An introduction to stablecoins
They emerged in 2015. Their prices fluctuate in line with the current prices of fiat currencies, digital currencies, and trading commodities (an example is valuable metals). Stablecoins are tied to the items mentioned above.
Stablecoins can be asset-backed or non-asset-backed. Each type has its own independent aspects and benefits.
Asset-backed stablecoins can be backed by the price of other digital currencies. It indicates that they are stablecoins backed by cryptocurrencies. Similarly, fiat-backed cryptocurrencies depend on the existing value of the currency in question backing them. Some stablecoins are backed by commodity trading. Therefore, the price of the latter affects the price of the former.
Non-Asset Backed Stablecoins are unsecured/seigniorage style coins. Since a Seigniorage Stock System comes into play, the value of Stablecoins moves in alignment with existing supplies. It is true that investors do not favor them very much.
Stablecoins grant several advantages to investors. For example, they initiate fast financial processes. Moreover, they are affordable and easy to program. They operate with full transparency. It is possible to use them all over the world, since there is no border system. It is also possible to add new changes in line with changing trends.
There are certain disadvantages. For example, third-party interference is present, ROI is lower, etc.
An introduction to alternative currencies
Except for Bitcoin, all other digital currencies are under the umbrella of Altcoins. The first altcoin was born in 2011, in the form of Namecoin. Today, there are many altcoins in the cryptocurrency market. It is because developers find it easy to create them. Some of them are Cardano, Dogecoin, Litecoin, etc. While most of its features are borrowed from Bitcoin, some features are also different.
Altcoins prove their worth through their appendages. One of them is the start of smart contracts. Therefore, they cover the limitations that Bitcoins present. They even fare better in mining power consumption, and it takes time for each transaction on the corresponding blockchain. Therefore, they are very popular.
Investors enjoy the feature of paying lower transaction fees, unique trading methods, troubleshooting capabilities, etc. At the same time, they fear volatility, limited exposure, limited use, etc.
Differences between Stablecoins and Altcoins
Stablecoins run on the Ethereum blockchain. It is because they are Ethereum tokens, meant to remain at fixed values. Only when the value of ETH changes, will the value of Stablecoins change.
Altcoins are alternatives to Bitcoin. They take advantage of the digital currency network, the integrated alignment with advanced open source blockchain technology. They serve as alternatives to a traditional financial system. They are also alternatives for high-tech organizations.
The value of Stablecoins is tied to a fiat currency, cryptocurrency, or trading product. Therefore, they are chained to an external budget of funds. As a result, stablecoins stay away from spikes in value.
In contrast, altcoins are constantly exposed to volatility in the crypto markets. Volatility could be due to global economic downturns, country-specific restrictions, etc. As a result, it is difficult to predict when altcoin markets are trending up or down.
Stablecoins can be commodity collateralized, fiat collateralized, crypto collateralized, etc. Tether was the first stablecoin.
The altcoins consist of Binance, THETA, Stellar Lumens, XRP, etc. Namecoin was the first altcoin.
Stablecoins serve to speed up financial processes. Also, their fees are affordable. They are not confined by national/international borders. They prefer transparency in operation. They are compatible with all kinds of changes.
Altcoins are unique in their operations and offer various solutions to problems. Also, they charge less for transactions.
Stablecoins are prone to external audits and the entry of external intermediaries. In addition, they do not generate great returns on any type of investment.
Altcoins are limited in both use and exposure. They are susceptible to volatility in global markets.
To conclude, both stablecoins and altcoins have their respective pros and cons. It would be worth doing some careful research before investing in any of them.