What is Stablecoin? Purpose of Use and What are the Differences?

The Beginner’s Guide

What is Stablecoin, All the fluctuations in the cryptocurrency world are causing everyone in the market to look for ways to find price stability. Investors have had a variety and different options for finding a more stable asset, including buyback to fiat currency for a while, but how about keeping your assets in the cryptocurrency markets? At this point, “Stablecoin” comes into play.

Traditional Cryptocurrencies and Stablecoins

There are always differences between cryptocurrency projects and what specific cryptocurrencies can offer, but Stablecoins offer a completely new advantage over traditional cryptocurrencies. When we compare the two directly, the biggest difference is that the volatility is reduced.

Traditional Cryptocurrencies

Most investors are already familiar with traditional cryptocurrencies. When we look at the history of the movement and the underlying blockchain technology, we know that the value and price attributed to cryptocurrencies is due to the acceptance of the cryptocurrency by market people. This causes an open door for hard price action.

To better understand the importance of the difference between Stablecoin and traditional cryptocurrencies, investors need to know how cryptocurrencies work. Knowing and understanding the technology behind the new asset class is already a prerequisite for most investors to help them gain more knowledge in better investment decisions.

Once you understand the basics of traditional cryptocurrencies, it is easy to understand why Stablecoins exist and why they are needed in the market.

However, the main difference between Stablecoin and traditional cryptocurrencies is that traditional cryptocurrencies are not “backed” by anything like fiat. Instead, the value of the cryptocurrency depends on the use case and the acceptance of others.

Stablecoins

Unlike traditional cryptocurrencies, Stablecoins offer a new way for investors to protect their funds from volatile markets. Stablecoin offers all the traditional benefits of cryptocurrencies such as Blockchain technology, distributed ledger, and a decentralized network, but with one difference: asset support.

Stable Coins are not only dependent on the usefulness and acceptance of their value. Instead, they are like the original fiat currencies backed by gold. Stablecoins are a cryptocurrency “fixed” to another asset. This asset may be tied to precious metals (such as Quintric being tied to gold and silver) from a fiat currency (such as tether to the US dollar), that is, backed.

Stablecoin Offers Intrinsic Value

These cryptocurrencies offer significant intrinsic value to each coin and cryptocurrency as they represent ownership of another asset. For example, a gold-backed cryptocurrency always represents a minimum amount of value: a specific gold value. Supported assets are still worth the amount of gold each represents, even if they are rejected from the markets as a whole because of this support.

There are several different ways to run a pegged asset, but generally there is a certain amount of money available for purchase. The institution / organization that issues Stablecoins to the market has the amount of assets corresponding to their value for storage. When done correctly, investors can go to the authority and get the cryptocurrencies they demand for tangible assets.

The Importance of Stablecoins

Investors who have a price-stable cryptocurrency in a portfolio have the opportunity to protect their investments from serious price movements during uncertain times in the market. These cryptocurrencies play a crucial role in reducing risks for investors and traders.

Stable Coin Advantages

Stablecoins offer many advantages to users. It will be possible to explain these advantages as follows:

1. Safe Harbor Presence

Stablecoins have a value designed to be stable over any period of time. This feature makes stablecoins an ideal safe haven asset because, unlike cryptocurrencies such as Bitcoin, which can fluctuate dramatically every day, a person using stablecoins to store value does not see any risk of loss, especially since they have full protection of their assets. The importance of both price stability and self-preservation of Stabilcoins has been exemplified by the political-economic crisis in Venezuela, where many citizens who fled the country recently store their savings in Bitcoin to prevent the seizure of their fiat money.

2. Purchase and sale

Stablecoins are frequently used in trading. At the time of writing, Tether, the largest stable coin by market value, was used in 40% of transactions on Binance, the world’s two largest stock exchanges, and 80% of transactions on Huobi.

3. Payments

While Walmart has announced a patent for its stable coin project, payments will be one of its primary use cases in the coming years. Businesses benefit from accepting stablecoins as payment. Because in doing so, financial institutions do not pay the 2-3% transaction fees that accompany their intermediary transaction fees.

4. Transfer

Cross-border payments and remittances are one of the most real problems overseas workers face when trying to send money home. Sending money internationally comes with high fees. For example, most migrant workers in Asia send home about $ 200 a month. However, they have to pay $ 12 as an international transfer fee. This equates to half the daily wage for most people. But stablecoins are getting ahead of this.

5. 24/7 Availability

When payments or transfers are made in fiat, they usually cannot be delivered immediately as they are subject to normal bank hours. However, stablecoins are not a central financial institution with business hours, but work 24/7 as they operate on the blockchain.

6. Deposit

Stable coin fully automates the escrow process through smart contracts that programmatically evaluate escrow conditions without the need for institutional intermediation. Since smart contracts using Stablecoin are on the blockchain, they can be fully and publicly audited.

High Speed and Low Fees

1. Higher Speed

Stablecoins make various financial processes faster. Exchange and banking with Stabilcoins allows transactions around the clock, because the blockchain operates independently of a central institution at specific hours.

2. Lower Fees

Credit card processing fees at major credit card companies such as Visa, MasterCard and AmEx average about 2 percent per transaction. For this reason, many small businesses charge more customers for their credit card purchases. It prohibits the use of certain higher paying cards and even takes cash only. However, these high transaction costs can be overcome by using stablecoins, providing value for businesses and customers alike.

3. Unlimited

The ability of cryptocurrencies to be an anonymous, unlimited store of value has proven to be a real-world necessity for millions of people. In Venezuela, people cannot flee the country with their fiat money. They cannot send them internationally through their banks and cannot physically carry their money with them, as they will be seized at the border. As such, Venezuelans turned to Bitcoin. However, stablecoins are a more important investment tool as they are not subject to speculative markets or wild inflation.

4. Transparent

Transactions on the blockchain can be viewed by anyone with internet access from a blockchain browser. In addition, stablecoins can offer full transparency as long as they are supported by regular audits by Stably. As trust in Tether eroded, cryptocurrencies that offer more transparency to circumvent it began to emerge.

5. Programmable

Since Stablecoins basically consist of code, features can be added to them to adapt to changing needs. For example, loyalty programs could be placed in branded stablecoins, such as Walmart’s upcoming stablecoin.

Stay tuned to SinceCoin to learn more about Bitcoin and cryptocurrencies.

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