Since the 1990s, when cypherpunks were designing electronic currencies, a major challenge that was difficult to overcome was how to achieve decentralization while preventing double spending. It wasn't until 2008 that this challenge was creatively addressed by Satoshi Nakamoto through blockchain technology and the Proof of Work (PoW) consensus mechanism, and the rest is history.

After 15 years of development, Bitcoin still holds the top position in the industry in terms of market value. Decentralized application platforms like Ethereum have not been able to surpass it, indicating its enormous revolutionary significance. From this perspective, there is no doubt that Bitcoin has been successful. However, from another point of view, Bitcoin has not been successful in achieving its original vision as a currency. People have not been using Bitcoin for daily payments, and stablecoins like USDT, which are pegged to fiat currencies, now seem to have taken the position of the settlement currency in the crypto industry, a position that should have belonged to Bitcoin.

Bitcoin seems to have drifted away from its intended purpose as a peer-to-peer electronic currency and has become a form of digital gold recognized in this era.

This is directly related to another key challenge that Bitcoin has not been able to solve, which is not widely known to the public: how to maintain the purchasing power stability of a currency on a decentralized basis. Satoshi Nakamoto did not consider this when designing Bitcoin, as the currency supply was directly fixed to a limited total amount and a halving production every 4 years. This has made the price of Bitcoin very unstable, leading us to resort to using a large amount of stablecoins managed in a centralized manner, such as USDT, for payments and settlements.

Even though there are many Bitcoin believers currently trying to distort the lack of supply regulation mechanism in Bitcoin and claim that it will not affect Bitcoin's role as a daily payment and settlement currency, and even turn this flaw into Bitcoin's main advantage. But people around the world are voting with their feet, and no one is truly willing to use Bitcoin, which is oriented towards value storage and has significant volatility, as a medium for daily payments. In addition, the data performance of the Bitcoin Lightning Network also verifies this fact.

The entire crypto world cannot rely on the US dollar as a substitute for the long term, as this goes against our vision. However, it seems that Bitcoin is also struggling to support the ideal of a world currency. Although few people are currently paying attention to the lack of currency supply regulation in Bitcoin, there are now visionaries like Bitcoin OG and economist Lawrence who are constantly speaking out and pointing out that the purchasing power stability of gold is superior to that of Bitcoin. Recently, Brian, the CEO of Coinbase, a leading cryptocurrency exchange that started with Bitcoin trading, also pointed out that many people are not willing to use BTC as actual currency and proposed the direction of Flatcoin.

"Flat" in economics means stable, and "The economy is now flat" means that the economy has not undergone any significant changes (increase or decrease). When applied to currency, it means that the purchasing power will not undergo drastic fluctuations. In addition, Brian also explicitly stated that this stable purchasing power coin should be decentralized, not pegged to fiat currency, and track the consumer price index.

Due to Coinbase's influence, the issue of currency supply regulation, which Satoshi Nakamoto had chosen to avoid fourteen years ago, has once again returned to the center of the industry, "how to achieve decentralization, prevent double spending, and maintain purchasing power stability at the same time".

8 Major Risks of Index Flatcoin

Unfortunately, the index Flatcoin explored by Brian also faces significant issues, mainly the 8 risks associated with the process of pegging to an index:

• Centralized execution risk: Index pegging relies on the single-point execution of a management institution, which poses the risk of malicious decoupling

• Data falsification risk: Indexes released by companies or governments can be controlled and manipulated, not reflecting the real market situation

• Index base price risk: The index is priced in fiat currency, but the price of the fiat currency itself is unstable

• Technical failure risk: Technical distortions in the index itself, incorrect market price sources

• Scope of assessment risk: It is difficult for the index to cover the demand and price changes of a basket of goods caused by technological advancements

• Representativeness risk: Living needs are constantly changing, and it is difficult for the index components and weights to represent real-time demand

• Data security risk: On-chain data relies on external inputs, and oracles have security vulnerabilities

• Manipulation risk: Hackers, large capital, or powerful institutions manipulate the data sources of the index to profit from asymmetric risks

These 8 major risks cannot be completely avoided. So, is there a way to achieve purchasing power stability without pegging to any published index?

Flatcoin Based on Gold Supply Regulation Mechanism

We can carefully consider the long-term stability of purchasing power of gold. Although gold has exited the stage of daily payment currency due to the high circulation costs associated with its physical form, we can explore the principle of its purchasing power stability through its currency mechanism.

Historically, the important advantage of gold becoming a currency is its natural purchasing power stability system, also known as the supply regulation system. This system can operate effectively based on the production cost of gold and the free market competition of prices, without the need to peg to any index.

If there is a mechanism similar to gold that has a cost mechanism and a free market to regulate the currency supply, purchasing power stability can be achieved spontaneously.

Bitcoin has the cost mechanism of gold, but lacks a supply stability mechanism that can adjust currency output based on market demand, which is the reason why Bitcoin has long-term value but cannot maintain purchasing power stability. Almost all algorithmic stablecoins currently lack a cost system similar to Bitcoin or gold, which is why algorithmic stablecoins can maintain price stability in the short term but are prone to collapse in the long term.

So, is it possible to stand on the shoulders of the giant that is Bitcoin and invent a cryptocurrency that truly follows the same principles of purchasing power stability as gold?

We can consider and evaluate the following 7 points:

• Degree of decentralization: Achieve the same level of decentralization as Bitcoin, or even better, in terms of both technology and operations

• Fair distribution of currency: No reservations, pre-mining, or private placements, achieving fair distribution where no one can avoid market competition to obtain a share

• Effective control mechanism: Have a flexible currency supply regulation mechanism that can adjust in the long term or short term, theoretically faster than the supply regulation speed of gold, to match long-term economic growth and suppress short-term price fluctuations

• Incentive mechanism: Have a reasonable incentive mechanism to promote the rapid development of the currency

• Economic principles: Have support from monetary economics theory, not violating basic economic principles, ensuring the model's rationality

• Technological advancement: Have a public chain architecture system more mature than Bitcoin's, capable of supporting more technological and scenario needs

• Production cost: Have a cost mechanism similar to Bitcoin or gold, such as PoW

If all of these evaluation dimensions can be achieved, then the currency supply regulation problem that Satoshi Nakamoto once avoided can be solved: we will have a cryptocurrency that achieves decentralization, prevents double spending, and spontaneously regulates currency supply to maintain purchasing power stability. This seems to be an almost perfect currency system and is likely to be a greater cryptocurrency than Bitcoin and Ethereum after its appearance. With this solid currency foundation, the crypto industry will undoubtedly move towards greater development and prosperity.

We can see that Flatcoin can currently be divided into index-pegged and market cost-based models similar to the gold supply regulation mechanism. We believe and hope that the exploration and development of Flatcoin can bring us closer to the realization of the ideal currency vision, taking us one step closer.

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