We all know the thrill of collecting different cryptocurrencies in your wallets. The more you get… The more you have? But have you ever tried to get something with your crypto? Even if some of the answers would be “yes” (and there are certainly people who buy things with crypto), it does not mean that the real-world purchases performed with cryptocurrencies are such widespread phenomena.
This happens because cryptocurrencies are highly volatile – in a matter of hours, their price can drastically change. Oh boy, remember the good old post-BCH hard fork times? This is the point. So, if you get something with BTC from your stash, you can end up in a huge loss (or profit, it really depends on the situation). In both cases, however, it would be either the customer or the merchant who is losing. Therefore, the crypto world needed something to rely on, something stable. So, stablecoins were introduced.
What are stablecoins?
Cryptocurrency stablecoins are linked to real-world assets – it can be fiat, gold or even natural resources. Due to this, the value of stablecoins remains unchanged even if the whole cryptocurrency market collapses.
The fact that stablecoins are dependant on Dollars or Euros does not mean that they are a property of a government or a bank. It is more of a constant check – stablecoins truly depend on their developers and auditors who make sure that the real-world asset is present and is there in the right amount.
Benefits of stablecoins
The list of stablecoin benefits is quite extensive, but let us start with the obvious ones.
For instance, you have got two pizzas for crypto (absolutely random, no real story in here at all). You have got your delicious treat, but the very next day the cryptocurrency you have utilised to pay for your Pizza Hut goodness drastically jumped in price.
Why did we choose the pizza example? Because the first real-world purchase for Bitcoin was pizza. And it cost 10.000 BTC. Do you see what happens?
We need stablecoins to be sure we pay what we pay. The merchants, on the other hand, need stablecoins to know that they receive what they receive.
As well as institutions coming in, stablecoins might be the key that unlocks the market David Mercer
To solve the problem of real-world purchases and investment, several types of crypto stablecoins were introduced. Now, let’s look at the three main types.
First of all, the coins using fiat as collateral. These cryptos use the real-world currencies to back themselves. USD, EUR or any other currency can be used. For isnstance, Tether, probably the most widely-spread and accepted stablecoin, is completely backed by the traditional currency. 1 USDT is equal to 1 US Dollar. Such an approach makes a company issuing the cryptocurrency a repository of a digital coin representing the USD. The companies need to have at least a 1:1 ratio of a stablecoin/fiat in their bank.
The next type of stablecoins relies on other cryptocurrencies.
This method is more dangerous than backing by fiat or gold and only works in a situation if everything is good and stable.
The last, but not least, type of stablecoins are the ones that are not collateralized. The supply of these coins is algorithmically governed by smart contracts.
Are stablecoins the holy grail?
To sum our ideas up, the pros of stablecoins are:
- Stablecoins are good to trade, you definitely know what to expect
- Stable crypto is convenient for purchases
- If the market collapses, stablecoins are easily liquidated
- Stablecoins are not prone to volatility
Guarda Wallet supports multiple stablecoins, but the list of popular cryptocurrencies is ever-growing. If you have ideas on adding the new currencies to the list, you can always address your requests to our Product Team.
Are you already using stablecoins? If yes, tell us about your experience.