With blockchain, came a very wonderful gift – cryptocurrencies. Cryptocurrencies have been with us for a while now and they have been trying to get the top spot in the world of investment. But, despite all its good features and the hype, it still struggles to withstand the heat in the real world.
Bitcoin (one of the cryptocurrencies), came with many design flaws. Yes, it had a consensus algorithm that made it possible to perform P2P transactions, but this virtual currency had no economic sense. The fixed supply of coins and the heavily fluctuating demand created regular shifts in market prices. Because of this, many users started moving away from the crypto marketplace.
As it is known, for a currency to become useful such as the case of the US dollar, it must fulfill certain criteria. It must be a store of value, medium of exchange, as well as a unit of account. Bitcoin and other traditional cryptocurrencies only fulfill one condition– that of being a medium of exchange. However, they are too volatile to act as a store of value. Experts believe that bitcoin and other cryptocurrencies have a long way to becoming a globally acceptable currency.
Volatility as a Barrier to Adoption
As stated above, cryptocurrency markets are extremely volatile. For instance, on April 1st, 2019, bitcoin’s price shot up with a whopping 20% in just a day. Such an instant change in value is what is slowing down the adoption of cryptocurrency in the mainstream market. Why? Retailers and businesses want stable and predictable prices. Even customers are hesitant when it comes to using cryptocurrency to make purchases as it may increase in value anytime, making them feel like they overpaid.
The emergence of stablecoins
The stablecoins are the new babies in town. These coins are much stable, with their market price pinned to a steady asset like gold or the US dollar. They qualify as global digital currencies that possess low volatility despite the changing market conditions. This allows for practical utility including payment for everyday items.
In short, stablecoins are here to address the issue of price volatility and make prices more predictable. According to expert estimates, these coins are set to become the most highly “tokenized liquid asset” in the next two years.
Stablecoins Real World Applications
Here are the common real-world applications of stablecoins:
Affordable and superfast remittances
Many people (especially those from developing countries) travel to other countries in search of work. Since they have families that they need to take care of back at home, they will need to keep sending money overseas from time to time.
Sending money overseas is much simpler and easier with stablecoins. They are exceptionally fast and, guess what? Their value is the same as that of fiat money. It will not only be done in minutes, but the transaction costs in stablecoins will be much lower.
The best part about stablecoins is that they can be used just like ordinary currencies with legal backups. The only difference is that they are digital money and can be used to make online payments. Not only will you use them to make overseas payments but you can also use it to pay for that morning coffee without going through the strenuous conversion process.
Security from currency crashes
Unlike other cryptocurrencies, stablecoins are stable and so you don’t have to stress yourself about currency crashes every time you want to invest. The value of stablecoins almost has zero fluctuations. Using this coin can ensure that regular fiat money remains stable as well.
In the world of cryptocurrency, it is never easy dealing with fiat money. This is because of the many restrictions and regulations surrounding fiat money. In fact, many cryptocurrency exchanges don’t like dealing with dollars for this very reason. This makes it difficult for investors who wish to invest in cryptocurrencies using hard money.
The stablecoin will be a good substitute for the US dollar. It is meant to mimic the dollar and you can sell it to get cash. Also, the crypto marketplace lacks liquidity. Stablecoins can provide the liquidity that this marketplace needs. This makes this coin essential for the overall growth of the digital currency and its worldwide involvement.