Investing in Cryptocurrency - What Are Stablecoins?

Cryptocurrencies are digital or virtual currency that uses cryptography to secure transactions and protect identities using blockchain technology. Unlike central bank currencies, cryptocurrencies don't rely on banks to verify transactions and don't exist in a physical form that can be handled. Instead, cryptocurrencies are purely digital entries on an online database describing all transactions taking place and recording them in a public ledger accessible to all.

The first of its kind was the Bitcoin which was developed in 2009, and since then, more have come into the market. Cryptocurrency units are created by mining, which computers use to solve complex mathematical algorithms. The first computer to solve them earns Bitcoins, which are then floated in the network for users to buy, trade, and sell.

Many different cryptocurrencies have been developed, such as Ethereum, Litecoin, Ripple, and Stablecoin.

What Are Stablecoins?

Stablecoins were developed to improve the Bitcoin by keeping the benefits but avoiding fluctuations such as those faced by Bitcoins. They were developed primarily due to the intense and volatile nature of Bitcoins and to encourage more people to invest in crypto without worrying about suffering significant losses.

There Are Different Types Of Stablecoins Available:

Fiat Collateralized

These are the most common kind and are backed by fiat currencies such as the US Dollar. Some of the most popular ones are Tether and TUSD or True US Dollar.

Commodity Backed

These currencies are backed by reserved assets such as commodities including gold, silver, other precious metals, and real estate, unlike Tether, which is backed by Fiat Currencies such as the US Dollar.


These cryptocurrencies are backed by other cryptocurrencies. These currencies need to be overcompensated due to the volatile nature of crypto.

Algorithmic Stablecoins

These stablecoins are non-backed and use unique algorithms and code to manipulate their prices and token numbers to match their demand and supply, allowing the company to maintain a reserve peg when prices drop.

Advantages of Stablecoins over Bitcoins

  • Stablecoins, unlike Bitcoins, have their values tied to real-world assets such as the US Dollar. Due to their stable nature, Stablecoins are also suitable for making payments and not just for trading purposes.
  • Like other cryptocurrencies, Stablecoins also use blockchain technology to secure ownership and protect the identities of digital assets. Stablecoins are designed so that they don't fluctuate much in value and are slowly gaining more popularity among cryptocurrency investors.
  • Stable coins can be purchased the same way as other cryptocurrencies on their website.
  • Stable coins can be used as an everyday currency and be used in paying for groceries, electricity bills, and other fares, making them a more valuable currency.
  • Stablecoins provide more potential for smart contracts, such as those based on other cryptocurrencies. Fluctuations in prices can substantially impact the contract's terms, so stablecoin use can add stability to both parties, preventing unpredictable prices.

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