Stablecoin: Advantages And Disadvantages
One of the main cryptocurrency characteristics is its high volatility. Some traders use it for their own benefit, but for most people it is inconvenient. The cryptocurrency can't be used for payment, exchange if its cost is unpredictable and changes in a month twice. This is one of the main reasons why cryptocurrency adoption is so slow. The solution of the problem of volatility looked for repeatedly. The special kind of cryptocurrencies — stablecoin became one of the most successful and perspective versions of the decision!
Stablecoin: What Is It?
Cryptocurrencies initially created as the decentralized means of payment which didn't have relations to traditional valuable assets and, on the contrary, trying to separate from them.
Practice has shown that it is impossible to fence off completely from fiat currencies: the rate of any cryptocurrency is determined primarily by the value of the currency, most often by the dollar. From this circumstance the obvious conclusion is to preserve the stability of the crypto currency, it is necessary to link it to the dollar. So, for maintaining stability of cryptocurrency it is necessary to tie her to dollar.
At the same time, it became clear that not only the dollar can be the key to the cryptocurrency stability - it can become any traditional valuable asset. So there were ideas about the binding of cryptocurrency to gold, oil and other assets that had long settled with the traditional economy.
These currencies are called stablecoins. In other words, stablecoins are a kind of cryptocurrencies which for 100% are provided with this or that traditional valuable asset.
Unlike conventional cryptocurrencies, whose price is determined in many respects by abstract factors and therefore highly variable, stablecoins are completely bind to the value and rate of the asset that are provided, so they have a stable rate. That is - low volatility.
History Of Stablecoin
The idea of creating stablecoin more or less officially appeared in 2012 in the documentation attached to the first version of Mastercoin. The founders reported that the mastercoin protocol will allow the binding of the cryptocurrency to a stable traditional asset.
But the first full-fledged stablecoin on the basis of these developments created only in 2015. There was the cryptocurrency Tether. Initially, it was attached only to the dollar at a rate of 1: 1 and denoted by USDT.
In 2016 a European analog created, which was called, respectively, EURT. Later, the Japanese yen was added. Both subsequent currencies have not received such spread as the dollar.
In January 2016 another Ethereum platform aimed at creating stablecoins, DigixDAO. In addition, DigixDAO had DGD tokens that were paid for different operations with DGX and were not stablecoin, since they were provided not with real gold, but with DigixDAO's reputation as a project that created a digital version of gold.
Now, more than ten similar projects with different conditions are preparing for ICO and pre-ICO, for example, Cryptobank.co.
Stablecoin has a lot of advantages.
- The most important is that these cryptocurrencies allow their owners to be relatively quiet for their assets, taking advantage of all the positive aspects of cryptoeconomy.
- In fact, stablecoins can be considered as dollars, gold, oil and so on traded in crytpoexchanges. Naturally, against the background of other coins that do not have such a powerful base, they are much more stable.
For example, we will take Tether. 1 USDT always had a value of 1 U.S. dollar. In practice the maximum cost of USDT was $1,05, and minimum — $0,92. But there was it at the moments of strong fluctuations of the cryptomarket and the negative events connected with functioning of the currency such as breaking and theft of assets for the sum over $30 million which has happened in the fall of 2017.
- During the strongest fall of cryptocurrency market before the New Year, when many currencies dropped over 30-70%, Tether again held out within 8%. It is not known what will happen specifically with USDT due to how developers react to the events, but in itself ensuring the currency with the dollar expectations justified.
- In fact, a high-quality dollar stablecoin will allow us to use the USD on cryptoexchanges. Now many exchanges do not support fiat, and those that support, as a rule, require the user to pass verification.
The cryptocurrencies provided with actual values can be used in everyday life, in small and medium business almost without fears.
Blockchain technology allow the holder to be sure that his currency is really provided with an asset.
But stablecoin has a number of disadvantages and they do not allow it to make a significant competition to leading cryptocurrencies:
- Stablecoin, unlike conventional cryptocurrencies, does not make sense to use as an investment asset. If $ 100 stablecoins were bought for $ 100, then in two years they will still cost $ 100, regardless of what will happen to the dollar.
- Stablecoin, binded to traditional asset, turns out to be dependent on it and on the traditional financial structure, which entails risks not found in conventional cryptocurrencies.
- Some users aren't sure that the binding to a traditional banking system can provide a decentralizovannost, and to the owner — anonymity.
- Finally, if the cryptocurrency represents a code which is written down in memory of the computer, then the traditional asset often demands special storage conditions, funds for providing these conditions and so on.
What Is Waiting Stablecoin In The Future?
These disadvantages restrain cryptocurrency enthusiasts from using stablecoins today. This position can not be called completely unjustified, since stablecoins are still a good idea, but they are not ready for implementation in everyday life because of insufficiently reliable implementation.
But in general, they appear to be a promising type of cryptocurrency. Perhaps, it is the stablecoin that will enter the everyday life first in the form of money, which will be provided by some popular goods, for example, real estate.
Cryptocurrency transactions in this area generally seem very promising, since they allow avoiding a lengthy procedure for the purchase and sale of an object due to the technology of smart contracts. The appearance on the basis of smart contracts of a special currency, which will correspond to the value of real estate, seems logical.
Another scenario is possible - when the development of stablecoins will go further along the path of transformation into digital money the most stable traditional assets. In this case, we should expect several varieties of digital dollars, euro, yen, rubles and other fiat currencies, as well as digital analogues of minerals and even shares of some corporations.
In this case, obviously, we should expect the mutual integration of crypto-exchanges and traditional exchanges in the area where the stablecoins trade will go.
And who knows, perhaps a reliable stablecoin, recognized by both the crypto community and the traditional economy, will be able to become Bitcoin's rival in everyday circulation, as, unlike him, will be supported not only by the advantages of blockchain technology, but also by real value.