Stablecoins are digital tokens and their value is backed by another asset, such as fiat currency, a valuable commodity, or a cryptocurrency.
Not everyone can comprehend cryptocurrency easily. There are some essential crypto terms, comprehensively elaborated for you.
- Blockchain: All cryptocurrencies are powered by blockchain, blockchains are a shared ledger on which the immutable data of all transactions is recorded. These transactions make a block and one block is linked to another block and ultimately creates a chain of blocks that is called a blockchain.
- Digital Wallet: This works like your physical wallet, but it holds the addresses of your digital assets. Digital wallets are diverse, depending on the device, program, website, or services offered by crypto trading platforms.
- Decentralization: A decentralized system is a P2P financial system beyond the jurisdiction of any central authority, brokerage, or bank. Crypto advocates always vehemently take pride in this tendency of DeFi. The centralization of traditional financial systems is the biggest downside, it can be controlled by any governing authority and totally dependent on the third party. In a decentralized system like blockchain-based networks, you can avoid these issues
Types of Stablecoins
- Fiat-based Stablecoins: Are described as IOU by using your Dollars or any other fiat currency, you can buy stablecoins and later reclaim them for your original amount if you want to liquidate. Unlike other cryptocurrencies, there is a very low tendency of price fluctuation and volatility in stablecoins. And this tendency sets apart stablecoins from other cryptocurrencies.
- Crypto-backed Stablecoins: Are supported by other cryptocurrencies. in crypto-backed stablecoin the factor of volatility is very high because the backing asset can be volatile and hence crypto-based stablecoins are overcollateralized to make sure the value of stablecoins will not be jeopardized. Dai is crypto backed stable coin that is linked to US Dollar and runs on the Ethereum blockchain.
- Algorithmic Stablecoins: Are not backed by any asset. So, their inclusion in the stablecoins can be made questionable. This type of stablecoin is backed by a computer algorithm to maintain the value of the coin. The value of algorithmic stablecoins is linked to $1USD, if the price rises above $1 the algorithm automatically releases more coins and lowers the price. And if the price falls below the $1 threshold, then the algorithm cuts the supply and, reduced supply will increase the price.
The largest and popular stable coins are Tether, USD coins, and Binance USD, these stablecoins are pegged to US dollars.
Bitcoin is the very first decentralized cryptocurrency. bitcoin is a digital asset used as a medium of exchange for executing transactions, trade, and buying and selling goods and services. They work on the cryptographic principles and transactions are listed immutably on the ledger called blockchain, without the intervention of any third party. An additional implication of Bitcoin is time and energy, which are necessary to mine bitcoin.
Altcoins are surrogates of bitcoin. Their name is a combination of the words Alternative and Bitcoin.
Altcoins are cryptocurrencies that use the same blockchain technology as bitcoin that enables peer-to-peer transactions. They are generated in the very basic principle of bitcoin with a slight change to engage the different users.
Best stablecoins by Market Capitalization
The total market capitalization of stablecoins surpass $100 billion by the summer of 2021.
Tether is the world’s most traded digital asset. Stablecoins have become the iron fold of the ecosystem of cryptocurrencies. Stablecoins play the role of bridge between fiat currencies and cryptocurrencies.
The market capitalization of stablecoins has fourfolded since Jan 2021.With the growing volume of stablecoins, apprehension about the transparency of the reserves of stablecoins left many questioning about the feasibility of the stablecoins.
- Because a little digging discloses that despite their claim, only a small portion of their reserve consists of cash, and a big amount is kept in the form of commercial papers.
- The main concern of some analysts is that: despite their claim, stablecoins might not be able to meet the redemption requests of the clients. This can cause the potential collapse of the trust of investors and ultimately go against the fundamentals of stablecoins and could be lethal for the whole crypto market.
- Governments around the world are also concerned about the possible meltdown of stablecoins and could be lethal for the whole crypto market.
Anyone can buy Rscoins through Stablecoins
Rscoin is the new emerging cryptocurrency to buy in 2021. It has the low volatility factor and above all, Rscoin uses the proof of work algorithm with high staking ability and the low-cost mining. Yes, you can buy Rscoin not only via stable coins but also from fiat currencies and other cryptocurrencies.