01 Apr 2020, 07:53

What Are Stablecoins?
An image showcasing us dollars and figurative bitcoin

If you tend to keep an eye on cryptocurrency like Bitcoin or Ethereum, you’ll notice the value of most of these digital currencies tend to fluctuate with much volatility. In other words these cryptocurrencies are notoriously unstable. This is where stablecoins come in. As its name suggests, they are a specialized class of cryptocurrencies that hold some value. Many stablecoins are fixed to a particular type of fiat currency or currency that is widely in use such as the US dollar, Euro, or gold.

What’s Their Purpose?

One of the beauties of investing is the idea that one can make a return on their investment. This also comes with the added risk that one can also lose money if the value of the investment decreases. Because cryptocurrencies like Bitcoin for example are so volatile there became a need for more stable cryptocurrencies. Since the value of Stablecoins are pegged at fiat currencies like the US Dollar, traders can be confident that their investment will hold its value albeit they probably won’t make any returns.

When entering a bear market stablecoins can be particularly useful. A bear market occurs when crypto or any other asset for that matter goes into a steep and steady decline. Instead of losing value on any returns they may have made, traders can take assets within their portfolio and purchase fixed stablecoins instead. This also comes with the added benefit of not having to lose any money when converting cryptocurrencies to fiat currency. Typically when a trader or investor decides to cash out their assets the exchange platform they’re using may incur fees.

Types Of Stablecoins

It is important to note that there are various types of stablecoins. The first type would be fiat based, which we already described above. This is crypto that is collateralized by fiat currency such as the US dollar or the Euro.

Crypto Collateralized

These stablecoins are backed by a combination of other cryptocurrencies. They are having difficult time gaining traction due to their complexity. An over simplistic example would be let’s say someone wants to purchase 500 dollars worth of Stablecoins. They would first have to have a 1000 dollars worth of another cryptocurrency like Bitcoin for example, then use the Bitcoin to purchase stablecoins. The idea behind it is the stablecoins that were purchased are over collateralized in order to endure price fluctuations.

Commodity Collateralized

This crypto is backed by a physical asset such as gold, precious metals, or real estate. One popular commodity based cryptocurrency is called Digix (DGX). This crypto is backed by bars of gold. They claim to be transparent and operate on the Blockchain like many other cryptocurrencies. They have vaults in Singapore and Canada where they claim to have the bars of gold stored which are supposedly audited at regular intervals for transparency.

Non-Collateralized

Interestingly enough, these coins aren’t really backed by anything. This type of crypto is similar to fiat based stablecoins wherein the price is driven by supply and demand, however the supply is based on an algorithm instead of an asset. NuBits (USNBT) is an example of this type of stablecoin. It was originally intended to have a value similar to that of the US dollar. The idea behind it is traders receive voting shares which they then use to vote on and control the network. To avoid pricing fluctuations, NuBits was able to be pegged at another cryptocurrency. Unfortunately Nubits failed to maintain its value.

Tether

Although many Stablecoins exist, one of the most popular ones to date would be Tether. Tether, just like many other cryptocurrencies, operates on the Blockchain and claims to be backed by the US Dollar. Tether is subject to inflations that impact the US Dollar but typically they are so small it makes it perfect for day to day transactions.

In the past few years Tether Limited, the company behind Tether has been criticized for Bitcoin price manipulation and for the cryptocurrency not actually maintaining its value. Many considered this to be controversial because the company failed to show that it actually had the adequate reserves to back each and every USDT (Tether coin). Without the adequate reserves there would then be unbacked Tether coins getting pushed into the market which would elevate other cryptocurrency prices such as Bitcoin.

Stablecoins definitely have their uses in the cryptocurrency market. We can see they’re advantageous in some situations and can save traders money during bear markets. It’s important for traders to be aware of the various types of stablecoins that exist and it may also be worth taking the time to look into the company behind the crypto before making any investment decisions.

26 Mar 2020, 07:53

How Covid-19 Is Impacting Crypto
an image of what a virus cell looks like

Covid-19, the deadly virus that has swept the globe has impacted everyone and still continues to spread. In this blog post I’d like to examine how the Crypto industry is being impacted by the pandemic.

Like traditional markets, we saw a significant drop in not only Bitcoin prices but alternative coin prices following the outbreak. For example, in mid February of this year Bitcoin was trading at around 10k then declined by more than 50% dipping below 4k as the pandemic worsened. In the early weeks of March we saw Ethereum and XRP (other popular alt coins) drop by over 40%. It seems cryptocurrency is not as infallible to this type of situation as we thought.

In the cryptocurrency market trade prices are driven by supply and demand rather than factors that effect traditional markets such as investors, interest rates, dividends etc. Cryptocurrencies like Bitcoin for example, generally have a fixed supply which also adds value. It seems the Covid-19 pandemic impacted all markets though including cryptocurrency. So why was crypto impacted so heavily? Isn’t the Crypto market supposed to be immune to this sort of situation?

The cryptocurrency market is easily swayed by “whales”. These are wealthy investors that hold a lot of crypto. It isn’t impossible to imagine these investors getting panicky and deciding to sell off their crypto reserves in an effort to attain more tangible assets such as gold or other precious metals. The change in supply and demand then impacts the crypto exchange platforms which in turn causes the values of cryptocurrencies to decline.

We did see an improvement in use from Stablecoins. This type of Crypto is one that is backed by a reserve asset like the U.S. Dollar. The primary benefit of Stablecoins is to offer stability with how much it’s worth. This is one of the main reasons why the mainstream hasn’t yet adopted cryptocurrencies like Bitcoin since its value is rather volatile. Stablecoins like Tether and TrueUSD are popular options that are equal to one dollar, so it was only natural to see these coins go up in rankings due to the pandemic.

At this point in time no one is really sure how long the pandemic will continue and what long term effects will occur. All we can do is continue to monitor the situation, continue social distancing and stick to healthy hygiene measures and be hopeful that the economy will return back to normal.

22 Mar 2020, 21:40

What Is The Blockchain And Why Should I Care?
an image of letters on a table that spell out blockchain

Since most cryptocurrencies are built upon it we should talk about what the Blockchain is. In its simplest form the Blockchain is a decentralized, distributed ledger existing on multiple computers. In a Blockchain there is no single entity or source of truth that controls or manipulates the data. In essence the Blockchain allows data to be distributed in a secure immutable fashion.

Imagine an interconnected chain of nodes all with a copy of the same ledger, all transparent and digitized. Each block in the chain pointing to its previous block with some sort of secure hash identification. This means the data in the Blockchain would be difficult to be tampered with. If data existing in one of the blocks was forged, all the other nodes in the system would not be in agreement and would therefor not allow whatever smart contract or transaction was to take place.

As consumers, how might this technology be beneficial to us? With Blockchain technology a consumer would be able to see the entire history of a product at a granular level. For example, how and when the product was developed, the time it left the factory, how it was stored, how it was transported etc. As a consumer I love this idea because it would force organizations to be transparent with what they’re selling and how it was produced. With this type of detailed information consumers could make better and more informed choices on what they want to purchase from all sorts of different businesses.

Within the last month I’ve begun to research various crypto currencies. This blog is dedicated to understanding why each one exists, what problems it solves and why we should spend our time and effort on learning about cryptocurrencies. Stay tuned, more blog posts to come.