Bitcoin has become a major intervention in the global economy, redefining the traditional concepts underlying the operations of many financial institutions. He drew the world’s attention to a concept called “cryptocurrency”.
Two Crypto Assets – Two Concepts
The initial hype around that Bitcoin`s taking over the world’s economies has subsided over time due to fluctuations in its price. Almost everyone started to question Bitcoin’s volatility. This is where the debate about stable coins and Bitcoin finds priority among investors or companies in the crypto space. Let’s look at the differences between Bitcoin and stablecoins.
There is no doubt that Bitcoin does have a formidable hold on the cryptocurrency market, with some exchanges using Bitcoin as their primary source for trading. Although stablecoin is new to the market, there are many ways to outsmart bitcoin, and in some cases it may not be the right choice. Bitcoin is a popular choice in the cryptocurrency market, and stablecoin, isn’t it? You might want to take another look at the power of stablecoin versus cryptocurrency. Let’s learn about the importance of stablecoins and Bitcoin, and then highlight their differences.
Why focus on the difference between Bitcoin and Stablecoin?
To understand the difference between stablecoin and Bitcoin, it is important to focus on how Bitcoin works. Bitcoin price fluctuations compared to fiat currencies are primarily based on the conflict between the intended store of value and the fiat currency. The properties of BTC ensure that it is basically similar to gold.
The developers of the Bitcoin community have created a design solution for management. The design of Bitcoin implies that it will only produce 21 million BTC coins. Investors can allocate more or less of their assets to Bitcoin, which will lead to significant differences from the fiat currency.
The fiat currency is always under the control of governments, which impose dynamic governance to maintain low inflation, better growth, and high employment, by investing more in capital resources. So, when the economy shows signs of strength and weakness, the value of Bitcoin changes.
The next important aspect that will help explain the difference between stablecoin and bitcoin concerns the perception of the intrinsic value of the cryptocurrency as a method of transferring value and preserving value. A store of value refers to the function by which an asset can be productive in the future with a certain degree of predictability.
In addition, you can save and exchange your savings for certain products or services in the future. The method of value transfer associated with any concept or object can help in the transfer of property in the form of assets from one party to another.
The Importance of Bitcoin: Understanding the Definition
Bitcoin is only mentioned here because of its relatively higher level of popularity. He was the spearhead of the blockchain revolution, and came out in 2009, when a white paper was published by Satoshi Nakamoto, the anonymous founder of Bitcoin.
Yes, the difference between stablecoin and Bitcoin is that stablecoins do not have an interesting and exciting spy past in their origin. Despite numerous attempts to find out the true identity of Satoshi Nakamoto, his identity has always remained a mystery. This, among other things, was an important reason that Bitcoin retained its mysterious aspect.
The world witnessed the appearance of Bitcoin in a white paper written by Satoshi Nakamoto in 2009. Since then, Bitcoin’s popularity as a peer-to-peer electronic money system has only grown. Bitcoin was a tool that everyone wanted to get rid of the influence of banks on their ability to conduct financial transactions.
This could allow people to send payments directly, without any intermediary financial institutions. The use of timestamps can provide a detailed audit trail of Bitcoin transactions, showing who, and at what time, sent the money, to which party, and the amount of transactions.
However, the identity of both parties can remain anonymous while proving that the transaction actually took place.
Stablecoins as an Answer: Understanding the Definition
Thus, you may face a serious problem with Bitcoin in the form of volatility. Many large investors are unsure about the prospects of investing in Bitcoin. Where crypto investors see merit, institutions see disadvantage. In such cases, they do not want to invest their funds on the whims of the Bitcoin ecosystem. The sudden drop in the price of BTC can be overwhelming for many investors, so they tend to look for the difference between Bitcoin and stablecoins.
Stablecoin, as the name implies, clearly emphasizes the stability of the cryptocurrency. In fact, it is a cryptocurrency minus the volatility. There is no doubt that blockchain can revolutionize almost every industry. Thanks to the constantly emerging new use cases, the blockchain focuses on the development of more advanced and complex payment systems.
The economy around the world depends on the currency issued by the state. Stablecoins aim to become a cryptocurrency alternative to fiat currencies. In fact, a stablecoin is a cryptocurrency with the value of the underlying asset as collateral. Most stablecoins have a 1:1 ratio compared to certain fiat currencies, such as the euro or the US dollar, which you can trade on exchanges. It is also possible to link stablecoins to other assets, such as gold and precious metals, as well as to other cryptocurrencies.
Other notable differences
Now that you have a clear understanding of the importance of BTC and stablecoins, it is wise to continue discussing stablecoin and cryptocurrency. The discussion so far demonstrates that Bitcoin has a slightly smaller advantage than stablecoin due to volatility. In fact, the definitions of both show how volatile BTC is and how stable stablecoin is. However, this is not all about the difference between these assets.
Types of Stablecoins
The main criteria for distinguishing a stablecoin from Bitcoin relate to different versions of a stablecoin. There is only one Bitcoin, a cryptocurrency platform with BTC as a coin for transactions. Stablecoins, on the other hand, are represented by four different types, such as stablecoins with fiat, commodity, unsecured and cryptocurrency support. A closer look at the four different types of stablecoins shows how their functionality gains an edge over Bitcoin.
- Fiat-backed stablecoins are the most commonly used options. They are supported by fiat currencies such as the US dollar. The value of each fiat-backed stablecoin coin is pegged to the reserves of the US dollar, or any other fiat currency.
- Stablecoin with commodity security. It is more or less similar to a fiat-backed stablecoin. The main difference in this case is obvious, since it receives support from the goods. Stablecoins backed by commodities can depend on the value of commodities such as silver, gold, or even cotton.
- Unsecured stablecoins are also promising assets. They do not have any support, which indicates a very contradictory perception of stablecoins. They rely on algorithms created through a series of mechanical procedures. The algorithms have the ability to change the supply volume to maintain the stability of the asset price.
Unsecured stablecoins also rely on smart contracts to sell coins. This ensures that if the price falls below the peg, the stable coin will be able to handle it, and will also help deliver coins to the market when the value increases. Consequently, it can maintain the continuity of the cryptocurrency stabilization process from all adverse conditions.
- A cryptocurrency-backed stablecoin is also a vital example to thoroughly demonstrate the debate about stablecoins and Bitcoin. In fact, it serves as a link between the two concepts. It supports other cryptocurrencies and can also be linked to Bitcoin. These types of stablecoins have a certain amount of cryptocurrency in their reserves to secure the coin.
On the other hand, it is also important to note that the volatility of the cryptocurrency can lead to a deviation of the price/profit to growth ratio from the expected 1:1 estimate. However, stablecoins definitely give you the right opportunity to increase the value of the cryptocurrency, while avoiding any losses due to fluctuations in value.
It is quite clear that a stablecoin prevails over a cryptocurrency in some sense. A comparison of both cryptocurrency alternatives shows that they can transform the digital financial ecosystem with a variety of use cases. It is quite clear that Bitcoin is definitely an industry leader in the field of cryptocurrency. However, stablecoins have found a solution to one of the weakest sides of Bitcoin.
The adoption of stablecoins is a clear indicator of their growing popularity and may become an integral part of the crypto ecosystem in the future. However, the world’s central banks have decided to declare war on stab coins, as they see it, and not Bitcoin, as a threat to their digital currencies – CBDC.