Cryptocurrencies have been around for some time now and have become a popular option for many people looking to invest and make money. But, what differentiates Stablecoins? Is there any other type of currency that exists in the digital world?
The issue with cryptocurrencies is their volatility. The value of any cryptocurrency can change drastically in a short period of time without any warning. This makes it difficult to use them as a form of currency, as some people endeavor to do. Therefore, a new system was needed to combat this problem, and that’s where Stablecoins come in.
Stablecoins are a specific type of cryptocurrency that has its value linked to an asset or currency. This helps stabilize the coin, making it more consistent. Some of them are linked to the US dollar, such as Dai and the USD Coin from Circle. Others are linked to a commodity, such as PAX Gold.
There are two ways to make a stablecoin maintain its value. The most effective way to do this is to have the Stablecoin creators provide a reserve of resources that functions as a guarantee for the coin’s value, much like the gold standard that was used to back paper money in the past. Another approach is to use a computer algorithm to control the supply and ensure the coin’s price remains stable.