Will Stablecoins Replace FIAT?
Can Stablecoins Replace FIAT?
Nowadays there is a lot of noise around the cryptocurrency market. Some experts think that this digital asset will replace traditional currency. While others claim that it is a bubble since it is hard to determine its real value. It was also called a giant multi-marketing scheme. No wonder, we could hear about it here and there. Cryptocurrency users got so excited when market price suddenly skyrocketed. However, events of 2017 left bitcoin owners behind.
From another hand, there are still a lot of enthusiasts who keep their ‘treasures’ in hope for another cryptocurrency breakthrough. There are more and more modern companies that accept Bitcoin as payment. The list of Bitcoin-friendly companies includes such market giants as Microsoft, Playboy, Reddit, Badoo, and Bitcasino. Even the Japanese government succeed in regulating Bitcoin on the local market.
At this moment, there are a lot of discussions about the power of stablecoins and how it can replace government-issued currency. Indeed, it could have a significant impact on the world banking system. Moreover, it can endanger national bank’ credibility. This fact can explain why banks are so reluctant to work with cryptocurrency. Let’s take a closer look at stablecoins and its advantages over FIAT money.
The power of stablecoins
Stablecoins are the type of cryptocurrencies that was designed to prevent the volatility of the price. It is pegged to exchange-traded commodities or to a currency. Most cryptocurrencies have unstabled exchange rates. Bitcoin is an excellent example of it. In 2010, bitcoin owner paid 10,000 bitcoin ( approximately $30) for pizza. In 2018 the same order cost him $82M (!).
This features limits bitcoin’s possibility to get more legitimacy on the market. At the moment they are not backed by the government. The concept of paying with bitcoins for your dinner in the restaurant is still a dream. On the other hand, stablecoins have a lot of benefits. For instance, there are secure and transparent system and low fees. All users have access to digital wallets and can make secure international payments. Moreover, their assets are not going to decrease in value. Nonetheless, stablecoins are not linked to the nation-state or central banks.
There are 57 different types of stablecoins on the blockchain. The first stablecoin called Thether USD was released in 2015. Now it costs the same as the US dollar. It can also float with the dollar’s exchange rate. There are also brand-new stablecoins such as USDT, True USD (TUSD), PaxoStandard(PAX), USD Coin (USDC), and Epay USD(EUSD).
Right now there are 180 different fiat currencies. Fiat money is a currency that doesn’t have intrinsic value that is usually established by government regulation. It was initially introduced as an alternative to representative money and commodity money. Nowadays the main problem with Fiat currency is inflation. Basically, the government can print tonnes of money without real value.
There are a few more problems with Fiat currencies. The price isn’t stable and will never be. The thing is that only center planners can determine their value. Let’s not forget about the redistribution of wealth. Fiat currency destructive system is based exclusively on the faith of people. The society regularly faces an overall net loss of wealth.
Fiat money isn’t the solution to all the problems. It’s the right time to upgrade our payment system. Implementing stablecoins, for instance, can change the way people make business nowadays. Let’s compare this type of cryptocurrency to Fiat money and draw own conclusions.
Fast transactions and low fees
It is a fast-changing world, and no one wants to wait. Bank systems can offer many great features to its clients, but transaction processing still takes a lot of time. Banks slow down the process on purpose. It helps to reduce the chance of fraud. But it is time-consuming. Sometimes it takes more than three days to complete the transaction especially in the case of international payment. National banks require to pay extra in order to make express money transfer. Clients will also be charged for transferring money internationally.
Let’s say, someone wants to transfer money from China to Spain. They will need to wait at least a week and pay 5% of the total amount to the bank. All these extra fees can be pretty frustrating.
Stablecoins can be a perfect solution to those who don’t want to wait and overpay. It would also be an excellent opportunity for retailers. Their customers can pay in stablecoins, so no one would lose on sharp fluctuations in inflation and exchange rates.
Corruption has always had a huge negative impact on national development. Non-transparent bank system enables money-laundering and state looting. Stablecoins, on the other hand, exist in a secure and transparent system. Governments spend millions on nation’s needs every year. Taxpayers are never informed of how states manage their money. So, cryptocurrency implementation can change the situation drastically. If it happens, government spending will be public.
Nowadays there are a lot of well-known corporations, start-ups and single projects on crowdfunding platforms that are worth investing. However, investing is not the easiest thing thanks to central banks. There is a lot of paperwork and extra fees. If you want to invest in a project abroad, prepare for another headache. Stablecoins can offer smart contracts and make the whole process easier since investors will not need middlemen’s help.
Some people deposit cash at the credit union or a bank. They place their faith in the national bank system. Nonetheless, banks collapse here and there. Sometimes banks are not able to meet its obligations to its creditors and depositors. It is a bank failure. Depositors are not always able to get at least half of their savings back. It is a vicious circle. From one hand, keeping your money in cash is not safe. From another hand, there is no guarantee that your bank will not collapse tomorrow. Blockchain industry can solve this problem. Stablecoins don’t have limited supply, and they are also backed by collateral. So, it can safeguard the depositors.
Stablecoins have a lot to offer to its owners. It is step-forward in the world of payments. There is only one thing that needs to be done. Regulation. It should be legalized at the federal level. Users can encourage more online stores to start accepting stablecoins as a payment method. It is a long process but totally worth it. Later on, stablecoin owners will be able to transfer money fast without extra fees. Implementing stablecoins means lower volatility. It is a chance for all firm believers in blockchain technology.
Author: Davey Cross
David is currently studying electronic commerce at the University of Gdansk. He loves writing about IT, Cryptocurrencies, Economics and Finances.
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