Cryptocurrencies can be described as virtual or digital currencies secured by cryptography, making them almost impossible to double-spend or counterfeit. They are theoretically immune to government manipulation or interference because they are generally not issued by any central authorities. The currency offers numerous perks, including low-cost and more private transactions, portfolio diversification opportunities, and cross-border payments, among many others.
You can use cryptocurrency to pay for various purchases, including cars, food, beverages, home appliances, furniture, or electronics. Some online casinos also list cryptocurrency as a method for depositing and withdrawing money from gambling sites. Although spin casino mobile is not one of them, you can still benefit from the many banking options it avails. Away from this, let’s explore one of the additions to cryptocurrency known as Stablecoins, allowing you to know all the crucial details about the currency.
What Are Stablecoins?
Stablecoins refer to cryptocurrencies whose value is tied or pegged to external references. These can be the price of commodities like gold/oil or currencies like the U.S dollar. They aim to offer an alternative to the famous yet highly volatile type of cryptocurrencies, such as Bitcoin, by providing a relatively stable price. Stablecoins pursue price stability by maintaining reserve assets as collateral or using algorithmic formulas to control supply. Examples of popular stablecoins are:
- USDT (USD Tether)
- USDC (USD Coin)
- UST (Terra USD)
All the coins trade 1:1 with the U.S. Dollar keeping the value regardless of market influence. These coins are ideal for daily value sharing, but sadly only a few accept this mode of payment. Many people use stablecoins as a means of payment when exchanging other famous cryptocurrencies. Some traders use them to get out of the market when it is uncertain.
Stablecoins Categories
When talking about the types of stablecoins, it is important to mention that they are backed by multiple sources, such as currency, algorithmic, and collateralized functions. This said, check out the main types of stablecoins.
- Fiat-backed Coins: also known as IOUs, they strive to offer relatively modest price volatility because you will spend your fiat money like dollars to purchase the coins. Subsequently, you can also redeem them for your original currency. But this is not to say that the coins are risk-free. They are still relatively new to the market, which may imply that some risks are unknown. BUSD (coin in Binance USD) is a well-known example.
- Asset-based Coins: these are linked to different asset types like real estate, gold, or silver. An example of a stablecoin linked directly to the price of gold is XAUT (Tether Gold).
- Crypto-backed Coins: these are backed by other cryptocurrencies and are overcollateralized to protect stability. It is because the asset backing the coin might be highly volatile. They are also known to be less reliable when compared to fiat-backed stablecoins. It is, therefore, essential to monitor the performance of the underlying crypto asset behind the coins before choosing a crypto-backed stablecoin. DAI stablecoin is an example of a decentralized currency running on the Ethereum network and linked to the U.S. dollar.
- Algorithmic Stablecoins: no assets back these coins making them the most challenging to understand. They employ computer algorithms to protect the coins’ value from changing too much.
Benefits of Using Stablecoins
There are a couple of reasons why you should consider using stablecoins, such as:
- Stability – one of the coins’ biggest perks is price stability. It is such a relief, especially to people who use crypto daily and have to deal with high volatility when the prices of the largest cryptocurrencies fluctuate.
- The coins utilize blazing-fast blockchain tech, meaning it is possible to make fast payments when compared to other methods like traditional bank transactions.
- Worldwide availability – stablecoins are not limited by national borders. It is easy to send the coins domestically, just like it is internationally. Because they use blockchain technology, transparency in the system is heightened. Anyone can view transactions in the blockchain stores.
Choosing the Best Stablecoin
In principle, stablecoins have many things in common. Remember that they also have significant differences; thus, you should be careful about the coins you want to work with. For instance, the way the currencies operate may differ. One may fully cover 1-to-1 U.S. dollars, and the other may put more emphasis on privacy. It is, therefore, essential to compare the most commonly used stablecoins taking note of their pros and cons to pick the one you feel will serve your interests in the best possible way.
Bottom Line
Stablecoin was introduced to the market to try and create a stable cryptocurrency protecting consumers from extreme price fluctuations witnessed when using popular crypto like Bitcoin. If you are unsure what stablecoins are all about, the article highlights essential details you should know about stablecoins to see if they are for you.
