The world of finance, investment and technology was irrevocably transformed with the invention of blockchain technology and the subsequent development of cryptocurrencies.

For the first time, the world was offered a new way of storing data, securing information, and transacting that did not rely on the existing system that put the power and most of the profits in the hands of middlemen.

As blockchain adoption grows and the general populace begin to understand the pros and cons of cryptocurrencies it is becoming apparent that a daily digital currency is needed, and stablecoin could very well be the answer.

Clarifying What Stablecoin Is

Stablecoin is the future of global monetary systems are they represent the best use of blockchain and crypto-technology while offering countries a stable digital currency devoid of the fluctuations prevalent in decentralised investment currencies.

YouHolder clearly defines this new variant of cryptocurrency as:

“A stablecoin is a currency pegged to another asset and acts as a practical way of using cryptocurrencies while being stable, secure, and convenient for transactions avoiding the highly volatile nature of traditional cryptocurrencies.”

By building a daily use token on the same security, provability, and smart contracts as Bitcoin, Ethereum and Dogecoin a country can seamlessly convert its paper money into a digital version that retains its local commercial value but offers far more benefits and security to the user.

 What Collateral Secures Stablecoin?

The stability of stablecoin tokens is ensured by basing the value of the coin on one of the following asset types:

• An existing fiat currency – Simply put these are virtual currencies that base their value on a one-to-one exchange with an existing fiat currency. An example of this would be the Digital Dollar where one Digital Dollar is worth one US dollar.
• Precious metals – These stablecoin tokens base their value on the store of precious metals like gold and fluctuate their token value based on the price of a predetermined mineral.
• Other cryptocurrencies – While this is less common there are some tokens that base their value on the value of the cryptocurrency platform they are built on. This is seen with stablecoin’s using the Ethereum platform.
• Collateral free coins – Coins that become official government tender would fall into this category. These tokens are not valued based on a fiat currency or asset but draw their value from being the Central Banks monetary offering for that country.

 Why Bitcoin is Not a Stablecoin

The reality of this new technology is that decentralised investment products such as Bitcoin, while they hold the allure of a modern-day gold rush, are not able to effectively function as a day-to-day transaction method.

This is due primarily to the extreme volatility of Bitcoin and its peers, volatility which is driven by limited supply and the impact of public opinion on its perceived value. It is this low volume and reliance of market opinion that allows Tweets by Elon Musk to crash Bitcoin’s value by 30% in a single day.

Stablecoin, however, combines the technological benefits of crypto-technology with the inherent stability associated with a centralised currency backed by a tangible asset such as gold, art, or even a fiat currency like the US dollar or Euro.

Stablecoin is the Future of Global Economies

At present there are several countries that are invested in launching a digital version of their local currency to advance the adoption of this new technology:

• Dubai – While Dubai does not consider Bitcoin legal tender it has launched its own cryptocurrency, DubaiCoin (DBIX). DubaiCoin is expected to become the regional method of transacting both locally and globally, with Dubai intending to become the “first blockchain-powered government”.
• America – The non-profit Digital Dollar Project is testing several programs over the coming year to help the country launch its Central Bank Digital Currency. It will become the official form in which the Centra Bank issues money to citizens and for trade.
• China – The Chinese government is rolling out the Digital Currency Electronic Payment (DC/EP) system, which is essentially a digital Yuan. The project is Beijing’s attempt to protect their “currency sovereignty and legal currency status” while creating a trade environment not dominated by the US dollar.
• Russia – The Digital Ruble prototype is set to launch late in 2021 and based on user and central bank feedback is being eyed to become Russia’s primary currency within three years.
• India – While India is aggressively anti-Bitcoin, the Reserve Bank of India (RBI) announced that it is currently developing an official digital currency for the country which will be regulated by the central bank.

The pressing need for many countries is to facilitate buying and selling on a micro and macro scale without the need for paper money.

There are several reasons for this need including secure trading in a world where hacking and digital theft are commonplace, instant international financial transactions, massive reduction in the cost of local and international banking, tracking, and reporting on all transactions on the network, being able to move away from maintaining a physical cash ecosystem and finally the health benefits of contactless transactions in a post-Covid world.

 How Can You Use Stablecoin in Daily Life

While country-level currencies are a high-end use case for stablecoin technology here are some of the day-to-day uses of this unique token:

• Paying your rent and buying groceries
• Sending money overseas to family
• Easily paying for goods when travelling abroad
• Legal gambling in regulated markets
• Investing locally and internationally
• Paying for medical costs

Given how the blockchain works it would also be possible for transacting with an approved central currency to mine the blockchain for cryptocurrencies. Rather than the current interest system using the network would reward you with more crypto.

 Cryptocurrencies and the Environment

The surge in value and subsequent interest in cryptocurrency led to concerns over the environmental impact of the technology.

Primarily concerns have centred around:

• Increased drain on electrical grids
• Burning through large quantities of fossil fuels
• Massive volumes of carbon emissions

To put some of these concerns in perspective, Bitcoin mining alone uses more electricity in a year than the whole of the Netherlands for the same time period.

While this negative attention did cause a dramatic decline in cryptocurrency values it has also been the driving force behind the mobilisation of crypto miners in pursuit of sustainable and renewable crypto mining.

This initiative is being spearheaded by Elon Musk (Tesla) and Michael Saylor (MicroStrategy) who formed the Bitcoin Mining Council with the intention of addressing “climate issues and decentralisation”.