If you are to buy cryptocurrency in India, you probably think Bitcoin is the most widely used cryptocurrency across the globe; there’s a good chance that you’re wrong. Bitcoin might be quite popular, but according to CoinMarketCap, the crypto with the highest daily and monthly trading volume happens to be Tether or USDT, even though its market cap is significantly smaller than that of Bitcoin.
Now, what is Tether? Tether is a particular kind of cryptocurrency, known as stablecoins. If you were to buy Bitcoin or any of the altcoins on any cryptocurrency exchange in India, you’d find most of the trading is done in USDT. Indeed, most seasoned crypto traders rely on stablecoins while trading to protect their holdings, and for a good reason, too: traders quickly switch to a stablecoin when they expect a crypto coin’s price to fall.
Why, you ask?
Well, to find that out, let’s first see what stablecoins actually are, shall we?
So, What Are Stablecoins?
Simply put, stablecoins are cryptocurrencies that act like fiat currencies; reserve assets advocate them. The value of a stablecoin can represent that of a physical currency, a valuable asset like gold, and even another cryptocurrency. For instance, the value of Tether or USDT is pegged to the US dollar; 1 USDT is equal to 1 USD, so the USDT and USD maintain a 1:1 ratio in terms of value. The primary objective of stablecoins is to offer price stability – unlike regular cryptocurrencies. As of right now, most stablecoins exist on the Ethereum blockchain.
Key Characteristics of Stablecoins
Stablecoins combine the better features of cryptocurrencies and fiat money, so they essentially carry the best of both worlds. Here are some of the key characteristics of stablecoins that you should be aware of if you want to buy cryptocurrency in India:
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- Stablecoin prices don’t fluctuate as wildly as regular cryptocurrencies. Crypto prices are ever volatile and unpredictable at the best of times. This particular trait of cryptocurrencies is one of the factors that’s keeping them from becoming a mainstream mode of payment. However, stablecoins are tied to underlying assets that collateralize them and keep them grounded, so they are suitable for mainstream adoption.
- Since stablecoins are basically cryptocurrencies, transactions are processed fast while maintaining the counterparties’ privacy and security, making them fit to be used for regular transactions.
- Using stablecoins for transactions also means you pay the lowest possible trading charges, regardless of the cryptocurrency exchange in India you use to trade and store your crypto.
- Like with the usual cryptocurrencies, you can send funds to anyone in any corner of the world using stablecoins without needing intermediaries.
Categories of Stablecoins
Stablecoins can be categorized into three classes based on the types of assets that keep them collateralized. If you intend to buy cryptocurrency in India, you should be aware of these classifications:
- Fiat-Collateralized Stablecoins: Fiat-collateralized stablecoins – also known as centralized stablecoins – are the most widely used stablecoins. These have either fiat currency reserves or physical assets backing them up. Therefore they are the best option in terms of stability.
Fiat-collateralized stablecoins have a central authority figure/ organization (for example, financial institutions like banks) behind them that holds a certain amount of fiat currency and issues an equivalent number of stablecoin tokens as collateral. Precious metals like gold, silver, etc., and even commodities like natural gas, oil, etc., can also be used as collaterals by authority figures to issue stablecoins.
Aside from Tether, TrueUSD is another fiat-collateralized stablecoin pegged to the USD at a ratio of 1:1.
- Crypto-Collateralized Stablecoins: Crypto-collateralized stablecoins, as you have probably guessed, have cryptocurrencies (like Bitcoin, Ethereum, or Ripple) to ground their values.
You might be wondering what’s the point of crypto-collateralized stablecoins since any price fluctuations of the underlying crypto would affect the stablecoin as well. However, to combat that very issue, crypto-collateralized stablecoins are
over-collateralized, i.e., the stablecoins released for circulation are smaller in number compared to the number of cryptocurrencies kept in reserve. Additionally, crypto-collateralized stablecoins are trustless and not controlled by a singular authority figure.
MakerDAO’s DAI is perhaps the most popular crypto-collateralized stablecoin, with Ethereum acting as collateral.
- Non-Collateralized/ Algorithmic Stablecoins: Finally, algorithmic stablecoins are uncollateralized – they don’t have any reserves backing them up. However, they use smart contracts and autonomous, distributed algorithms to mimic the mechanism that works behind an institution like a central bank and keep the values stable. An algorithmic stablecoin network can automatically issue new coins when the price goes up and burn existing coins to decrease the coin supply when the price goes down.
Should You Consider Investing in Stablecoins?
The foremost criticism against stablecoins is that they are inherently centralized, which sort of defeats one of the primary purposes of cryptocurrency – a decentralized financial system. Therefore, once you buy stablecoins, you’d have a central authority figure holding power over your funds. Moreover, in theory, these centralized organizations can withdraw the issued stablecoins at any moment since the code inside the stablecoins allows them to burn or freeze these coins. Naturally, they can also issue more stablecoins if they see fit.
That being said, stablecoins have still provided the general populace with a gateway into the crypto space by extracting the uncertainty associated with the regular cryptocurrencies’ values. They hold the potential to become a preferred alternative to traditional money and bring about a more global adoption of cryptocurrencies. Therefore, if you want to buy cryptocurrency in India, you should definitely consider investing in stablecoins.
Wondering which cryptocurrency exchange in India you should buy and store your crypto on? WazirX has earned a reputation for being the safest and most cost-effective platform within the Indian crypto community to buy and sell well over 100 cryptocurrencies! To find out how you can open a crypto trading account and buy cryptocurrency in India, you can give this blog post over here a read!
Happy trading!
Frequently Asked Questions
Is Bitcoin And Cryptocurrency The Same Thing?
Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.
How Does Bitcoin Technology Work?
The blockchain is the foundation of Bitcoin. It is a decentralized, distributed ledger that tracks the provenance of digital assets. The data on a blockchain can't be changed by design, making it a real disruptor in industries like payments, cybersecurity, and healthcare.
Is Bitcoin A Good Investment For The Future?
Some investors are afraid of the risks or devastation, but others are very eager to pursue the possibility of profit from a Bitcoin investment. A Bitcoin investment is similar to stock investing, except it can be more volatile.
Is Pi Cryptocurrency Safe?
Pi Network captured the crypto community’s interest even before it officially debuted. Its innovative mobile mining approach and user-friendly design simplify crypto adoption for a broader audience. Some users see this as a chance to get engaged in the crypto from the beginning and profit in the future, similar to how early Bitcoin adopters made huge profits by mining and keeping the coin. Other users have compared Pi to a worthless multi-level marketing (MLM) scheme.
Is Mining Cryptocurrency Legal?
Cryptocurrency mining can be time-consuming, expensive, and sporadically profitable. Mining has an appeal for many cryptocurrency enthusiasts as miners are paid directly with crypto tokens for their efforts. The legality of cryptocurrency mining is dependent on where you live. In India, there is no restriction on crypto mining.
Is Cryptocurrency Legal In India?
In India, cryptocurrencies are legal; anyone can purchase, sell, and trade cryptocurrencies. They are currently unregulated; India does not have a regulatory framework in place to regulate its functioning. According to the Ministry of Corporate Affairs (MCA), companies must now declare their crypto trading/investments during the financial year, according to the Ministry of Corporate Affairs (MCA). Cryptocurrency transactions have been taxable in India when people receiving such gains are Indian tax residents or where the crypto is considered to be domiciled in India
What Is The Meaning Of Crypto?
A cryptocurrency is a digital currency that is secured by the process of cryptography, making counterfeiting and double-spending almost impossible to happen. Blockchain technology is used to produce cryptocurrencies ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a centralized authority does not issue them.
How Can I Convert Bitcoins To Cash?
Bitcoin may be converted to cash in various ways, including crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, and Peer to Peer Transactions. You may do this by using Bitcoin exchanges like WazirX. You may also sell Bitcoin for cash faster and more anonymously through a peer-to-peer marketplace.
What Is Meant By Bitcoin?
Bitcoin is a digital currency that was initially released in January 2009. It is based on ideas offered by Satoshi Nakamoto, a mysterious and pseudonymous figure, in a whitepaper. The name of the person or individuals who invented technology has not been revealed. Bitcoin promises lower transaction fees than other online payment systems, and unlike government-issued currencies, it is decentralized.
What Are The Chances Of Bitcoin Crashing?
Two Yale University economists (Yukun Liu and Aleh Tsyvinski) produced research titled "Risks and Returns of Cryptocurrency" in 2018. They looked at the possibility of Bitcoin crashing to zero in a single day. The authors discovered that the chances of an undefined tragedy crashing Bitcoin to zero ranged from 0 percent to 1.3 percent and was around 0.4 percent at the time of publishing, using Bitcoin's history returns to determine its risk-neutral disaster probability. Others claim that because Bitcoin has no intrinsic value, it will inevitably crash to zero. On the other hand, Bitcoin advocates argue that the currency is backed by customer confidence and mathematics.
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