Hey Bitcoin peeps! Ever felt like the world of crypto is moving at warp speed? Prices zooming up and down in minutes, new airdrops, hard forks, and ICOs popping up like crazy – it’s enough to make anyone’s head spin!
But fear not, fellow crypto enthusiasts! I’m here to share some knowledge bombs about Bitcoin halving, an event that happens every four years and shakes things up in the Bitcoin universe.
What happened to Libra Diem, Facebook’s ambitious cryptocurrency project? As of Dec 31, 2023, the project is no longer in existence. After facing regulatory pushback and losing key partners, the project was rebranded as Diem and sold off in early 2022. The former CEO of Diem, Stuart Levey, stated that the project “could not move ahead” due to regulatory issues.
Are you looking to earn cryptocurrency from your phone? If so, consider this guide to yield farming and earning more cryptocurrency as your all-in-one-stop solution!
As cryptocurrencies become more mainstream each second, tech-savvy investors are eager to get in the action. This guide will teach you how to get started with it and reap the benefits of this exciting new opportunity.
From the last year, the crypto-world is taking a slight drift. There was a sudden drop in the market, which partially crushed most of the crypto-enthusiasts. However, as the market is getting back, Ethereum has taken the spotlight.
Even though Ethereum and Bitcoin are the most popular cryptocurrency and works on a similar blockchain, but there are many differences come along.
So, the question that pops in mind is how and why Ethereum is popular, and what is the difference between Ethereum and Bitcoin? And clear up that space; we are here to help.
Difference Between Ethereum And Bitcoin
Ethereum and Bitcoin get toe-to-toe. When we look at the similarities, there are several, such as both use distributed ledgers and are decentralized, meaning not issued by any authority.
Bitcoin is a cryptocurrency that can do one thing perfectly, but Ethereum is like an intelligent platform that can go a long way while keeping decentralized finances in consideration.
However, If we look at the differences, there are several, which are as follows.
1. Smart Contracts
Smart contracts on Ethereum are something that is one of the significant differences. It is a set of codes that run on the Ethereum blockchain, which allows you to run decentralized applications or dapps.
Consider these dapps as something similar to your phone applications, but they aren’t controlled by any authority, which gives you privacy in your financial decisions.
2. Increased Transaction Speed
Surprisingly the transaction speed of Ethereum is slightly more than Bitcoin. Ethereum can process 20 transactions in a second with a confirmation time of 5 minutes. While Ethereum 2.0 can process 10,000 transactions in a second.
3. Improved Security And Anonymity
Bitcoin is in business since 2009, but Ethereum came into the market in 2015. Since it came after Bitcoin, they tried to cover all the aspects of Bitcoin. Also, the Bitcoin network doesn’t send Bitcoins.
Instead, it secures data with the protocols of POP (Proof of Proof) and POE (Proof of Existence), which is why it is more secure and anonymous than Bitcoin.
Final Remarks
To sum it up, Ethereum is one of the popular cryptocurrencies that have significant progress over time. People not only use it as a medium of payment instead, but it is also quite popular within the business world, which is why most of the NFTs run on Ethereum.
Diem is also getting a lot of eyes from the people around if you like to see our guide on Diem vs. Bitcoin to understand the key differences.
Hopefully, this post would clarify all the questions related to Ethereum and the key differences with Bitcoin, but if you need anything else, drop by the comment section below, and we’ll get back to you right away.
You have heard a lot about cryptocurrency but never thought about the opposite, fiat currency system, in which you are living right now? No doubt cryptocurrency is the next big thing in the business world, but it still has a long way to compete with fiat currency.
In particular, it isn’t just about using some bucks to buy goods and services. It has several other factors that you should know, its advantages, disadvantages, and what makes it the most vital system. As a matter of fact, this article is all about the information that you need. Our expert analysts have done their research and came out with some pieces of useful information and examples that shall help you in your future to understand how the system of fiat money practically works.
Table of contents
What does fiat mean?
What is fiat currency?
History of fiat currency.
Examples of fiat currency
How does fiat currency work?
Benefits and drawbacks of the fiat currency system
Fiat money vs. Commodity money (the gold standard)
Fiat currency vs. cryptocurrency
What is the future of fiat currency?
Conclusion
What does fiat mean?
To give you a better understanding of fiat currency, we have to explain what does the word “fiat” means. Surprisingly, the word fiat comes from Latin, which means “let it be done” or “it shall be.” However, in some pieces of literature, fiat is also termed as “fiduciary,” which means “involving trust.” fiat currency goes by several other names such as fiat monetary system, fiduciary money, and simply, fiat money or fiat currency.
What is fiat currency?
Basically: The paper money we all know – like Dollar, Euro, Yuan, Rupia…
Now, the big question arises, what is actually a fiat currency? Well, it is the money that the government issues, and it isn’t backed by any reserves, such as gold or silver. Instead, this currency is pegged with the trust of the government, and its value is derived from the connection between supply and demand.
In other words, you can consider fiat money as a legal tender that has a value issued by the government, and most countries around the world use this legal tender as their primary mode of payment to buy goods and services.
Furthermore, the stability of the fiat money comes from the issuing government. On the other hand, we have commodity money that changes its value according to the reserves, which are backing it up. In further sections, we shall relate both of them in detail.
History of fiat currency
The fiat monetary system didn’t start right away; there were a series of events that lead our lives to revolve around this system. Undoubtedly, we have seen this system for a long time, but its story is quite fabulous. However, China was the first country to neglect the gold standard and use their specific paper money as a medium to buy goods.
Firstly, these paper currency was only exchangeable with gold, silver, and silk, but later in the era of Kublai Khan, a well-defined fiat currency system that came in the 13th century was presented. As a matter of fact, historians believe that this currency was the root cause of the Mongol Empire’s downfall due to excessive spending that leads to hyperinflation.
After China, the fiduciary system made its way towards Europe in the 17th century. Later on, it spread through Spain, Sweden, and the Netherlands. Unfortunately, the fiat currency system was a failure in Sweden, and they ultimately switched to the Silver standard.
Similarly, New France in Canada, the American Colonies, and then the U.S. Government also tried to use the fiat money, but overall ended with some mixed results. Furthermore, in the 20th century, the U.S. government was back to commodity-based currency on a limited basis.
If you are wondering about fiat currency’s life examples for a better understanding, don’t worry, we are here to help you out. Every physical currency that a government issues and uses as a mode of payment are a fiat currency. For instance, the dollar, pound sterling, Euro are some common examples of fiat money.
How does fiat currency work?
The proceedings of fiat currency are quite peculiar in nature. Generally, the modes of transactions are backed up by some commodity that maintains the value. Still, in fiat money, the value of the currency increases by the trust of the users and issuing governments.
This paper money enables us to buy the goods and services without exchanging them with other products as in the case of the barter system. Additionally, the purchasing ability of this paper currency provides an edge to expand the business without compromising on the previous equipment.
Therefore, it became an international model of payment, but it doesn’t end here. The value of the fiat currency depends on the demand for the money in the region. Such as how well the government is performing. In case a country experiences political instability, it is more likely to have a fragile currency and inflated prices. Thus, making it harder for people to buy the necessities.
In order to get better performance from the fiat monetary system, the people should believe in their country’s currency as a better medium of payment, along with the governments backing up their money by making it the lawful tender for transactions.
Benefits and drawbacks of the fiat currency system
There is no doubt that the fiat monetary system is an internationally accepted system with certain benefits, but there are some major drawbacks. Do you want to know the disadvantage of this system? Don’t worry; the next section is about the pros and cons of the fiduciary currency system.
Benefits
The Fiat currency system has several benefits for a country’s economy. With that said, some factors support this system, such as Scarcity, which maintains the value of everything.
To understand it better, consider any currency pegged with some commodity — its price would be depending upon the commodities backing it up. This gives lesser control to the government, and the value of the currency might not meet the demands.
While in the case of paper money, the Central bank of the country has direct control over the printing of fresh currency. This way, the government can control the currency notes they want to revolve in the system depending upon the economy. In case of inflation, they can always pull out the currency and store it in a vault.
Furthermore, the country will be free to look for more commodities to put in the system. This means that governments can individually manage the liquidity, interest rates, and credit supplyof a currency with much more stability.
For instance, the U.S. prevented their financial system and global economy from the Global financial crisis in 2008-2009 only by controlling the Federal Reserves.
Drawbacks
Although there are several benefits of the fiat monetary system, it would be wrong not to enlighten you with thedisadvantages of this system. So, here are some of the cons of the fiat currency system.
If a country isn’t performing well economically or with undisciplined governments, the fiat currency system can backfire. For instance, some unlawful authorities mint a load of currency to circulate in the country. What do you think would be the outcome? Definitely, the country has to face inflation.
If things get pretty much out of hand, the outcome might be even more devastating, such as hyperinflation. Unfortunately, this happened with Germany after World War I and recently with Zimbabwe and Bolivia.
Fiat money vs. Commodity money (the gold standard)
In order to relate fiat money with commodity money, you have to understand what commodity money means. Actually, it is a system in which any precious metals (mostly gold, hence called gold standard) or valuable commodities are used as a medium of payment.
Now, this system limits the government to print the bills to the amount of the commodity they have in reserve. In fact, all the currency bills are backed by the government’s commodity. In such a system, the government can only print further money if they get to hold more valuables.
Clearly, this means that government isn’t authoritative to print, and the currency is only based on the country’s economic factors. While on the other side of the coin, countries and their central banks have full-fledged control over paper money and use the tools to impact their currency value.
Some people consider the commodity system a plus for their currency’s stability because a physical and existing substance backs it. However, the people who advocate the fiat currency system believe that commodities prices would remain nothing but stable.
In addition to the context, the worth of a currency in the fiat monetary system and the commodity-based system can fluctuate. Still, the good part of fiat currency is that it can give some time to the government to plan in case of an economic emergency.
Fiat currency vs. cryptocurrency
Fiat currency and cryptocurrency are slightly on the same page here, as no commodity back them both, and that’s the only similarity they have. In general, fiat currencies are controlled by the governments and central banks, while no one controls cryptocurrencies. Instead, they are decentralized and work on their own ledger called a blockchain.
Another notable difference comes in the minting of fresh bills. Although cryptocurrencies don’t have a physical state, they are still much limited and short in supply. At the same time, fiat currency is printed by the governments depending upon the needs and economic situation.
Furthermore, the transactions through cryptocurrency are permanent, and the nature of their dispersed ledger (Blockchain) makes it really hard to track them. On the other hand, fiat currency payments are reversible, and authorities can track them with ease. However, the cryptocurrency market is still immature and requires some time to develop.
Therefore, due to the small number of people in the crypto circle, the volatility is pretty much high. To make cryptocurrency stable, the companies are shifting towards stablecoins, which would decrease the volatility and might change cryptocurrency as an international medium of exchange.
What is the future of fiat currency?
Without a doubt, the question about the future of fiat currency isn’t definite. It is something that only time can unfold, but all the competitors of this system, such as commodity-based systems and cryptocurrencies, have their drawbacks.
Apart from drawbacks, the system of cryptocurrency isn’t robust. It has several challenges to overcome still, and there are pretty interesting things developing on a day-to-day basis. Even if fiat money is accepted worldwide, there is a history that proves the vulnerability of fiat currency.
This is the main reason for establishing the bitcoin on the first. The cryptocurrency was never meant to change the transaction system we have. Instead, it was only invented as an alternative to an economic network. Apart from this, we can’t neglect the fact that it has the ability to switch the global mode of payments.
Conclusion
In the end, we hope this article has answered all your queries. You have all the vital information that you need to know about fiat currencies. You won’t be left out of the conversations about the money that we use daily in the future. Further, it’s beneficial to understand the transactions practically in your life.
By going through our vs. sections, you know the other systems that exist along with the fiat currency system. Let us know in the comments which currency system you think is the best and why is it?
As cryptocurrency is getting popular day-by-day, people show a fair amount of interest in them. However, the discussion always rounds about Centralized and Decentralized cryptocurrency exchanges.
So, hold on to that thought; we have decided to address the elephant in the room. Therefore, if you have any queries left about the difference between centralized and decentralized cryptocurrencies? Or which is better? And which crypto exchange should you choose? This is the article that you need.
With that said, we shall begin with an overview of the topics that are supposed to discuss in this article.
What is a cryptocurrency?
What is a cryptocurrency exchange?
Types of cryptocurrency exchange.
What does centralization mean, and how centralized exchange works?
What does decentralization mean, and how decentralized exchange (DEx) works?
Centralized and Decentralized cryptocurrency exchanges: The significant differences.
Future of Centralized and Decentralized exchanges.
Conclusion.
What is a cryptocurrency?
Before we go further, you should know the general idea of cryptocurrency. Supposedly, cryptocurrency is a kind of payment medium that you exchange in terms of services and goods. Similar to the concept of real money, right? But how is it different?
The only thing that differentiates it from real money is that it requires an online ledger that secures the online payments. Now, most companies are working with their cryptocurrencies. You can consider them as chips from casinos.
Subsequently, you have to convert them in exchange for real money to access the products or services you need. Furthermore, the ledger technology on which these cryptocurrencies work is called a blockchain. This ledger protects the value of the real assets that are safe at your end.
What is a cryptocurrency exchange?
To understand the differences between centralized and decentralized cryptocurrency exchanges, you must know what a cryptocurrency exchange is? In simple terms, these are the places where you can buy or sell cryptocurrencies. With that said, there are some unique regulatory rules for every exchange that you should consider. But generally, all of these provide you access to almost every cryptocurrency.
Types of cryptocurrency exchange.
Besides the earlier context, there are 2 types of cryptocurrency exchanges in the market.
Here are the two types of cryptocurrency exchanges.
Centralized cryptocurrency exchange
Decentralized cryptocurrency exchange (DEx)
We shall discuss each of the types in detail in the next sections of this article.
What does centralization mean, and how centralized exchange works?
In order to understand the word centralization, we would like you to have real-life examples that you use every day. There are some systems that you use daily. It doesn’t matter if it’s your social media, your bank, your cab service account, or merely a streaming service, more practically anything you can access on the internet.
Obviously, all of these are controlled by a centralized authority, but what does that mean? Clearly, it means that to transfer your data from one source to another, you have to use a third party as an intermediary on your behalf.
For further explanation, we have to quote the example of Yahoo, which also uses centralized servers. After you hit the button by giving them details; and send it further, your data is part of their centralized servers now.
Suppose you add your friend on Yahoo and send some of your work documents in an email. Before you do that, you have to access your Yahoo account with your data such as name, image, nationality, and date of birth.
It should be noted that when you access Yahoo, you trust them that they aren’t going to expose your data for their benefits. Instead, they will keep your data private and keep it exclusive. However, that isn’t always the case. As a matter of fact, Yahoo was once hacked in 2014 by a group of people who were able to steal millions of accounts and their data.
In particular, how do you think these people could gain access to all the data by hacking only one medium? The answer is pretty simple since Yahoo uses centralized servers, and if hackers were able to get into the center, they could get into the whole picture.
What does decentralization mean, and how decentralized exchange (DEx) works?
As the name indicates itself, it is entirely against the idea of centralization. Firstly, you will be surprised to know that decentralization was possible because of blockchain technology. The first-ever was the Bitcoin blockchain established in 2009 by Satoshi Nakamoto, whose real identity is still unknown.
Further, if you want to send some amounts in a decentralized exchange, the central authority has nothing to do with them. Instead, anyone who wants to be part of the system can connect their device and verify the payments.
Additionally, each device connected in the system is referred to as a “node,” There are hundreds to thousands of nodes operating in a network.
Certainly, this means that if someone attempts to hack the system, he will only be able to hack a single node — while the rest of the nodes keep the blockchain intact without losing any data.
However, the vital thing to remember here is that decentralization is not limited to transactions only. You will be amazed to know that how many vast applications are present nowadays.
Secondly, there is no need for people to show their identities over the internet. You have the edge of logging in and interact in a decentralized system with the aid of private and public keys.
The third thing to keep in mind is that blockchain is neither in the control of any single authority nor by any government in a decentralized system. Instead, the power is fairly divided among the people who want to be part of this system.
With these points in mind, you can understand how it affects society in a better way. It takes control from significant companies and associations and divides them among the ordinary people.
Centralized and Decentralized cryptocurrency exchanges: The significant differences.
In this next section, we will discuss some major factors through which centralized and decentralized cryptocurrency exchanges are differentiated. Moreover, these factors are some pros and cons of one exchange over the other. Sounds interesting, right?
Authority
As you have learned earlier, authority is one of the primary differences between centralized and decentralized cryptocurrency exchanges. However, in the case of a centralized crypto exchange, most of the power belongs to a third party through which you have to proceed further.
On the other hand, we have a decentralized crypto exchange that provides the most control to the user. You are not bound by any third party to proceed on your behalf, which means that your data remains secure at your end.
Since decentralized exchanges provide more authority to their users, they are becoming more and more popular. However, it is also causing the complexity of a platform.
Government support
Government support is one of the factors that you should have in consideration. In the case of a centralized exchange, the government has the higher authority over each individual using that system, so the government supports it.
Secondly, governments can identify the individuals only in a centralized exchange. In contrast, a decentralized business keeps your identity hideous, which is the main reason the governments don’t support such decentralized exchange.
Security
As we have discussed the decentralized cryptocurrency exchange and how it works, you will be pretty sure that it is impossible to hack the whole system. Indeed, this means that a decentralized exchange provides far better protection than a centralized exchange.
If we look in the past, there are many incidents of hacking transactions in a centralized exchange. Although they have developed their systems to offer more security, they can never relate to the safety of the decentralized exchange.
In trading cryptocurrency, there is a significant risk of hackers, but with decentralized systems, that threat comes to an end for good. As a matter of fact, some centralized exchanges offer decentralized accounts to their customers; to keep the users free from any risk of losing transactions.
Regulation
Regulation is one of the essential factors that you should know before choosing the boss here. In the case of centralized crypto exchanges, they are pretty easy to operate. However, they require licenses to process transactions and follow the rules of the regulatory authorities operational in that specific zone.
On the other hand, if we look forward to decentralized exchanges, they don’t need any licenses to operate, but they have different challenges to overcome as well. Thanks to the blockchain technology that is dispersed in the local regions.
Therefore, even if regulatory authorities prohibit decentralized exchange in a particular region, it can still be operational.
Time required
Time is a valuable asset, and it isn’t the same for both exchanges. Do you want to know how? Of course, you do. Well, decentralized platforms are more likely to consume more time than centralized systems. Along with that, you can have an idea that how much time it requires for transactions through blockchain technology (which is decentralized) by a report. According to the report, a decentralized crypto exchange required about 15 seconds to complete a transaction, which is considerably more time than 10 seconds of a centralized cryptocurrency exchange.
Fame
In the present time, we have to say that centralized crypto exchanges are much more famous than decentralized cryptocurrency exchanges. Additionally, these exchanges provide good benefits of having a definitive infrastructure and reliable liquidity, but they came much earlier than decentralized crypto exchange. However, decentralized cryptocurrencies offer some distinctive benefits to their customers, so they are becoming quite famous. Moreover, several companies are launching their decentralized cryptocurrency exchanges (DExes) in the market, for instance, Binance’s DEx.
Charges
Centralized crypto exchanges are expensive than decentralized ones. The main reason is that centralized exchanges have to charge their customers directly. However, the charges that consumers have to pay are mainly on the services they obtain from the exchange.
On the other hand, if you look towards decentralized crypto exchange, they charge 0 to very fewer prices on transactions through their blockchain, which is a plus for most consumers.
Features
If you want to know which exchange offers more features, the answer would probably be centralized cryptocurrency exchanges. If you are a centralized exchange user, you will see that you can access multiple tools, such as margin trading, portfolio management, and other tools for a better trade.
On the other side of the coin, we have decentralized cryptocurrency exchanges that don’t offer such tools to their users. For instance, you get a limit on orders and no offer margin trading. However, we hope that when more platforms join the market, they might provide better facilities.
Liquidity
Liquidity is the ability to transform your valuable assets into readily available cash. As a matter of fact, a centralized cryptocurrency exchange offers you good liquidity over a decentralized exchange.
Do you wonder, why is that? The primary reason is that most people in that market are more likely to invest in similar trends. So an asset has a higher demand than other ones, several sellers would sell it accordingly. Furthermore, there are market makers who add liquidity in a centralized exchange.
On the other half, it will be surprising that decentralized exchanges don’t offer liquidity as much as centralized systems provide. The primary reason behind this is that order matching requires more time in DEx than centralized systems. Other possibilities can be due to low popularity.
Future of Centralized and Decentralized exchanges.
So you have gone through the whole article, you are much familiar with how centralized and decentralized cryptocurrency exchanges work. There are some particular benefits of decentralization, but the question to answer is that in the future, who is going to rule?
Decentralization ultimately means to take power from authorities or corporations and divide it among the consumers, which will make lives much more manageable, quicker, fairer, cheaper, transparent, and best of all? Anonymous from the world.
But here is the catch, the companies and authorities that have the power and money in the centralization system aren’t going to support decentralization at all. Rather they’ll fight back and try their best to prevent decentralization at any cost. Definitely, they don’t want to lose authority or money.
However, in our vision, as the world is progressing, decentralization will become more popular after ten years, with the majority of the companies running on decentralized systems. This will not only make the system stronger but beneficial for the consumers.
Moreover, this is our perspective. The truth can unfold with time alone. If you think decentralization isn’t beneficial or the future beholds something else, don’t forget to comment down and let us know.
Conclusion.
And here, this gives us an end to centralized vs. decentralized cryptocurrency exchange. After reading the whole article, we are sure that you know how this exchange works practically and which is beneficial for you.
To be honest, centralized and decentralized systems have their pros and cons. It depends all on your requirements. Although decentralization is still in its early stages, it still has to grow further, and it provides plenty of features that can solve people’s modern financial problems.
Do you hear a lot about stablecoins? Or you want to know what a stablecoin is once and for all? Or you just want to know more about this intriguing model of a transaction system. Well, if that is the case, you are in for a treat.
Cryptocurrencies have various benefits and hold recognition as an ideal system for vendors to keep their money safe and protected. Simultaneously, a stablecoin is a kind of cryptocurrency that’s worth is based on assets it relies on, such as the US dollar or gold.
Although these syllables sound quite alien to people as well, they are considered quite volatile investment products. But the best part is that people don’t require any intermediary institution to transfer payments, but their fluctuation can still be a risk.
The sad aspect of cryptocurrency is that people cannot expect their weekly earnings, which is a snag of their story. On the other hand, other currencies are relatively stable comparing to cryptocurrency. But getting back to the earnings part, that is also changing with DeFi. But that is a big topic on its own. let’s stick with stablecoins here:
Stablecoins were also introduced in the market in 2014, which is much stable, and their transfer depends upon the trader’s Altcoins (or alternative cryptocurrencies). Now the real question arises again what exactly a stablecoinis? And how can you use it to earn your valuables?
Buckle up and stay with us to learn all about cryptocurrency, along with a good piece of overall knowledge that can prove to be useful in your business.
Different types of stablecoin collateral.
The framework of stablecoins requires a stablecoin collateral that keeps it pushing through the thick and thorns. So the value of the stablecoin is based on that collateral. These collaterals below are some examples for your better understanding:
1. Fiat
Fiat is the “normal” currencies. Undoubtedly, fiat is the most common stablecoin collateral that is available. Most centralized stablecoins revolve around fiat (US Dollar, Euro, or a combination), which is why they are more stable than the other pegged collaterals. Still, in some cases, it can be a drawback as well.
2. Some precious metal
Admittedly, precious metals are one of the collaterals that are used rarely, but it is mostly used in proportion to other elements. These precious metals include Gold, Silver, Platinum, and others.
3. Cryptocurrencies.
Last but not least, a collateral for stablecoin can be cryptocurrencies. Now there are a number of cryptocurrencies out there in the market, but the most popular ones are Ether (from Ethereum network collateral) and Bitcoin.
Some most famous stablecoins on the table
Now, there is a number of stablecoins that are revolving in our surroundings; some of them are listed below.
Diem
Tether
Petro (now known as USDP)
USD Coin
DAI
1. Diem
Diem is one of the most gossiping subjects of this decade. It is formerly called Libra and comes from the most popular social media platform Facebook. The most intriguing thing about Diem is that it is not launched yet, but still, it has the most psychological impact on the crypto communities.
Surprisingly, most powerful governments consider Diem as a competitive threat. This might be because the millions of users that come from Facebook and daughter companies that Facebook owns can give a hard time to even the strongest governments.
According to the experts, there was a basket of currencies that back up Diem. But due to some global regulatory concerns, they are now planning to switch towards multiple cryptocurrencies, and those would be further backed up by national currencies.
However, our master panel believes that the first stablecoin, known as Diem dollar, is launching in 2021. So, if you are an investor and looking forward to Diem, you should be prepared.
2. Tether
If you are looking for a boss of stablecoins, this is the one you need to know about. Tether is the eldest and popular stablecoin from 2014 until now. Tether is famous for being the most valuable stablecoin on the planet by the ratio of market capitals yet.
However, the primary purpose of Tether was to move money between two exchanges and gain the advantage of arbitrage by the price difference in two exchanges. The strong capital moving strategy of this coin allowed the Chinese imposter to transfer millions of dollars to Russia, bypassing all the uncompromising controls in China.
3. Petro
Petro is one of the underrated stablecoins, it is a Venezuelan coin. If you wonder why it is unique, the reason behind this statement is that the government claims that oil reserves and other commodities such as gold, silver, platinum, etc, are backing up the Petro.
Under the table, Petro is an attempt to create a substitute to hyperinflationary Venezuelan Bolivar, which is neither a pass nor a failed endeavor yet. Although the Venezuelan government claims that this coin is manufactured for doctors and young people, some situations prove Petro a mass surveillance tool.
4. USD coin
We had to include USD coin in our list because it doesn’t operate as the other stablecoins do. USD coin is managed by the Circle and Coinbase (two major firms of cryptocurrencies).
The good part of the story is that the USD coin is also pegged to the US dollar as that is Tether, and surprisingly, the USD coin is the second-largest stablecoin by market capitalization in the world.
5. Dai
Dai isn’t like the other stablecoins on board. Instead, it runs on the makerDAO protocol, and it is a stablecoin on the Ethereum blockchain. Also, Dai was created in 2015 and pegged with the US dollar that is further backed up by ether.
Now, you might be confused about Ethereum, well, Ethereum is the token behind the ether (a stablecoin). The major fact that comes with Dai is that it intends to be decentralized. If you didn’t understand that fact, this means that there is no central authority to this Stablecoin.
The drawback that you might have to face is that Ethereum smart contracts encoded rules aren’t modified at all. You have to keep your transactions and tradings in the rule book. However, these smart contracts are underpinning the makerDAO, which can turn tables around.
How are stablecoins regulated?
After all the necessary information, you would be wondering how you can use them, right? The answer is quite easy. Stablecoins are not under the rocks anymore; like most digital assets, you can use stablecoins as a medium of exchange.
However, the major advantage that you can avail yourself of a stablecoin is that they can bring stability when the market is unstable. Most traders or investors can get their hands on the stablecoins through exchange platforms. Usually, people can mint fresh stablecoins from the collateral issuers or issuing companies. For instance, US dollars are pegged with tethers, and you can obtain them from your exchange.
Why are stablecoin so famous?
Stablecoins have made their name for themselves; the tether is the most traded cryptocurrency after the bitcoin so far. And you will be surprised to know that it has a trading volume of a shouting $20 billion in 24-hours of trades, which is definitely a fortune and gets eye-catching attention.
Are there any drawbacks of stablecoins?
When there are some major advantages of stablecoins, there are some drawbacks as well. Clearly, these coins have different pain points relative to cryptocurrencies.
According to a crypto publication, you will not be surprised that stablecoins are only as stable as the assets bound to the coin; this means that if your asset is rising, the coin will rise, but if it goes down, so would the stablecoin.
The good part is that dollar doesn’t change that much, but if they do, you can directly see the effect in the stablecoin. Certainly, this means that if the reserves show variations, there is another risk as well.
However, this statement raises many questions, such as do these stablecoins have the collateral they claim to have? This might be the reason why tether has failed to answer the most asked question about their reserves.
Now, here comes the bad part: Many of the stablecoin issuers don’t show any transparency. This shows that it can be risky for people to invest in stablecoins, and most people at heart fear it. On the other hand, if people are aware of their reserves and have the appropriate knowledge, a regulator can freeze their funds.
Furthermore, this is a possibility that the collaterals that are backing up the coins might turn out to be insufficient. This can drastically shake the coin’s value in the market. Do you know cryptocurrencies were made to replace the company that typically trusts the user’s money? So, intermediaries have authority over the money.
Since the beginning of cryptocurrencies, they are not stable, so a new way to keep them stable was introduced. In this method, stablecoins are formed, which keep cryptocurrency stable (usually Fiat as a base is used).
The basic idea behind stablecoins is that people don’t have to worry about instability while processing cryptocurrencies such as bitcoin. To better understand stablecoins, the government-issued currency is fiat, the same money that we give sellers in exchange for valuables.
Furthermore, the fiat works on the stored asset, which can be Dollar, Euro, you name it. On the other hand, cryptocurrency is backed up by the amount held in the banks.
Additionally, this means that one way or other digital stablecoins and world assets are tied together. Apart from this, the more complex form of stablecoin is in the case of a collateralized cryptocurrency.
Surprisingly, the fact that stablecoin issuers use this method to achieve a CDP (collateralized debt position). The best part is that any user can use this method to get some freshly minted stablecoins on board.
Third and foremost, variety isn’t collateralized at all. The sole purpose of these cryptocurrencies is to bring stability to the value of the coin. We know it is a little tricky, but here is the catch; if it goes down, the system will destroy the coins to give rise to the value of stablecoins.
However, this category is not much popular yet, and people still understand the protocols they need to follow to have fruitful results. The most popular stablecoin was used in 2018, which is not a long time since now.
What is the future of stablecoins?
So, this leaves us to the final verdict, what is the future of stablecoins? After the crypto boom of 2017, the answer to this question isn’t sure. But the possibility of the past events is quite shocking, and the overall crypto era is taking a positive turn.
Several investors are looking forward to investing in stablecoins, which is a much safer way. As you know, 2020 lies in the past now; the stablecoin valume is increased by 94% to hit $11 billion in June.
However, regulators are warming these coins to capture more investors and collaterals to backup the stablecoins.
Furthermore, the US office of the Currency comptroller has given federal associations, the right to grip the reserves for stablecoin issuers. This means that people would be more eager to invest in stablecoins.
As the renowned players, i.e. Circle and Coinbase, are in the game. The digital dollar’s vision rising in the field that might shift the fiat onto the blockchain is visionary and intriguing.
