Since the late 2000s, Bitcoin has emerged as a tremendous transitional impact globally, redefining the traditional notions that underpin many financial institutions’ operations. It even introduced the term “cryptocurrency.” A few years after its inception, a new class of cryptocurrencies occurred, attempting to offer price stability—these are called stablecoins.
Indeed, Bitcoin has been formidable in the cryptocurrency market and has always been available on many trading platforms. However, stablecoins are also used in various real-time companies and are increasingly taking Bitcoin’s place in the crypto world.
In this article, we will discuss the general outline of Bitcoin and Stablecoin, followed by their differences.
Difference Between Bitcoin & Stablecoins
What is Bitcoin?
Bitcoin was the first cryptocurrency to use a secure, decentralized blockchain-based network to record transactions. It is also the largest cryptocurrency by market capitalization and quantity of data recorded on its blockchain, launched in early 2009 by its pseudonymous developer Satoshi Nakamoto.
Engineers have created new protocols to increase the speed and anonymity of Bitcoin transactions as the technology evolves, such as the Omni Layer, Lightning Network, and Liquid Network. In addition, there will only be about 21 million bitcoins ever generated.
What is Stablecoin?
Stablecoins are cryptocurrencies whose market value is tied to an external reference. They may also be linked to a currency, such as the US dollar, or the price of a commodity, such as gold. Stablecoins provide price stability by collateralization (backing) or algorithmic purchasing and selling of the reference asset or derivatives, making them non-volatile assets.
Stablecoins have grown in popularity as they attempt to combine the best of both worlds: the anonymity and security of cryptocurrency payments, as well as the speed with which they are processed.
There are four types of stablecoins, including:
- Fiat-backed stablecoins – are often backed by fiat currencies such as the US Dollar (USD), which values each token in dollars held safely by a central custodian such as a bank.
- Cryptocurrency-backed stable coins – they have a reserve fund of a particular cryptocurrency to back the token. The price/earnings to growth ratio (PEG ratio) is not 1:1, owing to cryptocurrency’s volatility.
- Commodity-backed stable coins – they are nearly identical to a fiat collateralized stablecoin in terms of functionality. The critical distinction is that it is backed by tangible assets such as gold or silver.
- Non-collateralized stablecoins – do not have any reserves, but they have a functional mechanism to keep their price stable, similar to a central bank. If the price falls below the peg and the price rises, they use smart contracts to sell tokens and provide tokens to the market.
How are Bitcoins and Stablecoins different from each other?
Bitcoins have a price range of $0.05 to $20,000, while Stablecoins have a constant value of $1.00.
The value of Bitcoin fluctuates often. For example, in the price history record, in March this year, it was around $58,700, and in April, it was over $53,200. However, in May, it had dropped to over $35,700. Even its intraday price fluctuations might be unpredictable. It is not unusual for a cryptocurrency to fluctuate more than 10% either way in a few hours.
Stablecoins, on the other hand, may be used for everyday transactions, but they also have the added benefit of being a virtual coin that is legally backed and protected. These are also particularly helpful for international payments because there will be no exchange of fiat currency.
Bitcoins are used for exchange or trading, while Stablecoins are used and can be used for real-life transactions.
The anonymity and integrity of transactions recorded on the Bitcoin blockchain are other advantages that Bitcoin may provide. The fact that Bitcoin is widely used in exchange and trading platforms is an essential factor to consider. Bitcoin is bought and traded by investors worldwide who use real-world assets as collateral and keep market trends in mind.
Due to their nature, stablecoins, on the other hand, can fulfill a variety of real-world use cases. It can be linked to a country’s official currency and used to make digital payments. Stablecoins can provide the benefits of cryptocurrencies while also ensuring that their values remain steady in certain situations.
Now that you have a better understanding of the significance of Bitcoin and stablecoins, it’s time to go deeper into the stablecoin versus cryptocurrency argument. Additionally, keep in mind that the cryptocurrency market may be quite volatile, so only invest money that you can afford to lose. Trading may be risky, but when you use our trading platform, it can also be a lot of fun and easier!