It’s reasonable to say that we are living in the era of cryptocurrency. From Bitcoin to Ethereum, Dogecoin and more, there are many different ways people can trade in digital currency online. However, crypto can get rather complex – and what’s more, the markets are famously volatile.
It’s a key reason why Stablecoins, are they are known, have grown so popular in the past year. But herein lies the question – what are Stablecoins, and how do they compare to Bitcoin to the average trader? Let’s take a look at what you need to know before you invest.
The Appeal of Bitcoin
First of all, let’s consider the appeal of Bitcoin. Even though BTC has had a whirlwind few years, it’s still immensely popular. Famously volatile, Bitcoin is a big draw worldwide, mainly thanks to its lack of centralisation. This means that it is free-floating and has zero ties to fiat currency or world banking.
That makes BTC reasonably resilient in the face of global issues and political waves. It also means that, for the most part, transactions are completely anonymous. BTC is also famous for its security, as all transactions are marked on a digital ledger and cannot be amended.
Ergo, Bitcoin has its positives and its negatives. One of the further appeals, of course, is that there’s no need for physical money handling. That, crucially, is where Stablecoin steps in to make a difference.
How Are Stablecoins Different?
Firstly, let’s address the fact that ‘Stablecoin’ is a collective term, not so much a name for a specific currency. Their name essentially lets us know the central appeal, too – stability. Bitcoin, Ethereum, Litecoin and more are all likely to peak and dip at random intervals. As such, those interested in crypto trading with low-risk thresholds may be wary of getting involved.
Stablecoin options are therefore offered as the ‘midground’ between fiat money and crypto. They are cryptocurrencies by definition, but unlike volatile crypto, Stablecoins are centralised and tied. They effectively allow traders to get involved with crypto without the fear of volatility wasting their money.
This does mean that Stablecoins are attached to some form of collateral as anchorage. They arrive in a few different forms, with many using fiat money or even other cryptos as collateral. In some cases, even physical commodities are used to help anchor them.
Crucially, Stablecoin options such as Tether provide users with more predictability and lower trading risk. That is, compared to Bitcoin. However, the downside to these options for many crypto traders is, of course, the regulation aspect. Many people switch to BTC purely for anonymity and lack of links.
Could Stablecoin Be the Future of Crypto?
While there is still such interest in cryptocurrency for the anonymity aspects, a revolution is unlikely. However, Stablecoins provide a safer trading experience for those who do not wish to leap headfirst into BTC’s volatility!
A healthy approach, therefore, may be to consider the pros and cons of both. While volatile, BTC can be lucrative – and while steady, Stablecoin isn’t always anonymous.