What is a stablecoin?

You are probably wondering why after writing a blog about payment with bitcoin, we are now talking about stablecoins and how they differ between bitcoin and other cryptocurrencies.

Well, you see stablecoin is also a type of cryptocurrency but its value is tied to those real-world assets such as the U.S. dollar or Euros.

Cryptocurrencies like Bitcoin or Ethereum as we have mentioned in the previous blogs do not require an intermediary institution to send payments, which opens up their use to anyone around the world. But the main setback is that cryptocurrency prices are unpredictable and have a tendency to fluctuate wildly, you never know what could happen, making it very hard for everyday people to trust crypto and use it on a daily basis. Generally, people expect to be able to know how much money their money will be worth today, tomorrow, and a week from now. 

You see the idea behind some stablecoins is to set up a reserve where it securely stores the asset backing the stablecoin –  for example, imagine you have $1 million in an old fashion bank account that means you have exactly $1 million units of stablecoins

The money in the reserve serves as collateral for the stablecoin – meaning whenever a stablecoin holder wishes to cash out their tokens, an equal amount of whichever asset backs it is taken from the reserve.

What can you do with stablecoins?

Minimize volatility. 

The value of cryptocurrencies like Bitcoin and Ether fluctuates a lot — sometimes by the minute. An asset that’s pegged to a more stable currency can give buyers and sellers certainty that the value of their tokens won’t rise or crash unpredictably in the near future. 

Trade or save assets. 

You don’t need a bank account to hold stablecoins, and they’re easy to transfer. Stablecoins’ value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable. 

Earn interest

There are easy ways to earn interest (typically higher than what a bank would offer) on a stablecoin investment.

Transfer money cheaply. 

People have sent as much as a million dollars worth of USDC (A stablecoin) with transfer fees of less than a dollar.

Send internationally. 

Fast processing and low transaction fees make stablecoins like USDC a good choice for sending money anywhere in the world.

Finance and technology continue to evolve together, however, the purpose of stablecoins goes beyond being just another digital coin, it is the evolution of the traditional payment system. 

Stablecoins have the potential to open new doors to the adoption of digital assets in day-to-day life and they will play an increasingly important role as digital commerce evolves around the world in both B2C and B2B settings.

Read more about what stablecoins are at Konfidio

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