Computing giant IBM is investigating if a new cryptocurrency pegged to the US dollar could be the best way to make online payments.
The company wants to ditch decentralised digital currencies as a payment solution because they are too volatile and make costing transactions too difficult.
IBM is already leading the technology world in blockchain applications which use the infrastructure of cryptocurrencies such as bitcoin to monitor corporate supply chains and transfer international payments.
The current coin of choice is Stellar Lumens, but the company feels the price of cryptocurrencies move to quickly and present a financial risk to big companies handling payments worth millions of dollars.
A year ago, Stellar was worth one cent and has reached $0.28 cents at current trading, peaking at $0.69 cents in January.
Instead of stellar, IBM is testing a cryptocurrency codenamed ‘Stronghold USD’.
The idea is running the digital currency on the Stellar blockchain pegged to the value of the dollar to remove volatility from the network.
“There’s this tremendous opportunity to make blockchain payments feasible, especially for cross-border,” said Bridget van Kralingen, IBM’s senior vice president of global industries, platforms and blockchain. “What is great about this is they are just basically digital dollars—digital fiat currency.”
“We believe this experimentation with stable coins can play a very big role in improving costs.
“I think if it can be done with the US dollar, it can be done with almost any currency.”
IBM says building on the Stellar blockchain will allow the new coin to handle hundreds of transactions a second, compared to the creaking Bitcoin infrastructure that is limited to seven a second.
Kralingen also pointed out that central banks around the world are showing interest in pegging their currencies to an online version.
“I think in the future you’ll see more,” van Kralingen says. “The way you’d settle foreign exchange transfers today is what I think you could do with a stable coin in the future.”
Stronghold USD is one of two stable coins running on Stellar. Stable coins could lead the way for central banks, like the US Federal Reserve to establish their own cryptocurrencies.