Stablecoins: How they Strike a Balance between Crypto and Fiat

There appears to be no end to the growing popularity of cryptocurrency and its related technology. The real world uses and applications of crypto are increasing and blockchain technology has found use outside, instead of just being a basis for the recording of crypto exchange. More ICOs are in development and a wider range of working cryptocurrencies is becoming available to the growing crypto community. The advent of crypto technology is not just a trend that people are getting hyped up about, it is an actual breakthrough in technology.

Bitcoin, the first functioning cryptocurrency, was developed in 2009 by an anonymous party known as Satoshi Nakamoto. The main goal of this new “currency”? To function as an international currency, created with the hope of minimizing costs and increasing efficiency of exchange through the development and use of a decentralized public ledger that distributes the verified records. This makes it a permanent and immutable documentation of what has happened to each and every bitcoin that has been mined and exchanged.

The new concept of decentralization is one of the breakthrough innovations of bitcoin which has been put to use in many other ways. However, too much emphasis has been placed on the investment and earning potentials of bitcoins and other cryptocurrencies. Owed to how it was able to gain popularity as being the digital currency that bore millionaires from investments that were once worth a few pennies, there is a large majority in the worldwide community that know about Bitcoin but fail to comprehend what it is and why it was created in the first place. Alarmingly, there are quite a number of people who are so quick to join the bandwagon of investors, hoping to get in early, as profits are rising for those already investing in Bitcoin, but have not equipped themselves with the necessary know-how for managing their bitcoin. Aside from being a recipe for failure for these individuals investors, it also negatively impacts the real purpose of Bitcoin as a cryptocurrency as it is unable to function as an actual currency.

The value of Bitcoin is dependent on the interrelation of two things – supply and demand. Getting into where the supply of Bitcoin comes from would take too much discussion. The important thing to note, however, is that there is a finite supply of bitcoins and, because of the rise in its value late in 2017, there has been a rise in its demand. The seesaw between supply and demand markedly changes the value of Bitcoin, making it a volatile currency. This means that it’s value changes, not just every day but consistently throughout a day. As an investment or commodity, this makes it one of the favorites for many investors or traders since it provides a great opportunity for trading. With the rises and falls in the market, it provides great trading opportunities.

It’s not just Bitcoin that follows this trend, other crypto currencies are also very volatile. However, this has now defined the crypto world as being more of a world of trading than as one made of alternative currencies. Luckily, there are now a few cryptocurrencies with values are so closely linked with a fiat currency that they do not behave like the others. For a trader, these are the cryptos to avoid, as there is little to no growth in your investments, but, for the person looking for a way to store, instead of invest, their assets, these stablecoins provide the advantages of both fiat and crypto – stability and efficiency.

Stability

From their names alone, stablecoins are stable or not as volatile as other cryptocurrencies. They are “stable” in a sense that although there are still rises and falls to their market values, these are not as frequent or as big a change. As introduced earlier, these coins are linked to an existing fiat, which helps to steady and maintain their values.

Crypto “currency” also defines its purpose by name. It aims to function as a currency, a medium which can be used to exchange goods, services and the like. However, due to the volatility of a majority of crypto, using it as a mode of payment is difficult. There is a need to constantly update the prices on items, based on the value of a certain crypto. Purchases that are made over a span of a few days may seem cheap and affordable on the first day, but upon finalization of payment may turn out to be too costly. With a currency that has a value that changes at an hourly rate, would one really prefer to pay items through bitcoins?

Efficiency

The underlying technology that supports Bitcoin or any other cryptocurrencies – the blockchain – provides many advantages that still make it a good mode of payment. Not only is it a secure method, due to its decentralized system of verifying any transactions, but it is also a fast method of exchange, which can be done at a low cost. Saying that it is efficient is an understatement as it removes the need for costly transactions that have to be checked, confirmed and processed by a centralized body. Add to the fact that there is always room for error in these centralized systems and there has been not just one incident where issues on the management of finances have come up. Putting too much trust on a single company to handle your money may be what we have become used to, but having a public ledger which is immutable and secure surely changes things.

What are stablecoins again?

They are cryptocurrencies with fiat properties. They are both stable and efficient alternatives that provide wallet owners with the best of both worlds. Are you a trader looking to find a storage for your assets without having to transfer it into your bank or are you just someone who dislikes the centralized banking system but would prefer not to hoard cash at home? Storing your assets online as a stablecoin may be a great option.

Author Bio: Kim Hermoso is a content writer. Her articles are mostly guides and feature pieces on all things related to cryptocurrency, such as blockchain technology and smart contracts.

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