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Cryptocurrencies like Bitcoin and Ethereum are on the bull run of their lifetimes, but behind this bull run lies an unsung hero in the form of Tether – a stablecoin. However, as crypto booms and a whole new set of investors start investing in them, they often tend to not fully understand the concept of stable coins.
Questions like “are stablecoins a good investment? Which coins are stablecoins? Can you make money on stablecoins?” are way too common. At WazirX, we understand how overwhelming it can be to buy cryptocurrencies in India. Fret not let’s understand what stablecoins are, and 7 different uses of stable coins.
What is a stablecoin?
Stablecoins are cryptocurrencies whose value is tied to the value of an external asset. These assets can include currencies such as USD (like in the case of Tether (USDT)), precious metals such as gold, or any other commodity. Stablecoins, unlike other cryptocurrencies, act as a store of value and a means of transaction, and the value is not speculatory.
For instance, Bitcoin, which is valued at $52,000 as of 19th February 2021, can be $60,000, or even $40,000 in a month. On the other hand, stablecoins like Tether are always valued at $1 regardless of the month and day. The value of the pegged currency may rise or fall -i.e, the USD might rise or fall, but the value of Tether is always $1 USD.
Are stablecoins a good Investment? – If you are buying it for one of 7 reasons, yes. But if you’re looking to hold it for a speculatory rise in value, or participate in a bull run, then no. Stablecoins are not created for speculatory investment. If you’re speculating on the price of the underlying asset, i.e, the USD – then you can theoretically use the USDT.
Which coins are Stablecoins? The most common examples of stable coins are USDT and Bilira. The unreleased Diem (formerly known as Libra) is also a stablecoin. If you’re unsure whether a particular cryptocurrency is a stablecoin or otherwise, you can find your answer within minutes by googling “Is (cryptocurrency) stablecoin”
Can you make money on stablecoins? You cannot make money by speculating on stablecoins. It is possible to earn more stablecoins by using a method called Yield Farming
7 Important uses of Stablecoins
- Cross Border Remittance
Stablecoins are cryptocurrencies without inherent volatility. This means that stablecoins while having the traditional advantage of cryptocurrencies, like cheap cross-border transactions, without paying significant fees to intermediaries.
- A better Currency
Stablecoins, like cryptocurrency, use blockchain, are easier and more secure to pay with than regular currency. It combines the advantages of cryptocurrencies and fiat currencies. Since the transactions are cheaper, they can facilitate trade and provide a universally accessible P2P financial system.
- Yield Farming
Stablecoins can be used to earn more money by using a strategy called yield farming. This is done by staking or lending crypto with the aim of generating high revenues in the form of the same crypto staked/lent.
- Used as a medium to buy cryptocurrencies
While it is possible to buy cryptocurrencies in India without using Tether, using stablecoins in cryptocurrency exchanges in India offers you reduced transactional fees. Tether is the most popular method to buy cryptocurrencies.
- Hedge against Volatility
As discussed before, Stablecoins are not as volatile as the other cryptocurrencies. This helps traders as they can trust their investment and makes it easier to strategize their portfolios.
- Combat Inflation
Countries with weak economies like Venezuela have turned to stablecoins to tackle their problems. The International Monetary Fund suggests that stablecoins pegged to strong foreign currencies will be used more, and hyperinflationary local fiat currencies would be “shunned”.
- Banking
The latest use case to be added to the ever-growing list of the utility of stablecoins is the fact that stablecoins can be used to settle banking transactions. On the 5th of January 2021, the USA’s OCC (Office of Comptroller and Currency) approved the use of stablecoins in banking transactions. Other countries are set to follow suit soon.
Stablecoins are crucial behind the crypto bull run’s success, but misinformation runs rampant even within the crypto sphere. Make sure to do thorough research before investing in any cryptocurrency, including the purchase of stablecoins. Follow us on Twitter and join our telegram community to keep up to date on the latest updates in the crypto world.
Frequently Asked Questions
How To Invest In Cryptocurrency In India?
There are two ways of investing in cryptocurrency, mining and via exchanges. Cryptocurrency mining is the process of verifying and adding transactions between users to the blockchain public ledger. Purchasing cryptocurrency in India is a straightforward procedure where investors simply participate by registering with a crypto exchange such as WazirX. After registering for an account, citizens can trade multiple cryptocurrencies, store cryptocurrency in wallets, and more.
Is Ethereum Safe To Invest?
The Bitcoin market is unquestionably more volatile than the stock market. This may not be the market for you if you are incredibly risk-averse. Ethereum, on the other hand, may be a terrific investment for you if you're a diamond-handed investor who won't lose sight of short-term losses. Ethereum is a relatively safe investment as it is also based on blockchain.
How Cryptocurrency Works?
Cryptocurrencies use cryptography technology to keep transactions and their units (tokens) secure. Cryptocurrency works via a technology called the blockchain. A blockchain is a decentralized technology that handles and records transactions across numerous computers. The security of this technology is part of its value.
What Is Crypto?
Crypto or a cryptocurrency is a digital currency protected by cryptography, making counterfeiting and double-spending nearly impossible. Blockchain technology is used to produce cryptocurrencies (a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are distinct in that a government does not issue them. The word "cryptocurrency" refers to the encryption methods employed to keep digital currencies and the network secure.
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.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
What Is The Safest Cryptocurrency To Invest In?
Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.
What Is Virtual Currency?
Virtual currency is a type of uncontrolled digital currency that can only be used online. It is exclusively stored and transacted using designated software, mobile or computer applications, or unique digital wallets, and all transactions are conducted through secure, dedicated networks. Because digital currency is just currency issued by a bank in digital form, virtual currency is not the same as a digital currency. Virtual currency, unlike ordinary money, is based on a trust structure and cannot be issued by a central bank or other banking regulatory organization.
How To Invest In Cryptocurrency Stocks?
Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.
Is Cryptocurrency Safe To Invest In?
Cryptocurrency investments are subject to market risks, but if sufficient security measures are not taken, trading accounts can be maliciously accessed. Investments come with risks and uncertainties, and we cannot claim that any digital currency investment is risk-free. Buying and selling cryptocurrencies can be risky even if the trader is knowledgeable about the market and treats their coins carefully.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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