"Bitcoin Demonstrating The Need For a Fully Decentralized Financial System" - Maxim Nurov

December 3rd 2020 1,036 reads

@SergeenkovAndrey Sergeenkov

Cryptocurrency analyst. Founder and editor at btcpeers.com

The global healthcare crisis caused by COVID-19 has severely impacted the financial markets. From stocks to commodities, industries are in disarray. 

Amid the fear, investors moved funds to safe-havens. Traditional assets like gold, select fiat currencies, and bonds moved in response to the pandemic’s ramifications. However, there was an observed shift in dynamics. Initially, gold—classified as a store of value asset with intrinsic value but not interest-bearing, drew capital from nervous investors.

Gradually, the superiority of cryptocurrencies began to show. Bitcoin--billed as digital gold, rallied, outperforming gold prices. Analysts pinned the rapid change in price to institutional involvement, the legitimization from the Middle East, and billionaires declaring their holdings.

Some billionaires explained that Bitcoin was a shield against government expropriation. The Winklevoss Twins and billionaire hedge fund manager Paul Tudor Jones said the coin’s digital existence, censorship resistance, and fixed supply gave it an edge over gold as a new store of value.

Coinciding with gold losing its glitz is the rise of blockchain-based alternatives banking on censorship resistance, innovative economics, fast settlement, and the decentralization of distributed ledger technology.

The Digital Reserve Currency (DRC) is a project created out of the need to protect value against inflation and to preserve purchasing power. Like Bitcoin after the Great Financial Crisis of 2008-09, Maxim Nurov, the founder of DRC, is launching a decentralized financial instrument meeting the demands of modern investors.

All DRC tokens have been issued at Uniswap—an Ethereum-based decentralized exchange, with intentionally low market cap for early adopters to have inexpensive exposure if they believed the project would have a larger market in the future.

The DRC token is meant to have a utility and preserve its value by being backed by a Digital Reserve, a well-balanced portfolio of the most efficient store of value assets, such as gold, Bitcoin, and US dollar, created and managed by DRC holders. DRC ecosystem is fully decentralized and community-driven.

In today’s interview, Maxim will let us know what drove him to crypto and why the world needs a better safe-haven asset.

Andrey Sergeenkov: Welcome Max; Coronavirus. It’s political. Financial. Healthcare-affecting. it is impacting livelihoods, Max? Could things have been done differently? Trillions of dollars have been poured in by central banks but the curve isn’t flattening. What is Digital Reserve Currency (DRC) and why do you think its time is now?

Maxim Nurov: Hi, thank you for having me at Hackernoon. COVID-19 pandemic has caused a substantial disruption of the global economy. As it was expected, fiscal and monetary policies have exposed serious vulnerabilities in the current financial system. To preserve its stability, central banks across the globe have significantly eased monetary policy by cutting policy rates and provided enormous liquidity to the market. Governments had little choice but print more money to inject it into the struggling economy. The issue is that the increase in the money supply causes inflation and reduces purchasing power.

During the economic recession, people tend to lose their trust in a centralized financial system and hedge inflation risks by investing in “store of value” assets that are expected to retain their value over time. 

The current economic recession and financial consequences of the COVID-19 pandemic became a trigger for creating the Digital Reserve Currency (DRC). DRC was designed to become a decentralized digital store of value with a limited supply and a zero inflation rate, backed by the portfolio of the most efficient store of value assets, such as gold, Bitcoin, and US dollar. 

DRC has a few unique characteristics that differentiate it from other digital assets. First, DRC has a purely deflationary economic model. 100% of the total DRC supply was issued to the secondary market and no more DRC tokens will ever be created.

Second, DRC has a fair distribution model. All the DRC supply of 1 Billion indivisible tokens was issued directly to the market. DRC founders/developers never received any funds from investors in any form and never retained any tokens before the whole token supply became available on the market.

Third, DRC had a community-driven ecosystem from the day one. No one has control over DRC as DRC has a fully decentralized structure. The DRC Foundation has been created by the DRC community to define the strategy and the road map of the DRC ecosystem development.

Finally, DRC token is fully developed and operational. Its smart contract has been audited by a trusted blockchain development firm and does not contain any security issues.

Andrey Sergeenkov: Tell us exactly what Coronavirus is doing to Wall Street companies and billionaires. Square, Mode Banking, MicroStrategy are all buying digital assets as a store of value? Any chance for them to consider Digital Reserve Currency in the near future?

Maxim Nurov: The pandemic has triggered institutional investor demand for digital assets such as Bitcoin, which has strong historical performance and can serve as a digital store of value because of its algorithmically predetermined scarcity and the unique disinflationary economic model. 

Smart investors are always seeking non-correlated alternatives to traditional asset classes, especially during the economic recession. Many large institutions have already allocated hundreds of millions of US dollars to Bitcoin, the most liquid and secure digital asset available on the market.

Indeed, Bitcoin is an attractive investment opportunity, given its robust economic model, excellent historical performance, and low correlation with traditional asset classes. Bitcoin can serve as an investment alternative to gold given similar features like scarcity.

But unlike gold, Bitcoin is providing unique advantages such as censorship-resistance, fast settlement, and instant cross-border transfers. 

However, crypto market is not efficient, and Bitcoin is still a speculative asset exposed to market manipulations and investment risks. Potential investors should be very careful before allocating any capital to Bitcoin and other digital assets, especially those investors who have moderate to low risk tolerance and are not considered as “accredited investors” by the securities laws. 

It’s not an investment advice but DRC has potential as a digital store of value, because it has not only a purely deflationary economic model (100% of the total token supply has been issued to the market and no more tokens will ever be minted) but also a utility of providing access to the Digital Reserve, a well-balanced portfolio of the most efficient store of value assets, such as gold, US dollar, and Bitcoin.

DRC holders will be able to seamlessly deposit DRC tokens to the Digital Reserve and get instant exposure to the basket of the store of value assets with the purpose of preserving or even increasing the value of their holdings in USD terms.

DRC is an attractive alternative to Bitcoin to consider in the context of preserving wealth and hedging inflation risks. Unlike Bitcoin, DRC is not exposed to high volatility once it’s deposited to the Digital Reserve and can be a much better hedge against inflation comparing with stablecoins pegged to the US dollar.

Importantly, DRC is built on the Ethereum blockchain and is decentralized and censorship-resistant by nature. It can be moved instantly across borders with the fast settlement and low transaction costs.

I expect that more investors will start allocating capital to DRC in the next few years to preserve their wealth and hedge inflation risks.

Andrey Sergeenkov: In all your experiences, what made you go into crypto and launch a digital store-of-value asset? Is there a gap you are trying to fill that hasn’t been filled?

Maxim Nurov: I have a legal background and worked over ten years as General Counsel for international banks in Moscow, Russia. In 2016, I graduated from Duke University MBA program and established an investment advisory firm Digital Finance in Washington, D.C. I started being interested in digital assets, and particularly in Bitcoin in 2017.

I was fascinated by the Bitcoin economic model and realized that it had enormous potential as a new asset class because of its outstanding historical performance and the ability to efficiently diversify traditional investment portfolios.

Many investors and wealth managers still do not understand that even a small allocation to Bitcoin can enhance the risk-adjusted return and increase the Sharpe ratio of the traditional investment portfolio. Later in 2017, I established and managed Black Square Capital, a crypto hedge fund that invested in the most liquid and capitalized digital assets available on the market.

Digital Reserve Currency (DRC) is a monetary experiment conducted with the purpose of finding out how the global economic recession and the increasing demand for decentralized financial instruments may affect its global adoption and usage.

I believe that digital assets, including digital Store of Value (SoV) assets, will become an essential part of the global financial system. However, there are still not many digital assets available on the market that were initially designed as a SoV, with the simple and comprehensible tokenomics. Stablecoins, which are usually pegged to the US dollar, cannot be considered as an efficient store of value since they can depreciate because of the inflation.

Even Bitcoin, which currently can be considered a SoV, initially was created as a medium of exchange, not a store of value, with the disinflationary economic model. That’s how I came up with the idea of creating DRC, a decentralized asset with the fixed supply and a zero inflation rate that can become a digital SoV in the future. 

Andrey Sergeenkov: Why Digital Reserve Currency on Ethereum? Gas fees are unreasonably high.

Maxim Nurov: I chose Ethereum because it is the largest and the most secure blockchain platform for the purpose of smart contract creation and token issuance. DRC is an ERC-20 token, which is universal and can be easily integrated into any exchange or crypto wallet that supports ETH, unlike crypto assets built on their own blockchain. The average Ethereum transaction fee is approximately $0.25 as of today, which is not expensive comparing with the transaction fees charged by the traditional financial institutions.

The DRC smart contract was reviewed by a well-known blockchain engineering firm and does not contain any security issues. The simplicity of the DRC code is its advantage, as sometimes it’s better to avoid overcomplexity when launching a new financial product in the blockchain space.

Importantly, DRC’s smart contract cannot be changed by its creator, which ensures its security. For example, 100% of the total supply of DRC tokens has been already minted and issued to the market. It’s not possible to create more DRC tokens because of the smart contract restrictions.

Andrey Sergeenkov: Crypto-based safe havens have been on a tear recently as gold loses its shine; will DRC be another option for investors who are too tired of gold and its underperformance?

Maxim Nurov: Bitcoin's narrative as a store of value, non-correlated asset class, and a hedge against inflation has been increasingly growing among institutional investors during the COVID-19 pandemic. On the other hand, I wouldn’t underestimate the gold performance in 2020 as it actually performed much better than many other traditional assets. 

Both gold and Bitcoin are the biggest beneficiaries of the COVID-19 economic crisis, confirming their role as safe-haven assets and an efficient investment portfolio diversifiers. DRC value will be linked to the value of the portfolio of gold and Bitcoin, along with the US dollar, the current global reserve currency standard. The well-balanced portfolio of the most efficient SoV assets represented by a censorship-resistant, secure, and portable DRC token, can serve as the better financial instrument aimed to preserve wealth and hedge against inflation risks.

Andrey Sergeenkov: Do you have specific plans of going head-to-head with Bitcoin? What are your advantages and DRC’s main value proposition for a project with over 11 years head start?

Maxim Nurov: Bitcoin has played a key role in demonstrating the need for a global financial system that is fully decentralized and out of any one government’s control.  Although Bitcoin is now seen as a SoV, there are a few key differences between Bitcoin and DRC that may position DRC to be better suited as a digital SoV pending global adoption. 

Although Bitcoin has a total supply of 21 million, only ~18.5 million bitcoins have been minted so far.  Bitcoin is currently mined every ~10 minutes and its production is expected to continue until the year 2140.  Although disinflationary in nature, Bitcoin will continue entering the market at a steady pace for the foreseeable future.  DRC, on the other hand, had 100% of its 1 Billion total token supply issued to the market.  Furthermore, no more DRC tokens can ever be minted in the future, placing DRC in a better position to act as a deflationary digital store of value.

Second, DRC is indivisible and has simple and comprehensible tokenomics design. Although Bitcoin can be argued as a digital store of value, its primary function was to act as a medium of exchange (“electronic cash system” per the Bitcoin’s white paper).  Bitcoin’s 21 million total supply can be broken down into denominations known as “Satoshis”, or .00000001 bitcoin, which better fits a medium of exchange concept, as it was initially design by Satoshi Nakamoto, the inventor of the Bitcoin protocol.

Finally, DRC holders will be able to deposit their DRC holdings to the Digital Reserve, as we discussed earlier, to preserve and may even increase the value of their holdings. With increased adoption, a digital store of value such as DRC can not only serve as a hedge against inflation but also reward its users from holding the token. As global financial markets experience inflation, DRC ecosystem provides economic scarcity. DRC token itself has a deflationary model and can be linked to the basket of SoV assets, enhancing its use case and value proposition.

Andrey Sergeenkov: Where do you see DRC in five years?

Maxim Nurov: It’s hard to make any predictions but I believe that DRC has a very attractive economic model and value proposition, especially in the current unstable macroeconomic environment. 

I expect the demand for decentralized “store of value” assets to rise considerably as the risk of currency debasement increases. Institutional and individual investors become more aware of the serious flaws in the current financial system. This awareness will drive demand for non-correlated alternative asset classes and “store of value” assets, especially in the digital form. My conviction is that the monetary value and the security of a store of value need not relate to any centralized power and DRC technology elegantly solves this problem.

DRC can serve as a hedge against economic instability and uncertainty in the financial markets and was primarily designed for people looking to preserve their wealth, while still having the flexibility of immediate, trustless, and cross-border transfers.