Bitcoin is no longer the first and possibly only thing that comes to people’s minds when they hear the term cryptocurrency. Gone are the days when most people scratched their heads, unsure what in the world cryptocurrencies was.
As the cryptocurrency industry grows in popularity, more and more people are becoming interested in it. There are now altcoins, meme coins, and even stablecoins.
We’ve already discussed meme coins on Tech Times, so let’s take a look at another type of cryptocurrency, stablecoins.
What exactly is cryptocurrency?
Before we get into the specifics of stablecoins, let us first define cryptocurrency.
Cryptocurrency is essentially a digital money that secures transactions and prevents counterfeiting through the use of encryption. Bitcoin, Ethereum, and Binance are popular examples of cryptocurrencies.
It is vital to know that bitcoin is fungible, which means that one Bitcoin can be exchanged for another. Non-fungible tokens (NFTs), which are typically linked with bitcoin,, on the other hand, cannot be traded for anything of equivalent value.
Stablecoins are one sort of cryptocurrency that is accessible on the market.
What exactly are stablecoins?
According to Investopedia, a stablecoin is “a class of cryptocurrencies that try to give price stability and are backed by a reserve asset.” Cryptocurrencies are notorious for their volatile volatility, and stablecoins are viewed as an alternative to the traditional crypto alternatives available.
According to Investopedia, stablecoins “try to give the best of both worlds—the rapid processing and security or privacy of cryptocurrency payments, and the volatility-free stable prices of fiat currencies.”
Tether, USD Coin, Binance USD, and Dai are examples of popular stablecoins.
Stablecoin Varieties
There are various types of stablecoins available, depending on the asset that backs them and lends them some stability. Stablecoins are currently available in the following forms, according to Benzinga: commodity-backed stable coins, cryptocurrency-backed stablecoins, fiat-backed stablecoins, and seigniorage-style stablecoins.
Stablecoins with Commodity Backing
According to Benzinga, commodity-backed stablecoins are “stabilized by physical assets such as gold or real estate.” Gold is frequently used for commodity-backed stablecoins, but other metals have also been utilized.
Tether Gold and Paxos Gold are two examples of commodity-backed stablecoins.
Stablecoins Backed by Cryptocurrency
Cryptocurrency can be used to back up other cryptocurrencies. This form of stablecoin usually has a limited supply.
Wrapped Bitcoin is an example of a cryptocurrency-backed stablecoin.
Stablecoins Backed by Fiat
Fiat-backed stablecoins are cryptocurrencies backed by fiat currencies such as the US dollar. Precious metals such as silver and platinum, according to Benzinga, can also be deemed fiat.
USD Coin and Tether are two examples of fiat-backed stablecoins. Both have prices that are linked to the US dollar.
Stablecoins Inspired by Seigniorage
Seigniorage-style stablecoins, also known as algorithmic stablecoins or non-collateralized stablecoins, are ones whose prices are supported by an algorithm, a process, or even a working mechanism.