[ad_1]
A "stable currency" is a cryptocurrency that maintains a stable value. The currency is anchored to another stable resource such as gold or the US dollar, for example. Unlike our traditional stable assets, a stable currency is global and not linked to a central bank.
Why do we need stable coins?
Cryptocurrencies are global currencies, but coins like ether and bitcoin are highly volatile. In 2017 the price of bitcoins gone from $ 1,000 to $ 20,000, only to fall almost completely in 2018. Now there are over 2000 different cryptocurrencies, and on any given day any of the coins can increase or decrease by 10-20% in value. It is not sustainable and investors and users need more stability and security in the market. It also makes daily transactions very inconvenient as the price can fluctuate a lot during a transaction.
Imagine paying $ 20 for lunch today, and tomorrow the same amount would be worth $ 25 because the value of your currency has increased. Consumers can not handle this type of volatility. Therefore, stable currencies can become the catalyst to lead the new wave of adoption to cryptocurrencies.
Could you think, why can not we only use fiat currency instead of creating fiat based cryptocurrencies? Well, in the cryptic world, it is not easy to circulate dollars because of regulations and restrictions. It does not work enough in a world of decentralized currencies. Therefore, by imitating the US dollar, an investor can sell his bitcoins in exchange for cash on a stock exchange that can not trade in the US dollar.
What is a stable currency?
The ideal stable cryptocurrency should have some different traits such as price stability, scalability, privacy and decentralization. However, this is not enough. To stimulate the broader adoption of any stable currency, it must be simple to use, easy to integrate for partners and have the possibility of an exchange to work with. However, the fundamental characteristic is stability. For the short term when it comes to transactions and for long-term stability it is important to keep the currency.
Many cryptocurrencies are working to solve the problem, and now there are over 50 different stable coin projects under development. Every stable currency is unique, but it generally works the same way. They have a guarantee of some kind and manage the offer to help stimulate the market to exchange the currency with a stable value. When studied they may seem quite complex. In reality, a stable currency is a currency destined to maintain a stable value.
The stable coins have, in a broad sense, two different categories. According to their stability mechanism, they can be asset-backed or have an algorithmic mechanism. We have already discussed the type of asset-backed. For example, they are anchored to a resource such as Euro or USD, but anything stable could support them. The stable coins maintain the relationship one by one of what they are also hooked. For example, Tether is "tokenized" in dollars and therefore contains one dollar for each token issued. It means that for every token they issue they must have a USD in their bank account. Because at any time, a token holder can exchange his token with a real USD.
In contrast, stable algorithmic coins employ a set of rules in their code that aim to match the token's offer to the question. Although from an engineering point of view, activity-supported coins are easier to use, stable algorithmic coins have many advantages, such as better scalability, stronger incentives for network adoption and the possibility of earning profits on creation. of stable coins.
All have advantages and disadvantages, but let's explore some of the most popular. In the top 50 cryptocurrencies, there they are five stable coins. Namely: Tether (USDT), TrueUSD (TUSD), USD Coin (USDC), Paxos Standard Token (PAX) and Gemini Dollar (GUSD).
The most famous stable currency is Tether (USDT). It is a blockchain-based resource designed to contain the value of $ 1. It is a stable currency at the price that is equal to the US dollar. In the Tether Proof of Reserves system, anyone can control the amount of USDT in circulations on the Bitcoin blockchain using the tools provided on Omnichest.info. While the corresponding total amount of reserves held in USD is shown by publishing the bank balance and undergoing periodic audits by professionals. The USDT has fallen to $ 0.92 at some point that should not happen. They do not allow anyone to check that they have stored a dollar amount equal to the provision of tokens. Therefore, some argue that Tether is not actually supported by the USD.
TrueUSD (TUSD) is a blockchain-based stablecoin anchored to the value of USD. On the other hand, US dollars are held in the bank accounts of several trust companies that have signed escrow agreements, rather than in a bank account controlled by one company. The contents of these bank accounts are published daily and are subject to monthly checks.
The main part to pay attention to is that the stable currency is transparent, that you can see that the support is real.
The future and the challenges for stable currencies
Garrick Hileman is the head of Blockchain's research and author of the recent report on stable currencies. he he has declared that the masses are looking at the crypto market but are not entering because of volatility. Stable coins are the solution.
"For millions of individuals, tens of millions of us, as well as for institutions, the volatility of cryptographic resources we saw last year is keeping some people on the sidelines of the cryptocurrency movement." Stable currencies can solve it and enable some use cases that bitcoin or ether or other more volatile cryptocurrencies are not optimal – things like insurance ".
However, one of the biggest challenges for stable currencies is downsizing. Reserve stable currencies are unlikely to reach a level where liquidity is deep enough to support interesting applications of technology. Proponents will have to invest millions or even billions in every currency. It could potentially create a limit to the growth rate of a stable currency. When we see projects that have cases of use for billions of people, it can be a problem if it is difficult to scale.
Another potential problem is regulation. Central banks could be quicker to act on stable currencies than those with cryptocurrencies because stable currencies are somehow linked to the fiat. Because the innovation of stable currencies is quite new, there are also some technical challenges. Many of the current stable currencies may not be perfect, but over 50 projects are under development and many more could come in 2019.
As for the future of stable currencies, they can really drive adoption. The potential for stable currencies is enormous, in everything from credit insurances to loans and savings, entrepreneurs also hope that there may be space on the market for many stable and successful currencies.
Imagine a charity. Today, when you give money to a charity, you do not know what happens to your money. If you send money to help a project from the other side of the planet, it may take a long time for the money to arrive, and bank commissions may also be high. If instead you send a stable currency, you can follow the whole process as it is decentralized. It will take a few hours, which means that the money will arrive on time. Finally, send a stable currency; the same value will come with minimum fees.
Image source: "Pixabay"
Dennis Sahlström has been negotiating and investing since 2012 and has been consistently profitable over the past two years. It has entered the crypto and blockchain space since mid-2017 and has realized its potential for our world, not least the way it is transforming the society in which we live. Now he has created an educational platform, together with the wealth coach Marcus the Maria. They teach normal people how to invest and trade in the cryptocurrency market with proven strategies. If you want to know more and feel like the moment to enter this new class of activity, download our free book and register for the next training course to start your future in cryptocurrency.
