And the 10,000 Bitcoins used were worth roughly $40. Except this person used a cryptocurrency - Bitcoin - instead of fiat currency to buy the pizza. Why is crypto sometimes volatile? Partially because a crypto may not be accepted or easily used everywhere. The fact that the value of a cryptocurrency isn’t tethered to any asset is interesting from a free-market perspective, but it can be cumbersome when it comes to usability. This is to be expected, as blockchain technology is still very new, and the cryptocurrency markets are relatively small. They allow users to cheaply and rapidly transfer value around the globe while maintaining price stability.Ĭryptocurrencies like Bitcoin and Ethereum are notorious for their volatility when priced against fiat currency. Stablecoins are digital assets designed to mimic the value of fiat currencies, like the dollar or the euro. Enter stablecoins: a category of cryptocurrency designed to change that. Given the nature of how they derive value, most cryptocurrencies do not behave like fiat currencies. But then there’s another thing that can affect crypto value: trading.īecause of the remarkable price history of some cryptocurrencies, like Bitcoin (BTC) and Ether (ETH), many buy and hold crypto looking for price appreciation. If a cryptocurrency’s blockchain is very efficient (fast transaction times), incurs low fees, and is widely available, it may have a distinct advantage over other cryptos and be in higher demand. Can you spend it widely to purchase goods and services? Or is it limited to use on a particular blockchain for a limited set of interactions? This could depend on how well the crypto functions. Supply will depend on how much of a crypto is in circulation, how much is being produced by the blockchain as payment for block validators (called “mining crypto”), and if there is an ultimate cap on the number of coins that can be produced.ĭemand will depend on how useful a particular crypto is. A cryptocurrency gains or loses value based on demand for it and its supply. So what gives a cryptocurrency its value? Herein lies the answer to the existence of stablecoins. It also supports validation and consensus protocols so users can agree on and trust transactions taking place on the blockchain. Instead, cryptocurrencies exist on a technology called the blockchain, a distributed ledger that records transaction data in a manner that cannot be easily altered. Nor do their makers have the kind of overarching power a government does to control economic policy and therefore pull strings to keep a currency’s value steady. This allows us to use it as a medium of exchange, not worrying that the amount that would buy a new car one day would only be good for a loaf of bread the next day.Ĭryptocurrencies, unlike fiat currencies, aren’t government-controlled. The policies of the government in issuing the currency and maintaining it keeps its value relatively stable. Known as fiat currency, such systems rely on government backing to give the paper and metal coins recognized and accepted value.įiat currencies aren’t backed by gold or some other universal commodity. Paper money and coins can be recorded as entries in a digital system, but they also exist in the physical world. Because they are based on software code, they can do things paper money cannot. This allows them to serve as a digital medium of exchange. To understand stablecoins we must first look at the world of cryptocurrency.Ĭryptocurrencies are based on cryptographic software to preserve their integrity, making them difficult to duplicate. This article will explain some of the basic workings of cryptocurrencies and, in particular, stablecoins to help you decide if they’re for you. But to make them more understandable, they borrow names from age-old financial systems: currency or coin. Stablecoins are digital assets designed to mimic the value of fiat currencies.Ĭryptocurrencies carry features and abilities unlike other systems of exchange.
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