Cryptocurrency has gained massive popularity in recent years. As the world is becoming more advanced, people are becoming more technophiles. Humans keep adapting to changes to make their business life safe and secure. The worldwide rise in new technology for financial activities has made people more curious about Blockchain and the cryptocurrency market.
Bitcoin has been a flagship cryptocurrency since its birth, as many exchanges in the crypto market accept it as the main source of cryptocurrency trading. However, the hype surrounding Bitcoin in the global economic systems has fallen back due to the rise and fall of its price. Everyone in the crypto market has started questioning Bitcoin for its volatility. At this point, Stablecoin Vs Bitcoin is being discussed among the investors and exchangers.
There is no doubt that Bitcoin still has an impressive hold over the crypto market, and people are giving priority to Bitcoin for trading. Stablecoin has recently been discussed because of its application in real-time businesses. It is a cryptocurrency similar to Bitcoin, but the difference is that it has a fixed value and is backed up by any assets. According to many crypto experts, a stablecoin is going to replace Bitcoin in the crypto market.
Bitcoin, the world’s first cryptocurrency, may have started the crypto craze, but its volatile nature has been a cause of concern for investors and traders. Therefore, many investors and traders want to know the primary differences between Stablecoin & Bitcoin. They might want to get information about the power of Stablecoin and Bitcoin. Here we are going to discover the importance of these with the help of their differences.
What is Bitcoin and How Does It Work?
First of all, we are going to start with a globally famous crypto coin. It is just being discussed here because of its high popularity among investors. It is the first digital currency that was introduced by an anonymous developer named Satoshi Nakamoto in 2009. Since then, it has become the most popular cryptocurrency in the world till date. Because of its popularity, developers have now started creating more cryptocurrencies.
The abbreviation of Bitcoin is “BTC”. It consists of different networks of computers called ‘miners’ & ‘nodes’. A lot of people who have high investment plans or big business projects do their transactions through Bitcoin. It is a computerized virtual cryptocurrency designed to act as money and a kind of payment that is not under the control of any person, group, or institution. It vanishes the need for any third-party involvement in transactions.
It is a tool everyone wants to use to get rid of the influence of banks to carry out their transactions. It allows people to make transactions without the need for any third party. An enormous amount of computational power verifies all its transactions.
Bitcoin is not complicated to understand. For example, if you are the owner of a bitcoin, you can use your crypto wallet to use a small amount of bitcoin to send it as a payment for different services. Bitcoin is made up of dispersed digital records called “Blockchain”.
Blockchain is made up of different units, which are called blocks in which all the information is stored related to transactions, including date & time, buyer & seller, and unique codes for each exchange. Blockchain is decentralized, which means it is not restrained by any authorities.
It is like a document that anyone can work on. When the idea comes that anyone can access Blockchain, it might sound risky. It is what makes Bitcoin trusted and secure. All the data of Bitcoin which gets stored in Blockchain must be verified by a majority of bitcoin holders, and unique codes which are used to verify wallets must confirm the right encryption method.
What are Stablecoins and How Do They Work?
The regular volatility in Bitcoin is the reason why many investors are not certain about their investments. In these cases, the investors don’t want to stick up their payments in the crotchet of the Bitcoin system. Sometimes, the unexpected fall in the value of Bitcoin makes investors quite disturbed. So they look for a safer alternative.
Stablecoin is a digital currency created to decrease the volatility of prices. Stablecoin is a cryptocurrency that is trying to become the alternative to fiat currency. Just like the name it has, Stablecoin is highlighted to ensure its stability in cryptocurrency. People from everywhere in the world are using fiat currencies to buy goods and different services. Economies across the country depend on government-issued fiat currency. So Stablecoin is aiming to replace fiat currency to buy goods and services.
Stablecoin is a currency that is pegged to the prices of different assets, such as the price of gold or U.S dollars. Some of the Stablecoins are backed up to various assets, and some are backed with an algorithm or volatile currencies. If Stablecoin loses its pegging, it is due to mismanagement and badly designed codes.
It comes with a ratio of 1:1, to which you can make exchanges. Bitcoin and other cryptocurrencies are not suitable for everyday use by general people because of their high volatility.
Differences Between Bitcoin and Stablecoin
If you want to understand the difference between Bitcoin and Stablecoin, it is necessary to understand the way Bitcoin works. The rise and fall in the price of Bitcoin are actually because of the conflict between anticipated value and fiat currency. Bitcoin makes us sure that it is equal to gold. Developers of Bitcoin have recently created a design that implies that it will produce 21 million BTC. So the investors can distribute more or less of their assets to bitcoin, which makes it way different from fiat currency.
The fiat currency whereas is always under the control of the government, which imposes compelling management on fiat currency To maintain inflation, better growth of society, and higher employment by investing in huge resources. So when the social economy shows its strength or weakness, Bitcoin takes interesting turns. The most important part which helps in differentiating between Bitcoin and Stablecoin is the method of value transfer and store of value.
Store of value is a process through which an asset can be productive in the future with high predictability. In comparison, value transfer is a process in which property can be transferred in the form of assets. Also, it is possible to save and exchange the store of value for different services in the future. Bitcoin is an effectively volatile currency whose price fluctuates according to the market. Whereas Stablecoin, as its name implies, is less vulnerable as compared to Bitcoin. So less vulnerability would be the biggest difference in comparing Bitcoin and Stable Coin.
Now that you have an idea of how Stablecoin and Bitcoin differ from each other, we are going to discuss it further. Till now, you understood that BItcoin has fewer advantages if compared to the stability of Stablecoin in cryptocurrency. Here we are going to dive further into the discussion if we want to become cryptocurrency experts.
Applications and Use Cases
When you are trying to discuss Stablecoin and Bitcoin differences, the most important factor is applications and use cases. In Bitcoin, there is a system of peer-to-peer payment. With this process, you can make transactions across a border within a few seconds or minutes. And it also helps in reducing transaction fees.
Bitcoin also provides security and principles of transactions because every transaction’s information is stored in Blockchain. A large number of traders use Bitcoin for exchanging. Investors buy and sell Bitcoin to back real-world assets globally. People make reasonable decisions for their investments according to the rise and fall in the Bitcoin market.
Meanwhile, Stablecoin tends to serve real-life use cases. Stablecoin can be pegged against a country’s national currency. You can also use it to make digital payments.
Stablecoin offers advantages of cryptocurrency by saving its value constant. In Stablecoin, you can convert dollars into tokens from your bank account. Stablecoin can be used to make real-life assets. This coin can be used for economic activities because we know that Stablecoin will stay constant as the currency of the country. It is helpful to improve economic activities in society. Most importantly, a stablecoin can be a safeguard in local currency crashes.
Types
Here we are going to discuss different kinds of variations of Stablecoin to understand about initial differences between crypto coins. Bitcoin is only one coin referred to as BTC to make transactions and used for trading, while Stablecoin has four types:
Fiat-backed stablecoins are digital assets that have financial reserves in fiat currency held by banks. These coins are backed by real-life currencies. These coins are used to purchase goods and can be used for economic activities. Most investors prefer fiat-backed stablecoin because it is pegged by real-life fiat assets.
Crypto-backed Stablecoin tends to present a difference from Bitcoin. It is used to connect the link between two concepts. They have a determined amount of reserved cryptocurrency which is also pegged by Bitcoin.
Commodity-backed Stablecoin is somehow similar to Fiat-backed currency. The main difference is obvious as it gets the back of commodities. They usually rely on the different commodities of assets such as gold, silver, or even a pile of cotton.
Last but not least, non-collateralized Stablecoin is being discussed. Non-collateralized stablecoins are not backed up by anything. So they depend upon the mechanical algorithm of systems. The algorithm is responsible for maintaining the stability of price fluctuations in the market. Also, when the price increases in the market, it helps to sell the tokens in the market. Therefore it helps to maintain the stability in the market of cryptocurrency.
Level of Control
The final point that ensures the difference between Stablecoin and Bitcoin is the level of control. Bitcoin is efficient in predicting the price of other coins. Meanwhile, Stablecoin is always dependent on fiat currencies for real-time assets or value.
Bitcoin comes with the characteristic of volatility, so when the prices are about to fall, you should convert your bitcoin into cash before it gets devalued. However, Stablecoin is not risky because it always depends upon the real-world country’s currency. :
The rise and fall in the value of Stablecoin are predictable. On the other hand, Bitcoin’s value fluctuation is almost impossible to predict. The price of Stablecoin is non-volatile and is constantly stable, but Bitcoin price is still volatile.
Pros and Cons of Bitcoin
Here we are going to discuss the pros and cons of Bitcoin.
Pros
- It is a versatile cryptocurrency that is easily accessed.
- It saves your time. You can transfer money in fewer seconds.
- Bitcoins are identified by numerical codes.
- It is a decentralized currency that is secured by public keys, and it is not under the control of third-party authorities.
- Bitcoin value fluctuates from time to time. Therefore, it comes back with high potential. It is versatile and a currency which is easily accessed.
Cons
- The main disadvantage of Bitcoin is that there is a continuous rise and fall in its prices, so it is a bit risky in accordance to investment.
- Many people don’t accept Bitcoin because it has no legal protection and is decentralized.
- Bitcoin transactions are not regulated, and compliance is not applied, so the lack of security in cryptocurrency is also a big issue.
- If you have sent the wrong amount to people or have done invalid transactions so you can’t reverse transactions.
Pros and Cons of Stablecoin
Here we are going to discuss the pros and cons of Stablecoin.
Pros
- Stablecoin is an easy and quick way for investors to enter the cryptocurrency market. It works like fiat currency or exchange.
- Stablecoin can be stored in wallets such as Metamask without the involvement of any third party.
- It is more stable than fiat currency because it is a digital currency that can be used as a token and can be moved from here and there without the need for any fiat currency.
- It helps to make quick and immediate peer-to-peer transactions abroad. And is done with lower fees than fiat currency.
- Stablecoin can be used to hold, trade, borrow and lend with a fiat-regulatory system. It makes it easier.
- It lessens the risk of loss due to its price stability.
- Blockchain data allows for a more efficient view of the market.
Cons
- Stablecoin is a cryptocurrency that needs third-party involvement to ensure its assets which means external sources are needed in Stablecoin.
- The provision of Stablecoin in DeFi applications is lower as compared to other cryptocurrencies. But still, it has a high-interest rate which is offered by traditional banks.
- Stablecoin involved in DeFi applications is still risky and is unregulated.
- Due to the early stages of the growth of Stablecoin and the development of other crypto technologies, there is still a risk for investors to get involved in new transactions.
Popularity of Stablecoins
The increase in the adoption of Stablecoin helps in promoting the use of cryptocurrencies as a source for routine exchanging of financial transactions and various applications. These applications use Stablecoin to trade goods and services in a centralized manner.
The prices of all other coins fluctuate over the period, but stablecoin remains constant at the pegged price of U.S dollars. Stablecoin doesn’t have any limited supply or schedule, unlike other coins. Stablecoins are specially developed to counter the volatility issue. This is because many financial gurus raised concerns that cryptocurrencies possess volatility which is not a good thing for investors. But these stablecoins are backed by other assets such as gold and the dollar. Many dollar-pegged stablecoins dominate the crypto world and host billions of dollars.
Real-world Applications of Stablecoins
Stablecoin is in an early stage of its growth. Therefore there are many real-life applications of Stablecoins that are listed below:
- Day-to-day currency
- Streamlining P2P payment & recurring
- Fast and affordable transfer of payments for migrant workers
- Improved cryptocurrency market exchanges
- Protection from local currency crashes
Conclusion
Stablecoin and Bitcoin are critical topics to discuss. Everything which is mentioned above indicates that Stablecoin and Bitcoin have a wide range of use cases and are perceived as better alternatives to fiat options.