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Stablecoins; Where do they come from and where do they go

4 min read

 

“Stablecoins” are a type of cryptocurrency that has its value paired with a national currency. Using technology similar to BTC and the various Blockchains, private organizations create digital currencies and match their value to that of a national reference currency. For example, if you have 1000 USDCs, you have 1000 USD in your digital wallet.

There are numerous initiatives today trying to create the best, safest and most efficient stablecoin network. BTC provided the foundation needed to create secure structures and later on, other engineerings were developed dedicated to this specific purpose – digital money as we know it. We can also find Stablecoins paired with other assets, such as metals and even stocks. The idea here is to focus only on those that equate to national currencies.

It’s not that different from having a bank account in that sense. The key difference is that this digital money is not created or issued by banks, but by privately controlled companies and technology organizations without government consent.

Given this fact, you should ask yourself:

– “So these companies create money out of thin air? Copy money? Is that legally allowed?”

First, all money, whether from Central Banks (so-called “fiat currencies”) or cryptocurrency initiatives, is created out of thin air and made available by computers. It is obvious at this point that there is no egregious crime in the creation and use of Stablecoins. If there were, people should have been arrested by now, as the first, USDT, was created in 2014.

In both cases, Banks or Tech, there is a consensus that there must be rules for their creation, which must go beyond security and legitimacy. The question that usually arises is: What backs up this new money created? What “real goods” are there behind this money creation?

And that brings us to the heart of today’s money discussion. On the one hand, those who complain that the creation of money by Central Banks, much higher in volume than Stablecoins, is out of control and, as a result, has caused a general rise in the cost of living and a loss of purchasing power. The dreaded inflation.

There are problems with Stablecoins as well. Investigations have shown that these programmers’ initiatives do not have assets to back up the money created, and that they could disappear from the map tomorrow, taking the value of your money to zero. It is called the “Tether case”.

The Advantages of Stablecoins

In the same way that digital money represents an advance over fully physical money (only notes and coins), both in usability, storage and above all, ease of use, Stablecoins are a step above not only in these aspects, but also because they are made to more efficiently meet the needs of the current volume of negotiations for services and products that today grow exponentially on the internet, and demand speed to cross national barriers.

Its operation resembles that of a bank account that can be opened easily and instantly. And 100% automated – no need for a customer service to open for you. Some StableCoins add a layer of decentralization. In other words, its “upgrades” and changes are not governed by the decision of a board of directors following a corporate hierarchy, but by a community that is in charge of suggestions and productions. A Free Software.

Stablecoins are also easy to convert, and they are portable. With a few clicks you can exchange your StableCoin for other currencies. The most efficient way to trade in different currencies exists today. You can still take your balance to any app or service without having to ask any institution or individual for permission.

These two aspects (convertibility and portability) are the main reasons for the success of Stablecoins in Latin American and African countries. They have a big advantage over the currency conversion systems of these nations – they are faster, more transparent and cheaper than banks and traditional exchange houses.

Using Stablecoins, the individual can keep the money received in their payout in the hard currency they received. Before, for a professional in Argentina or Nigeria who had a contract in Dollars with an American company, the only option that existed was to convert 100% of the value to their weak currency, subject to the conversion laws that take a part of this value and ending up with your balance in money that depreciates daily.

Take Federico, a 12-year-old boy living in Córdoba, Argentina, for example. Federico won thousands of dollars in an app, with the video of his puppy. Today, it will hold the dollar amount without the need for a US bank account, and protect the balance from local inflation. With the balance in hand, he will still be able to spend the money in international online stores. With as little cost and friction as possible.

We see a daily growth of professionals who work over the internet, have contracts in Dollars or Euros, and who are opting for Stablecoins to keep the value of their earnings in the currency of their contracts, and thus, protecting their power buying inflation. They are paid in hard cash and only touch weak and volatile cash from their countries when they need to spend it locally. The best of both worlds.

Now it’s easier to understand why Stablecoins only grow in popularity. The benefits for the international payments ecosystem clearly gain in efficiency. It also highlighted the importance of how money, crypto or not, has clear rules that offer individuals the best level of security, transparency and sovereignty over their economies.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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