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Money has come a long way from dusty ledgers, oversized check-books and waiting in long lines at the bank.
In fact, consumers are so frustrated with âBig Banksâ failure to innovate that one in three of us believe traditional banks will cease to exist in 5Â years.
Most people donât even use physical money anymore. The mobile-payment market has made cash a relic in Asia, with 1.4 billion monthly users on Chinaâs two biggest platforms (or roughly 18% of the worldâs population). Though mobile payments are growing, thereâs something even more revolutionary to the traditional banking sector:
The introduction of cryptocurrency as a real alternative for payment.
In South Korea, consumers can use crypto to pay at thousands of retail outlets, and 30% of the population owns cryptocurrency. In the west, retailers are taking noteâââbrands like Microsoft, Paypal and Expedia accept bitcoin as payment. Overstock announced theyâre using bitcoin to pay state taxes this year, and even accepts coins like Ethereum, Litecoin and Dash.
These innovations donât provide the final solution to money management, but theyâre a step in the right direction. Thereâs still a large gap between the facility and security in paying with fiat and the relatively inaccessible forms of payment with volatile cryptocurrencies. And this is where cryptos will need to progress before being considered a viable alternative to fiat.
But thereâs a breed of crypto that helps close this gap, providing a real bridge between fiat and crypto and catering to consumer desire for accessible and secure digital currencies.
Theyâre called stablecoins, and theyâre here to bring trust back to cryptoâs reputation, bring userâs finances into the 21st century, and spur mass adoption of cryptocurrencies.
Why Stablecoins Are The Solution To Crypto Woes
After 2017âs bull run, weâve seen a âcrypto winter,â where speculatorâs lost almost half a trillion dollars. And cryptocurrencies arenât expected to recover anytime soon.
Bitcoinâs volatility (see: the famous example of the 10,000-bitcoin pizza, which in 2010 was valued at ~$30, and at the end of 2017: $82,000,000) has staved off full-scale institutional, commercial and popular adoption.
And governments arenât engaging with the digital currencies as hoped. Just this week South Korea, the worldâs largest crypto market, maintained its ban on crypto ICOs. And the recent scandal at QuadrigaCX, where users lost $190M when the sole password holder died, illustrates just how powerless regulators are in this type of centralized exchange. Bitcoin, Ether, Ripple and other brand-name cryptos are failing consumers. But this isnât happening to all cryptos.
Weâre seeing growth in stablecoins.
The general idea behind a stablecoin was proposed over 40 years ago by Nobel Laureate F.A. Hayek. Now, weâre beginning to understand just how they fit in with our institutions.
Considered the âHoly Grail of Crypto,â stablecoins are price-stable cryptocurrencies whose market price is collateralized by another stable asset.
Theyâre also regulated, deemed âsaferâ than other cryptocurrencies. But this is where it gets really interesting:
When stablecoins are pegged to a national currency (most are pegged to the US dollar), they offer an easy bridge between fiat and crypto. This is traditionally a huge barrier for entry in the crypto market (as illustrated by the prevalence of crypto âHow Toâ guides and The New York Timesâ landing page). And beyond just offering a safe-haven for traders, stablecoins provide an avenue for an easy, and cheap, exit from other cryptos. Itâs the perfect way to take your crypto profits back to fiat.
In many ways, this makes stablecoins like digital national currencies, or DNCs, which are growing popular around the world:
- Switzerlandâs e-franc
- Swedenâs e-Krona
- Venezuelaâs Petro
- Marshall Islandsâ SOV
- Japanâs J-Coins
Stablecoins provide all the innovations unique to cryptocurrenciesâââaccess to a decentralized, immutable ledger on the blockchain, financial inclusion and democratization of currencyâââall while bringing currency into the 21st century.
Stablecoins Have Benefits Other Cryptos Lack
Stablecoins are simply the best of both worlds. They provide price-stability against other cryptos and solve some of the lagging issues in banking institutions.
Itâs no wonder 2019 has been called the year of the stablecoin.
Think about it like this:
Stablecoins are a technologically-efficient alternative to cashâââbacked by fiat currency and ensure secure payment systems and models. They provide the framework for peers to trust each other because every transaction is tracked on the decentralized ledger that cannot be altered (read: immutable). And by trading on a decentralized exchange, they allow users to transact peer-to-peer (P2P) in real timeâââdis-intermediating the âtraditionalâ banking model.
There are many benefits of P2P payments.
Bypassing the banks will save you a lot of money. And by creating the bridge between fiat money and cryptocurrency, youâll be able to get your money in and out of the volatile crypto market whenever you wantâââand can store it in an off-bank network.
But this is just the beginning of P2P applications. It solves for cryptoâs transaction time issues, allowing instant transfers between trusted parties. And the applications in foreign exchange (forex) are just as important. With stablecoins you can create pairs and exchange currencies directly on a rate you decide, bypassing the expensive and old SWIFT system initially established in 1973.
Paired with the acceptance of cryptos in international markets, stablecoins are no longer just a hedging tool. They now have real purchasing power.
Blockchain, and the decentralized ledger technology, has arrived in many (if not all) industries. And with declining services and confidence, fintech is in desperate need of innovation.
In A World Of Blockchain, Stablecoins Are The Next Step For Digital Currencies
Yes, the future is now. No, it doesnât have to be a scary place.
Not only are we seeing the development of DNC projects (the five listed above are just the tip of the iceberg), we now have entire governments finding a home on blockchains, as in the Digital Republic of e-Estonia.
Meanwhile in the US, weâre failing to realize the variety of services stablecoins provide. As weâve seen traders (unsuccessfully) rushing to get their profits back to fiat currency, a stablecoinâs utility as bridge, and an âinsulatorâ for crypto assets is not being taken advantage of. In addition to the undeveloped applications of stablecoins in e-commerce and forex, stablecoins have not been pushed to their potential.
But the world waits, and interest is growing. Fast.
Whatâs Next?
In practice, we already have a regulated stablecoin in the US. The GUSD brings the price-stability of the U.S. dollar with blockchain technology and official regulation, and itâs passed a security audit by the external firm Deloitte.
Meanwhile, another âBig Fourâ firm, PwC, has partnered to create a new USD stablecoin.
A recent report illustrates just how widespread institutional engagement with stablecoins really is. There are 57 stablecoin active projects, 23 of which are already live. And itâs easy to see why, beyond the benefits they provide to inflationary economies, stablecoins provide:
- All the benefits of a blockchain-based currency: decentralized, transparent, immutable
- A price-stable entry point to crypto novices against a highly volatile market
- A bridge between crypto and fiat for entering AND exiting the market
- A system for P2P payments between trusted parties with huge benefits in forex
- An off-bank network for secure storage of currency
Innovative fintech companies are already clamoring to find a niche in this exciting new market. The firm Interblockchain is making this available to the masses by integrating cryptos into the worldâs first browser-based payment app. Itâs already embedded into billions of browsers.
And remember:
Since the Winklevossâ have already started the revolution with Gemini, itâs safe to say the next Zuckerberg is just around the corner.
Sign-up to join the Interblockchain Community Telegram Channel: https://t.me/interblockchainlab
The Connection Between Crypto And Fiat Is Closer Than You Think was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.