Are Stablecoins Ushering In A New Cryptocurrency Era?

Love them or hate them, it’s become clear that cryptocurrencies are here to stay. According to experts, Bitcoin was a flash in the pan – a novelty that would soon wear off. The volatile history of the cryptocurrency has also led critics to say that the bubble would burst.

The funny thing is that this flash in the pan has been going since 2009. It took a long time for the crypto to become more widely accepted, but it’s no spring chicken. And while it does take some serious dives in value, Bitcoin does stay standing and recovers to some extent.

One notable exception was the Bitcoin rush in 2017. The price soared from around $5,000 to almost $20,000 in just over a month. Bitcoin fever was big news. Unfortunately, the fever was short-lived, and the value plummeted after rumors about China banning the currency.

It’s now believed that this was due to price manipulation by an anonymous party. The reason for the drop doesn’t matter. The significant drop dampened investor ardor for the currency. It also gave regulators a cause for concern.

Bitcoin as a currency system is fairly efficient. We’ve been seeing more and more businesses start to accept Bitcoin payments. For the moment, it’s mostly large companies like Etsy, Burger King, and Overstock that accept Bitcoin. You can even pay for your coffee at Starbucks with the currency now.

Why Isn’t Everyone Using Bitcoin?

Still, though, Bitcoin hasn’t yet achieved mainstream adoption. The reason? The volatility of the currency makes accepting it something of a gamble for businesses to accept. Small businesses don’t have the resources to ride out dips in its value.

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Where do Stablecoins Come into It?

Stablecoins are a newer form of cryptocurrency. They were developed in response to the volatility in the cryptocurrency market. They work in the same way as any other crypto, with one major difference – they’re asset-based currencies.

Your typical cryptocurrency, like Bitcoin, is purely market-driven. If Bitcoin were to go bankrupt, coin holders would lose all their money because there are no assets to sell off. Stablecoins, on the other hand, hold assets in reserve. If a company issuing stablecoins goes bankrupt, the assets can be sold so that it’s coin holders can receive money out.

In other words, stable coins operate on a similar basis to our banks. The underlying asset base helps to create more security for coin holders. As a result, stablecoins are something that many regulators are looking into.

Even China, who banned Bitcoin at some point, is about to issue its own stablecoin. It’s believed that other governments may follow suit. Proponents of stablecoins believe that this form of currency will help smooth volatility and make it easier for cryptos to gain widespread acceptance.

Final Notes

So are stablecoins ushering in a new cryptocurrency era? The signs so far are positive. It makes sense to take advantage of using cryptos without the inherent risk of volatility.

That said, we’re not quite there yet. The history of Tether, one of the first stablecoins, shows that maintaining value even with a substantial asset base can prove challenging. As we move forward, it’ll be interesting to see how those challenges are addressed.

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For now, though, we’ll reserve judgment on the future of stablecoins.

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