An Introduction To The Cryptocurrencies Known As Stablecoins | Jus4Net

What separates a stablecoin from other types of currencies that exist in cyberspace? One problem that a lot of people have with cryptocurrencies is how volatile they can be. In fact, one major issue is how the price of any particular cryptocurrency can appear to change from hour to hour or day to day without any warning, which makes crypto so volatile that it is hard to utilize it as a form of currency like certain people in the past suggested it could be used as. Thus, the idea of stablecoin was to fix that with a new kind of system.

A stablecoin is a unique type of cryptocurrency because unlike Bitcoin and other crypto tokens like it, the value of a stablecoin is attached to the price of another valuable item or asset or currency which leads to them being referred to as ‘stable’. Some of these stablecoins are matching up to the U.S. Dollar such as the Dai stablecoin which is always pegged to the value of one dollar & the Ethereum-backed USD Coin handled by a company called Circle. On the other hand, you have other stablecoins that happen to be pegged to a commodity like gold like in the case of PAX Gold.

There are two ways for someone to make a stablecoin have a consistent value. One way is by having the people behind the stablecoin provide an actual pool of assets to act as a form of collateral to back up the value of the stablecoins like how the Gold Standard used to work to back up the value of paper money before the United States and other nations moved to FIAT economic systems. The second way is to use some kind of computer algorithm to control the supply of a stablecoin and attempt to keep said coin at a stable value.