Cryptocurrencies are the newest alternative to traditional cash. In the past few years, this has gained a lot of popularity, and many large institutions partner with it. But there are a lot of investors who still cannot trust Cryptocurrencies for making a profit. There is good news for them. They can try their luck with Stablecoins in this Cryptocurrency trends.
But before stepping into the world of Crypto, it is vital to have a clear idea about Altcoins and Stablecoins.
What Are Altcoins?
After a few years of its launch, Bitcoin has been started using as the synonym for Cryptocurrency. There are a bunch of Cryptocurrencies other than Bitcoin as an alternative. These coins are called Altcoins.
Bitcoin being the kind there are more than 5000 other Cryptocurrencies in the Crypto world. Among these Altcoins, some coins have been tied with an outside asset such as the US dollar or gold to stabilize their price value. And those coins fall under the category of stablecoins. For more information you can visit try this website
What Are Stablecoins?
There is a specific type of Cryptocurrencies. The value of these Crypto coins is tied with more stable assets, like gold or dollars, for stabilizing the price. These types of Cryptocurrency are called Stablecoins.
In order to handle the irregular price fluctuations of Cryptocurrencies, some of the coins are ties with other more assets that are more stable. In most cases, the asset is fiat. Do you know about fiat? Yes, you do. Fiat is the general currency that is issued by the government for our day to day use.
For example, dollars or euros. These tend to stabilize over time. Though the value of the dollar also decreases and increases over a period of time, the rate is more decent.
Understanding The Methodology
In actuality, the methodology is reversed. The entity behind the Stable coin securely stores the asset in order to back up the stablecoin. Suppose you have $1 million in the traditional bank that will backup the one million units of stablecoins.
This is how the assets of the Crypto world and the real world are tied together. The money that is in reserve serves the purpose of collateral for the Stablecoin.
The mechanism of other Crypto coins backing up the Stablecoins is more complex. And this is the second type of mechanism behind the concept of Stable coin. There is also a third one.
The third variety of stablecoin is known as algorithmic stablecoin. This is not collateralized at all. In order to keep the value price in line with the target price, new coins are created, or old coins are burned.
Suppose the value price of a coin drops from a value price of $1 to $0.50. The earlier mentioned algorithm will automatically destroy a broad stip of Crypto coins in order to produce more scarcity, which will lift up the price value.
Features of Stable coins
- The value of a particular Stablecoin can be backed up by another Crypto coin.
- By using smart contacts, the peg is executed on-chain.
- Smart contacts are used to regulate the supply of the stablecoin.
- Collateral is not enough for the stability of stablecoins. It is gained through additional incentives and instruments.
The Similarities Between Stablecoins And Altcoins
From the earlier mentioned points or discussion, we now can point out the similarities between Stablecoins and Altcoins.
- Altcoins and Stablecoins are both Cryptocurrencies.
- Both these types of Crypto coins have the volatile nature of Cryptocurrency.
- Both are the form of digital currency.
The Difference Between Stablecoins And Altcoins
However, Stablecoins and Altcoins have many similarities between them, but they are two different types of Crypto coins. Here are the differences between them.
There you have it; now you’re the similarities and the difference between stable coins and Altcoins. Though there are more similarities than differences, you should know these to make better investment decisions if you are in the Crypto trade market.