There are a lot of people that would be very interested in trading the cryptocurrency or even using it to pay for things for a much lower cost than using credit or debit cards. Yet, the volatility of the value scares people off. There have been periods in which people investing made a fortune practically every night. For every one of those people, there is somebody who wasn’t so lucky and lost a fortune.
Luckily, there are some very smart people working on cryptocurrency and blockchain that understand this. In response, they have created a type of cryptocurrency called stable coins.
The problem with cryptocurrency is that there is nothing that gives it its value aside from people deciding that it is worth something. Stablecoins are pegged to actual assets like cash or gold and derive their value from something stable.
How does a stablecoin work?
Basically, a stablecoin works in the same way that cash does and is just as stable. If a stable coin is pegged to the US dollar, for example, then 1 coin is always equal to $1. Unlike Bitcoin which is now over $10,000 for one coin. An example is Tether which is the most popular stablecoin.
Why use a stablecoin if it works just like cash? The big advantage is that it is decentralized so there is no issuing authority that controls it. It is not prone to inflation so if the value of the dollar drops, it doesn’t affect your Tether. There is a limited amount in circulation and a federal reserve can’t start printing money to get through a recession.
You can buy Tether with credit card, debit card, or even other cryptocurrencies so it is easy and quick to invest in.
When to use stablecoins
You can use your stablecoins for anything that you would use a debit card to pay for, for instance. But, with a lot of ways that you couldn’t use it for as well.
For instance, if you are doing business with a client overseas you could opt to be paid in stablecoins so you can reduce the cost of transferring money. When you are dealing
with foreign currencies there is always a fee to transfer the money and another on top of it to convert the cash. With a cryptocurrency, you never have to pay a fee to convert it as it is international and borderless.
It is also a much faster process since there is no middleman to get involved.When you use cash or even debit, a bank has to get involved in the verification, the transfer and the conversion of the foreign currency which can take up to a couple of days. When you use cryptocurrency, it can take less than a few minutes.
Then if youare looking to keep your assets safe during a turbulent economy stablecoins can offer a potential safe harbor. Nothing is without risk, of course, but since these coins are not nearly as volatile as Bitcoin or Ethereum, they do have a lower likelihood of tanking completely
This article has been contributed on behalf of Paxful. However, the information provided herein is not and is not intended to be, investment, financial, or other advice