It means that the coin holds no value for you. Instead it is held in reserves by a trusted third party such as a bank. That way there is never a user funds lost or stolen, because the coin has no value.
Don’t take my word for it, here is the description from the whitepaper:
“Stablecoins are cryptocurrencies which maintain their value in relation to the fiat currency. This means that the stablecoin will be converted to and from the fiat currency it is backed by. Stablecoins are expected to be more stable than fiat currencies and they are generally regarded as “safe”, as they would be able to make consistent transfers and payments.”
People who distrust the USD will also distrust a stablecoin, which would certainly make the project a success.
Just like Bitcoin, you can make and send payments in stablecoins. There are many exchanges where you can convert fiat to stablecoins and vice-versa.
Since the first stablecoins were created, they have been very successful. The main goal of many of them is to reduce the number of arbitrage transactions that need to be confirmed by the Bitcoin network, in order to prevent volatility.
Currently some of them are available to purchase on exchanges:
With CryptoKitties you can take a really cute glimpse into what this kind of coin issuance is like.
Where can I buy stablecoins?
The list is not very big, and many of them are not popular enough for liquidity. However, you can find it here.
Also, the developers of Coinbase are working on this project with a concept to create a stable coin called Jetstream.
Future projects that could change the financial system
Some interesting projects are yet to be launched. For instance, a startup by the name of Factom aims to manage the identity of people through a blockchain. A blockchain is a database which is totally distributed and protected from outside influences. This will make it possible to have a highly secure digital ID.
Another interesting project is Ambrosus, which aims to create a trustless supply chain where food, drugs and real estate can be stored, tracked and tracked.
An interesting approach to make the use of stablecoins more acceptable is through the creation of a “stable party” that aims to play the role of a third party intermediary.
These companies make the question of transparency, diversification and the lack of centralization very real.
Who should be interested in stablecoins ?
Stablecoins have been marketed as a financial tool to deal with volatility of fiat currencies. While this is a very important point, it does not tell the whole story.
Many people are starting to consider cryptocurrencies a solution for an unstable monetary system. So, people who have been skeptical about investing their money in cryptocurrencies because they do not trust in the whole financial system should get into stablecoins.
If your money is stored in Bitcoin and you want to diversify your portfolio by investing in a stablecoin, you will not be missing out on much.
People who want to use stablecoins as a way to have exposure to cryptocurrencies will find them very useful.
Because they offer some of the benefits of cryptocurrencies without the volatility, they will become the primary currency used to trade with.
Stablecoins will not change the economics of the system, but they will make cryptocurrencies more attractive to investors.
This is an interesting development that will continue to grow.
What’s your opinion? Do you think that stablecoins will succeed and become mainstream? Which other projects do you think should be considered for the same category? Tell us in the comments below!