Cryptocurrency has become an important part of the financial ecosystem. It can act both as an asset and a store of value. At times, it is used as a currency. In other ways, cryptocurrency is traded across exchanges, with investors anticipating the future value of the asset. Cryptocurrency expands the reach of non-traditional financial services and enables an increased amount of transaction activity across the globe.
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What is Cryptocurrency?
Fiat currency is the traditional currency that many are familiar with. Some examples can include the U.S. Dollar, or the Euro. Fiat currency is backed by governments, and central banks amongst other financial tools are used to control the valuation of the currency. The value of a particular fiat currency is also affected by other fiat currencies around the globe. Fiat currency is exchanged for goods and services every day.
Cryptocurrency is different because it uses a technology called the blockchain. Fiat currency is controlled by a centralized power, i.e. a government. But cryptocurrency is decentralized. Whenever a transaction is made using cryptocurrency, the transaction is recorded and placed into a publicly available ledger called a blockchain.
The transaction is verified by a community of users. Another safeguard is that most cryptocurrencies have two separate keys, a public key and a private one. The public key is used to enable the transaction. The private key is used to verify the transaction. This prevents double-spending, or using the funds twice for different purchases.
Are Stablecoins Different?
Most cryptocurrencies are volatile, in the sense that their value can fluctuate widely over a short period of time. This lack of stability has prevented cryptocurrency from being more widely adopted as an alternative to fiat currency. Exchanging fiat currency for cryptocurrency can be challenging if the cryptocurrency’s value is constantly in flux.
Stablecoin has aimed to fix that problem. Stablecoin more widely refers to cryptocurrency that has been attached to or “pegged” to a traditionally stable asset such as gold or fiat currency. Since the value of the stablecoin is tied to a more traditional asset, the stablecoin is less prone to fluctuations in its value.
Benefits of Stablecoin in Payments
The benefits of stablecoin in payments are immense. Stablecoin provides a viable alternative to fiat currency, and represents a non-traditional financial service that can be utilized by many across the world. Stablecoin may be particularly beneficial to individuals who live in an area with less financial infrastructure, or individuals who do not have access to traditional banking services.
Stablecoin such as USDT are easy to use, and can be securely stored in a crypto-wallet. Stablecoin allows both merchants and customers to have payments their way, using their preferred payment method.
Transactions with stablecoin are fast and efficient, and do not wait on the delays present in the traditional banking system for a transaction to be approved. The decentralized nature of the transactions allows both parties to make payments outside of traditional payments networks, which can provide added convenience and flexibility.
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