Bitcoin is without doubt the most well-known cryptocurrency famous for its all-embracing volatility that made some people rich, and others suffer heavy losses, past months specifically.
The idea behind Bitcoin works for sure, as it was never created as a forever stable or reserve currency – this is what is usually expected from fiat money. However, recent events have proven to us that there is no such “safe” place for investors to run; we have to adapt to the market behaviour and take advantage when there is a chance.
With DeFi market blooming, there is a certain need for a digital currency operating on blockchain and suitable for P2P settlement to use as a means of exchange. Most cryptocurrencies do not fall under this category due to being too volatile. Central Bank Digital Currencies (CBDC), based on centralized technology, are not for market use either. For this reason, stablecoins are the main applicable options to address the market needs.
What are stablecoins?
Stablecoins come in various options. Suitable for the future needs of the crypto market while being based on decentralized technology, stablecoins may be the only one exchange method. Stablecoins are pegged with the fiat currency 1:1 and are fully backed by reserve to meet the peg. The tokens are redeemed by requests and are fully suitable to near-real-time, P2P trade.
Stablecoins were created to fight the market volatility problem. Thus, stablecoins mimic fiat currencies but with the common blockchain benefits among which are transparency, security, low fees, transaction speed and privacy.
It can be said that the concept of digital money is not new to the banking system – they usually used them in the form of special reserves. In that regard, stablecoins are different, as they can be not only obtained by banks, but also by regular people. You just hold it in your digital wallet without being tied to a bank account.
Despite all that, Bitcoin and stablecoins are different. Bitcoin is called digital gold for a reason – it accumulates its value not only from the mining work of its Proof-of-Work consensus mechanism, but also from the market demand. Stablecoins, in turn, gain their value from their peg – the US dollar or some other fiat currency. Still, it doesn’t necessarily make stablecoins a bad investment choice, as they can help investors preserve the value of their Bitcoin investment when its price declines.
Stablecoins are a great symbiosis of fiat currency and blockchain technology. You can bail yourself out when the market is down, or, on the contrary, buy the dip and be happy. Neosify is one of the means of preserving your crypto holdings while making them work, so the advice for you is to always think smart. There is no shame in resorting to plan B and playing it safe. In the next article, we will discuss the real market prospects and the role of the notorious CBDC in the cryptocurrency future.
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