The crypto space is constantly evolving and one of the most recent crazes is that of stablecoins.
Bitcoin was experiencing dramatic price fluctuations over the past twelve months. In fact, it almost reached highs of $20,000 at the end of 2017, before plummeting to $6,500 less than a year later. The stablecoin, as the name suggests, aims to eliminate this price volatility from the equation.
These coins aim to stay at a stable price, which is $1 the entire time. Therefore, many active traders and investors in the crypto space are strong believers in stablecoins. They believe that this will allow digital currencies to rise to the next level.
Stablecoins: How do they Work?
Most stablecoins employ a simple approach. You pay a single dollar and get a digital token in return, while the dollars remain in reserve. If you want to cash out at a later date, you redeem your token for the dollars using a one-to-one ratio.
Initially, people saw Bitcoin as a potentially viable new currency to purchase goods and services. However, its volatility levels caused too much uncertainty eliminating this likelihood.
Similarly, since no-one knows what the price of Bitcoin will do on a daily basis, it is too unpredictable for everyday application. Therefore, stablecoins appear to be taking over as the main crypto medium of exchange options.
Many of these projects launced in 2018. Some of the main ones being Dai, Havven, Paxos, and TrueUSD. However, since their inception, they have experienced considerable fluctuations in popularity. The Gemini crypto exchange recently created the Gemini Dollar. Circle, the global payment company produced the US Dollar Coin which is now set to be part of Coinbase’s offering.
The chief technology officer at Coinbase said: “Stablecoins bring some of the early potential of crypto into view and they make possible payments that are very small, very fast, very large, very international, very transparent and very automated.”
Stablecoins effectively combine the best aspects in a reserve currency. These include universality and reliability related to the technological advancements of cryptocurrencies. It will allow for faster payments without requiring third parties. It will also promote many additional innovative features. The future is bright for stablecoins and it will be interesting to see what direction they take.
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