple applications so therefore the use-casesendless in that it can have its own digital currency (i.e., Ether), games (i.e., Cryptokitties) and so on. It is said there are as many as 200-300 dApps sitting on Ethereum. Essentially Ethereum is a decentralized platform that runs smart contracts that are applications that run precisely as programmed without any possibility of fraud, censorship, downtime, or 3rd-party interference.
Proof of Stake. Whereas Bitcoin mining is based on Proof of Work (PoW), Ethereum uses Proof of Stake (PoS). Validating a new block in the consensus algorithm is based on the stake that the miner holds (i.e., number of Ether coins). Block validators do not receive a block reward, but receive network fees called Gas in Ethereum. As Ethereum uses PoS, the time to validate a block is much faster (i.e., 25s) compared to Bitcoin (i.e., 8 mins).
So Dai is Stablecoin that is written as part of Maker that is a Smart Contract on the Ethereum platform. Maker consists of Dai, collateral loans, and a system of community governance.