The first wave of cryptocurrency investors emphasized blockchain technology’s potential to create an ever-appreciating store of value. The most dedicated digital asset investors had their eyes on the long term: If bitcoin or ether are digital gold, they argued, then, by all means, hold on for dear life. As the industry continues to mature, however, this crypto as a gold mine sentiment has increasingly become a thing of the past, while crypto as a price-stable currency has become a reality of the present and future. Take stablecoins, for example. This unique category of digital asset has taken the industry by storm, appealing to institutional investors and mainstream audiences alike who recognize the value of decentralization but are accustomed to the security and stability of fiat currency.
It’s a reality that major Fortune 500 companies have taken stock of, with many experimenting with the real-world applications of stablecoins in an effort to bring this promising technology into the mainstream. Below, we outline a few of the many ways that this promising new digital asset might transform the modern blockchain landscape for years to come.
Stablecoins are cryptocurrencies that are pegged to the value of a fiat currency like the U.S. dollar or price-stable asset such as gold. Some stablecoins use algorithms to drive their price convergence, while others rely on 1-for-1 collateralization with their asset counterpart. In both cases, protocols are put in place to effectively prevent fluctuations in market value; this decreased volatility enables retailers to more easily accept cryptocurrency as a method of payment. In addition, buyers and sellers are able to conduct cryptocurrency transactions with greater confidence in their inherent value, rather than based on the day-to-day movement of the market.
Market volatility continues to be a key obstacle impeding mainstream applications of cryptocurrency, leading many skeptics of crypto platforms to question in their fiscal security. There’s a reason why it’s been an uphill battle bringing bitcoin into brick-and-mortar retailers. Imagine going to the store and attempting to use cryptocurrencies like bitcoin to complete a purchase. By the time your transaction is finished, it’s more than likely that the value of your currency has already shifted from when you first walked up to the register, making it difficult to accurately ascertain exactly how much you’ve spent.
By contrast, stablecoins provide a “stable” alternative for individuals looking to maintain the value of their assets. Ultimately, this strengthens their inherent value as a method of payment by decreasing the likelihood of devaluation. As blockchain companies work to achieve mass adoption, stablecoins present new users with a more approachable way to purchase goods and services using cryptocurrency.
Store of value
For countries like Venezuela and Zimbabwe, which have suffered long-standing economic recessions that have led to hyperinflation of up to 1,000,000%, stablecoins provide security for citizens looking to store their wealth — combating poverty and encouraging long-term economic growth. Experts have long heralded cryptocurrencies as a solution to many of these vulnerabilities; however, stablecoins present a unique solution by allowing citizens around the world to take advantage of more price-stable currencies — all with the data security and ownership provided by digital assets.
By combining the most promising attributes of traditional cryptocurrency (e.g., fast processing times and low transaction fees) with the stability of currencies like the U.S. dollar, we have a unique opportunity to pioneer a new evolution in cryptocurrency that will take the market to new heights. No longer will you wake up in the morning wondering whether the value of your cryptocurrency drastically changed overnight, because you will have confidence in its intrinsic value. Through stablecoins, we have the potential to show the world that cryptocurrencies have a formative place in our commercial ecosystem.