- What are a cryptocurrency, bitcoin, and a stablecoin?
- Who can use a stablecoin?
- Is stablecoins regulated?
- Types of stablecoins.
Nowadays, terms like cryptocurrency, bitcoin, and stablecoins are very much in the talking. But even so, a good proportion of people are still unaware of these. So, before proceeding with our main topic, let’s discuss what these things are.
Cryptocurrency or for the money of the future is an internet-based exchange medium that uses certain cryptographic functions for making transactions. This uses blockchain technology. The main reason for shifting to it is that it is not regulated or governed by any authority. These currencies flow between two people/parties via some public/private keys. And these costs are very low processing fees.
Bitcoin is digital currency, or let’s say cryptocurrency. They created it in January 2009. It offers a lower processing fee than any other payment system. Whereas central authority doesn’t regulate it. It is created, distributed, and stored using blockchain technology. Bitcoins flow between two people/parties via some public/private keys. You can compare a public key with your bank account number and the private key with your ATM pin. They store bitcoins in digital wallets, Bitcoin wallets.
A stablecoin, like a bitcoin, is a popular form of cryptocurrency. Its main purpose is to minimize crypto currency’s volatility by pegging itself to a stable value. This stable value is anything like gold, Indian Rupees, or U.S. Dollar. Some popular examples of stablecoins are:
- USDT (Tether)
- USDC (launched by CoinBase)
- BUSD (launched by Binance)
- SAI (DAI) (decentralized stable coin)
Stablecoins are like digital cash that is exchanged with any traditional currency like Rupees, Dollar, Euro, etc. It simplifies everyday transactions using cryptocurrency. Stablecoins offer the ability to complete the transactions. Hence, with their growing popularity, any economy is not growing to survive without these.
Who Can Use a Stablecoin?
Any stablecoin, says DAI, is usually available around the world. The one thing that separates stablecoin from normal currencies is that there are no restrictions over the flow of stablecoin. While in the other case, there are always some restrictions. Therefore, due to stablecoin, businesses can extend their businesses and global reach. Hence, stablecoins are primarily for those who want to form an open economy for themselves.
Is Stablecoins Regulated?
Some stablecoins are regulated while some are not. For example, it license Gemini Dollar and the Paxos Standard under the New York State Department of Financial Services (NYDFS). Also, in the coming future, most of the stablecoins are likely to fall under the Payment Services Bill (PSB).
Types of Stablecoins
There are three types of stablecoins. These are:
- Stablecoin Type 1: Fiat collateralized
This is the most basic stablecoin. In this, it pegs the token to a fiat currency. Then, the issuer simply deposits the fiat currency into his account. Then, issue a token that can sell to the customer.
- Stablecoin Type 2: Crypto collateralized
In this, the stablecoin is pegged to cryptocurrency and not to a fiat one. One example is Ethereum. There is a bit of a risk for the investor in this stablecoin.
- Stablecoin Type 3: Non-collateralized
This stablecoin is not collateralized by any assets (fiat or cryptocurrency). But it still maintains its value by expanding and contracting the supply of the price-stable currency based on the current demand. This is similar to what a central or national bank does with fiat currencies like Dollar or Rupees. Hence, this all proves that why we believe stablecoins will change the concept of cryptocurrency. Also, every kind of digital currency will grow in the future. They are safe and secure, offer transactions at low processing fees, etc. Digital currency is way more flexible on e-platforms than credit/debit cards. Hence, start investing in these, but only after third-party audits.
Also read- Cryptocurrency