We all know more or less about crypto coins by now. But what is a stable coin? Well, it is the segment of the cryptocurrencies which have their market value determined by some external references.
This implies that they are supported by a reserve asset instead of fiat money, as it was under the Gold Standard period. What makes it stand apart from traditional cryptos is that it’s not much exposed to the volatility for which the crypto market is famous.
Therefore, stable coins can be taken as a much-awaited solution to the volatile nature of cryptocurrencies. With this new technology, the opportunities seem endless. Apart from bitcoin, there are other new forms of cryptocurrency that are coming up in the market these days. To know more about the stable oins, keep reading on.
Here are some of the stable coins that you would find easy to transact and trade with. If you want to make user-friendly investments with bitcoin.
Different categories of Stablecoins
At this time, the demand for stable coin has increased a lot. People use a stable currency to trade cryptocurrencies, protect assets, etc. The variety of accessible, stable coins will expand with digital money demand.
i) Digital Dollar Stablecoin
Digital dollar stable coin is the most famous stable cryptocurrency at the moment. These have a digital representation of dollars; therefore, we can say that it has a real dollar base.
ii) Crypto- parallel to stable coins
There is a parallel relation between all cryptocurrencies and Bitcoin. Both of these also have a parallel relation with the stable coin. It indicates that their values are interconnected. Since the principal asset is also a cryptocurrency, its value is not secure, and it can be very volatile at times.
iii) Algorithmic Stable coin
None of these stable coins use reserve resources to keep their value stable. Hence, stability is the product of the working principles such as of a central authority. It provides great support to the stable coins to be stable. Additionally, whether more coins will be produced or not depends on the usage of cryptocurrency.
Advantages of Stablecoins
- No one-place payment
The same is true of stable coins; You can send them via the Internet without having to worry about the country, the bank, or other people. Payment is direct and cannot be changed. Since blockchains are paid, they cannot be blocked or censored because they cannot be.
- Low cost
Transactions are cheap because there are no intermediaries and stable coins are peer-to-peer, with no fees.
A regular bank transfer costs you some extra charges which lacks in stablecoin payments or transfers.
- The transaction is timeless.
Blockchain-based exchanges are much faster than conventional transactions. This is done for the AML or anti-money laundering verification by most people. Yet, the best part is there is no scope for waiting time or any intermediary. It just takes a while for the recipient to receive it once you send it from your end.
The stablecoin transactions are also done on the blockchain technology where everyone can see the transaction no matter whether they have initiated it or not. There is no scope for manual payment and anyone can find their required information from the blockchain.
The disadvantage of stable coin
Most stable coins belong to a single entity. Stablecoin is controlled and supplied by a single entity despite being a decentralized system. This is contradictory to conventional cryptocurrencies as there are different types of authority provided with them. This does not imply the centralized system to all of the cryptocurrencies.
- Financial market dependence
Cryptocurrencies are designed to solve the problems faced by conventional financial markets. As Stablecoins has a link with conventional money, it witnesses a fluctuation sometimes because of inflation or economical changes.
Stablecoin can be proved as a very good option for many investors as it does not entirely depend on fiat money. Therefore, it will not fall when the other cryptocurrencies will fall. Therefore, anyone who has invested in it, will not lose a huge amount of money or their entire investment. But, what is not particular is whether stable coin will be able to have more market growth or not.