What Are Stablecoins And How Do They Work?

What is Stablecoin?

Stablecoins are cryptocurrencies that serve as a stable alternative, eliminating the concern of the volatile nature of the crypto market. They provide price stability, along with the privacy and security aspects of cryptocurrency payments. Their value is associated with an external source, such as the US Dollar or a commodity like gold.

How do Stablecoins Work?

Bitcoin is the most popular cryptocurrency. But the thing with cryptocurrencies is that even though their current prices might seem quite promising at the moment, they can fluctuate a lot even throughout the day. And it has its pros and carries the probability of a high-profit margin, but it might not interest just about everyone.

When people own a currency, they require its price to remain relatively stable for long durations. If they are unsure that the purchasing power of the currency might change tomorrow, they might not be willing to deal with it. So, stablecoins serve as a better alternative for people wanting to stick to currencies with relatively stable prices.

Fiat currencies are linked to an underlying asset like gold, which serves as collateral, and hence, their price remains relatively stable. And even if, under certain circumstances, their price sees a sudden change, the controlling authority can manage the demand and supply to make it stable. So, stablecoins are a middle way out between fiat currency and cryptocurrency, while giving you the advantage of both.

Why use Stablecoins?

With cryptocurrencies, volatility is still a concern. While stablecoins provide the benefits of cryptocurrencies without this concern. They provide transparency, privacy, security, and fast transactions at low speed.

In the case of a sudden decline in the crypto market, switching to stablecoins is more convenient than using fiat currency. It can be done within a matter of minutes. Some platforms might not allow fiat currency on the platform, or when they do, the charges for it may be higher. This can help to prevent massive losses in such a situation.

Stablecoins even work best to make quicker and secure international payments. They can be of advantage in areas that are under economic uncertainty. With its decentralized peer-to-peer networks, it builds a reliable environment for transactions.

Final Thoughts

The noteworthy thing about stablecoins is that they solve the concern about the volatility of cryptocurrencies while leveraging their benefits. New uses of stablecoins are emerging constantly, and it seems to have a promising future.

At Kointrack, we provide information on the latest trends in the crypto market. We also work towards making blockchain technology accessible to people.