Stable coins are a form of cryptocurrency that links to assets that don’t change much in value (for example, the U.S. dollar). While most stablecoins use the dollar as a set benchmark, others are connected to fiat currencies (yen or euro) issued by governments. The fluctuation of stablecoins is minimal, unlike traditional cryptocurrencies. Users receive one token or coin for every dollar they deposit, which they can exchange back at a one-for-one exchange rate.
Currently, there are approximately $117 billion invested in stablecoins, making them a robust investment. Originally, stablecoins were used by other forms of crypto as a means of purchasing. As many cryptocurrencies didn’t have access to traditional banking outlets, stablecoin was a connecting factor between the two. Investors can access the currency at any time, regardless of banking schedules.
Understanding How Stable coins Work
Similar to the currency stablecoins, a gold-backed cryptocurrency is underwritten by the equivalent price in gold. A single token will have an attached weight in gold, defined by weight or ounces. Essentially, a company keeps the equivalent in reserves or vaults as a physical collateralized asset. Gold-backed crypto connects with a tangible asset, making it less volatile in fluctuations.
Understanding How Cryptocurrency Works
Traditional cryptocurrency works as a form of payment that can be exchanged for online goods and services. They work by using blockchain technology, which spreads across multiple computers. The currency can be volatile, gaining and losing large portions of its price in short periods of time. Many investors consider crypto as a type of speculation over real investment. That’s because they don’t generate cash flow. To create a profit, someone has to pay more for the currency than you did. It increases its value over time by growing profitability. These changes make it challenging to consider crypto as a genuine currency, especially when you need stability in the market to determine a fair price for goods.
These dips and growth create a problem for users. If the currency is going to be worth considerably more in the future than it is right now, what motivation do users have to spend it? For example, an investor isn’t going to purge Bitcoin when projections show further periods of growth. Stablecoins offer a hybrid connection between traditional currency and the crypto market, without the vast fluctuations in value.
What are blockchains?
Blockchain technology records information, making it difficult to change, alter, or cheat. All transactions are duplicated and sent across the entire network of computer systems. Every time new transactions occur on the blockchain, the transaction is added to all ledgers. Blockchain removes the person in charge and shifts the responsibility to everyone that uses it. Unlike SQL databases (which heavily depend on an individual in charge capable of altering entries), the blockchain prevents modification of records.
What do stablecoins do?
For those wanting to enter the cryptocurrency realm, stablecoins offer a less volatile option for investors. They provide the same level of accessibility as other cryptos but have fewer dips and gains overall. The stablecoin is decentralized, meaning the rules and regulations of centralized systems don’t apply. This brings faster money transfers, accessible funds without applications or schedules, and secure financial data.
Why Stablecoins aren’t High Return Investments
Unlike other cryptocurrencies, stablecoins won’t soar in value. They connect to collateral which remains relatively constant. The dollar hasn’t shifted much from the $1.00 value throughout existence. Precious metals aren’t high-return investments either. Instead, they offer consistency against harsh or catastrophic environments. Ideally, investors should consider stablecoins as digital cash over a remarkable investment opportunity. It can also serve as the connecting force between standard cryptocurrencies and those wanting to enter the market.
When Should You Purchase Stablecoins?
Stablecoins are a safer option than other forms of crypto, but they’re still a relatively new technology. They remain constant, with minimal fluctuation (and likewise, minimal growth). Stablecoins should be purchased when investors understand the lack of gain while still wanting flexibility and instantaneous access to their funds.
Founder Dinis Guarda
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