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Let's say three banks A,B and C build up a private network using ethereum. They will make transaction among them by defining some currency.How the value of their defined currency will be determined.As it is a currency defined by them only who will decide the exchange rate and all with the real market currency like dollar,pound etc...

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Banks can invest a certain amount of money (like dollars) into it, and then its value changes because of several factors.

  • The fiat used to invest could have dropped in value, so the cryptocurrency will, too.
  • The coin is in demand, so it will go up.
  • Politics can interfere with its usage, such as countries banning its usage.
  • Your link does not work, it doesn't have a valid URL. – Ismael Jul 9 '17 at 0:13
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    @Ismael fixed.! – Jossie Calderon Jul 10 '17 at 5:29
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The value of Ether or any tokens in a private network is determined just the same way as with a public network, except the participant pool is smaller. I'm guessing that a big use case, if not the primary one, for banks building a private chain right now is for settlements. In this case, the digital representations on a blockchain replace the digital representation on a fully centralized system.

Here's a question: what is the value of a $50? An obvious (but true) answer is the value of $50 is whatever you can buy with it. Essentially, having $50 of cash is the same as having the economy/market owe you $50 of goods/services that you can cash out whenever you want (even if the currency collapses to be valueless, you can cash it out for... nothing of value).

Another related question: what is the value of a $50 debt? Well, if the debt is owed by someone who is living paycheque to paycheque, the answer might be $1 (if you have a more than 1 in 50 chance of getting paid back). If the amount is owed by Apple Inc., then it's worth about $50 of cash.

Another related question: what is the value of a $50 gift card from Apple and you need something from Apple? About $50. And if you don't? About $50. You can find a buyer for the gift card.

How is this related to a private chain? Well, in this case, all the transactions are between relatively trustworthy (presumably) entities and for something that's fungible. Contrast this with, say, Golem tokens (not to pick on them). They're possibly somewhat trustworthy, but there isn't a lot of demand for them (relatively speaking), so there aren't that many people willing to take Golem tokens off your hands.

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i can only agree to my previous speaker here. Basically once your cryptocurrency is publicly traded it follows offer and demand (simply speaking). And besides, the link seems to be dead...

When using your own token in a closed ecosystem, as described above, the situation is different. I think you have to put emphasis on the issuance of the token. I assume that in your scenario there is a point where fiat currency is paid in, a conversion to a crypto token happens and later on the same happens visa versa.

There must be some autonomous rule that issues the tokens. Maybe a fixed conversion rate USD to X and that rule could be used as bases for calculation of an exchange rate.

But then you might run into problems in calculating the buying power of your fiat currency at the time of conversion. Maybe utilizing Oracles will solve the trick using spot rates, but that's debatable...

Just my 2 cents... B

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