Stablecoins or stable cryptocurrencies are a type of digital asset whose value is linked to that of another asset through a parity relationship.
The most popular stablecoins maintain a 1-to-1 relationship with the US dollar, while others do so with gold or even other cryptocurrencies.
The first stablecoin was Tether (USDT), created by the company Tether Limited. It went on the market in October 2014 and until 2018 it was the only one of its kind, which allowed it to monopolize the entire segment. And also some scandals.
The emergence of DAI, from the MakerDAO project, solved one of Tether’s biggest problems: trust. From there, later stablecoins such as USD Coin (USDC) were showing signs of the consolidation of the use of this type of “crypto-dollars”.
what it is, how it works and how it is being used in the market.
The blockchain is generally associated with Bitcoin and other cryptocurrencies, but these are only the tip of the iceberg. And it is that this technology, which has its origins in 1991, when Stuart Haber and W. Scott Stornetta described the first work on a chain of cryptographically secured blocks, was not noticeable until 2008, when it became popular with the arrival of bitcoin.
When we speak of blockchains or chains of blocks, we refer to a particular way of organizing information, usually in a database format, with the distinctive characteristic that the data contained in a blockchain are arranged in successive blocks, each connected to the previous.
Each block can hold a certain amount of information, and is identified by an alphanumeric figure generated by a hash function. Hash functions are a type of cryptographic algorithm that creates a specific alphanumeric identifier for that piece of information. Bitcoin, for example, uses the SHA256 algorithm, while Ethereum uses Ethash.
In case the information of a block is altered, even in the slightest, the identifier will also be modified. In this way, the hash number allows to know if a certain set of information underwent any change or manipulation.
The chain of blocks, better known by the term blockchain in English, is a single registry, agreed and distributed in several nodes of a network. In the case of cryptocurrencies, we can think of it as the ledger where each of the transactions is recorded.
In a blockchain, each “child block” contains the hash of the previous block, which we can call its “mother block”. This mother block is also a child of another block, and thus a chain is generated that refers to the first block, also called the “genesis block”, which is the only one that does not contain hash of previous blocks.
Each block added in the chain was processed, accepted, and incorporated by the entire network in a process known as mining. Therefore, any change in a mother block generates a cascade effect that is transmitted to all subsequent blocks and that forces whoever wants to modify a pre-existing block to validate (mine) the entire chain again.
This means that the longer a chain of blocks is, the more computing power is required to mine it again. Therefore it is more difficult to change. In short, the longer a blockchain is, the more difficult it is to rewrite it.
Its operation can be complex to understand if we delve into the internal details of its implementation, but the basic idea is simple to follow.
Advantages of stablecoins
By always being the same value, they eliminate the volatility of other cryptocurrencies.
They keep the purchasing power of their users constant and predictable, without the need to use foreign currency.
People engaged in intense buying / selling activity can maintain stable purchasing power without the need to resort to a foreign currency.
They are a value transfer mechanism without geographical borders and with low commissions.
Most brokers accept them to exchange for fiat money or other cryptocurrencies.
They are very useful for users who trade on different exchanges.