If you invest in cryptocurrencies, you are surely accepting a risk. You know that the value of these assets will go up and down constantly, as this is one of their main characteristics: volatility.
For that reason, it can serve as an investment, but not so much as a saving, since it does not guarantee stability. Now, did you know that there are cryptocurrencies that can be used for this? Below, we tell you what stablecoins are, which are very useful for savers.
What exactly is a stablecoin?
Stablecoins are stable cryptocurrencies. They were created to provide stability in the market. Therefore, they are useful for all savers or investors who want to freeze profits in a relatively stable cryptocurrency without price fluctuations.
Generally, these stablecoins are directly related to traditional fiat currencies, such as the dollar or the euro. The coins work in the same way as cryptocurrencies, as they are created through a system of blocks, known as Blockchain. The difference lies in the relative stability they provide.
It is relevant to mention that we are talking about “relative” stability as this will not protect you from the possible inflation of the real currency. For example, if you buy a stablecoin with a 1/1 par with the dollar (one stablecoin unit equals one dollar) you will have 1 “digital” US dollar.
However, if the dollar devalues, you have effectively lost purchasing power. Therefore, most stablecoins are not decentralized, as they are associated with a centralized currency. That is, with a currency that depends on the central bank of the country that issues it.
The most common uses of stablecoins
For example, the most popular stable currency on the market is Tether (USDT). It can be used to pay for various products on the Internet. If an online store offers payments in cryptocurrencies, you will have two options: pay in a traditional cryptocurrency or pay with a stablecoin.
Therefore, if you choose the latter, it is practically the same as using a traditional currency, since the value is maintained over time. On the other hand, with a traditional cryptocurrency, the value can go up in the future… and that will make you regret the purchase.
The best-known case that will allow you to understand this situation occurred with Bitcoin Pizza Day: the first purchase paid through Bitcoin. On May 22, 2010, an American paid 10,000 Bitcoins for two pizzas, equivalent to 30 dollars. Currently, those two pizzas would be about $46,000,000, approximately.
Is Stablecoin a good investment?
So, stablecoins are easier to exchange, as they always keep the same value over time. At the same time, they are useful for people who want to save in a decentralized way on the Internet, so they can be an excellent option to complement your investments in traditional cryptocurrencies.
You already know what stablecoins are! If you want to know more about cryptocurrency topics, you can continue reading our blog.