Stablecoins are cryptocurrencies that hold their value in fiat currency, such as the US dollar or the Euro. This means they don’t experience price fluctuations, which makes them a prime option for those who want to invest in crypto but don’t want to deal with the risk of fluctuating prices. But how do stablecoins work? How can they keep their value at $1, or another specific value? Read on to find out more about the best stablecoin and how it works!
What are stablecoins?
There is a type of cryptocurrency called a stablecoin. Stablecoins are a cryptocurrency that avoids drastic changes in price. They are different from regular cryptocurrencies, or altcoins, which can fluctuate widely in value. The most popular stablecoin is Tether (USDT), which is tied to the US dollar. Other popular stablecoins include Paxos Standard (PAX) and TrueUSD (TUSD). Both offer tokens that are tethered to the U.S. dollar, but they each have their own differences.
The three major advantages of PAX over TUSD:
– Less expensive fees
– No lockup period for deposits
– More decentralized (no reliance on any one company)
Other things to consider when choosing a stablecoin include speed, transparency, and accountability. You’ll also want to ensure that each token is fully collateralized. For example, TUSD boasts third-party monthly audits that show how much U.S. dollars are in their bank accounts. If there are any unsold tokens at PAX’s end of month burn period, they go back into circulation for future buyers and sellers to purchase with traditional currencies like USD or ETH.
The history of stablecoins
A stablecoin is a digital asset that is pegged to a cryptocurrency, fiat currency, or commodity. The first stablecoin was created in 2014 by Ripple Labs and was called BitUSD. In 2015, Tether (USDT) was created and is currently the most popular stablecoin. USDT is pegged to the US dollar. In 2018, TrueUSD (TUSD) was created and is the first regulated stablecoin. TUSD is pegged to the US dollar.
So what’s the difference between a regular altcoin and a stablecoin? A regular altcoin’s price can fluctuate wildly due to market conditions, while a stablecoin’s price remains relatively stable. This makes stablecoins far more practical for use in daily transactions. However, there are some risks associated with using a stablecoin as opposed to an altcoin. When you use an altcoin like Bitcoin or Ethereum to make purchases, you’re using blockchain technology. Blockchain is decentralized and it operates on distributed ledgers which means your transaction is verified on many different computers simultaneously.
On the other hand, when you use a stablecoin like Tether or TrueUSD, your money goes through centralized exchanges which could have risks of being hacked into.
Why do we need them?
In the cryptocurrency world, there are two main types of coins: altcoins and stablecoins. Altcoins are volatile, meaning their prices can fluctuate wildly from day to day. Stablecoins, on the other hand, are designed to maintain a stable value. So, why do we need them? Well, for many reasons. For starters, they make for better forms of savings. If you’re worried about your money losing its value due to volatility in the market, investing in a stablecoin is often your best bet for retaining its purchasing power over time (especially when compared with fiat currency). Additionally, because stablecoin pegged to physical assets like gold or USD cash reserves, they’re more resistant to speculative bubbles as well as potential losses in value due to sudden changes in policy or natural disasters like hyperinflation. However, there are some tradeoffs too. Whereas with an altcoin like Bitcoin, it’s possible to see growth spurts upwards of 100% in just a few days if things go well, stablecoins don’t have this benefit. They’re also not always easy to access or trade so if that’s what you’re looking for then an altcoin might be the better option.
Are they safe enough to use in everyday life?
Digital tokens reliant on cryptography are decentralized, which means they’re not governed by any governmental body or any of the larger financial institutions. Bitcoin, the first and most popular cryptocurrency, was released in 2009. Often, cryptocurrency is traded on decentralized exchanges and can also be used to purchase goods and services. Some cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, and Monero, can be mined. Mining is the process of verifying transactions on a blockchain and adding new blocks to the chain. Miners are rewarded with cryptocurrency for their work. Other cryptocurrencies, such as Ripple and Stellar, are not mined. Cryptocurrencies can be volatile, so prices may fluctuate widely. For example, as of March 27th, 2018, one Bitcoin is worth $9003.82 USD. That same day, one XRP was worth $0.3792 USD. This means it is difficult to use cryptocurrencies as an everyday medium of exchange. One solution to this problem has been stablecoins – coins that maintain a fixed value against the US dollar or other fiat currencies like the Euro and Yen. Coins like Tether (USDT) and TrueUSD (TUSD) have become popular options.
Ripple’s currency XRP aims to reduce volatility by pegging its value to several different types of fiat currencies; the company says XRP will have a stability between 1-2%. The downside is that these currencies do not support all altcoins, but only ones pegged against dollars. There are some tradeoffs in choosing an altcoin vs a stablecoin.
Do they have future potentials?
In the cryptocurrency world, there are two types of coins: altcoins and stablecoins. Altcoins are volatile, meaning their prices can fluctuate wildly from day to day. Stablecoins, on the other hand, are designed to maintain a stable value. But which type of coin is better? The answer might surprise you.
The cryptocurrency market is changing every day as new digital currencies pop up and others disappear without warning. The only way to minimize risk when investing in these new coins is to invest in an altcoin. The one exception? Stablecoins.
Stablecoins are cryptocurrencies that have been created specifically for stability – they’re pegged to fiat currencies like the US dollar or euro, so they don’t fluctuate in price nearly as much as other altcoins do. They’re also typically backed by either gold, silver, or other commodities like oil. The main downside to stablecoins is that they’re less flexible than altcoins because they’re tied to the fiat currency; if the government decides to change its monetary policy and devalue its currency, this could affect both the price of the currency and how many stablecoins it takes to equal $1 USD.