When it comes to cryptocurrency, stability is key. A stablecoin is a digital asset that is designed to minimize price volatility.
Bitcoin, the world’s first and most well-known cryptocurrency, is not a stablecoin. This does not mean, however, that Bitcoin cannot be used as a form of stable value storage or even as a means of payment.
Bitcoin’s price is notoriously volatile. In December 2017, the price of Bitcoin reached an all-time high of nearly $20,000 only to crash back down to around $3,000 just a year later.
This extreme price volatility makes Bitcoin impractical for use as a currency. Who would want to accept Bitcoin as payment if its value could drop so dramatically overnight?.
Stablecoins, on the other hand, are designed to maintain a stable value. There are several different ways that stablecoins can achieve this stability. Some stablecoins are backed by traditional assets such as fiat currencies or gold.
Others are backed by crypto assets such as Ethereum or Bitcoin. Still others use algorithms to stabilize their prices.
The most popular stablecoin is Tether (USDT). Tether is pegged to the US dollar and each USDT token is backed by one US dollar held in reserve.
This reserve ensures that the value of USDT remains relatively stable even when the price of Bitcoin or other cryptocurrencies fluctuates wildly.
While Tether and other stablecoins have succeeded in creating a more stable form of cryptocurrency, they are not without their critics. Stablecoins have been accused of being centralized and opaque.
Tether, for example, has been embroiled in controversy surrounding its claims of being fully backed by US dollars.
Despite these controversies, stablecoins remain popular among cryptocurrency traders and investors who want to hedge against the volatility of the crypto markets. For now, at least, it seems thatstablecoins are here to stay.
So, is Bitcoin a stablecoin? No, but it can still be used as a form ofstable value storage or even as a means of payment despite its volatile price.