Bitcoin vs. Stablecoin: Key Differences, Stability and Utility in Transactions

The world has seen lots of financial revolutions; some of which have deeply impacted our daily lifestyle. Yet, the rise of digital currencies like Bitcoin stands apart due to the new kind of tech involved in this. Over the years, Bitcoin has been successful in establishing itself in the frontline along with the traditional payment mediums. Among all the payment mediums that we use in our daily lives, stablecoin makes it to the top of the list. We’ll try to end the debate in Bitcoin vs Stablecoins.

What is the difference between Bitcoin and Stablecoins?

In the world of digital currencies, Bitcoin is a distinctive name. Not only because was the first decentralized digital currency, but also because it is the biggest digital currency with nearly 48% share in its industry. As of date, the currency market capitalization of Bitcoin stands at $600 billion.

In contrast to Bitcoin, there is another type of digital currency named Stablecoins. These digital currencies are different from Bitcoin in the sense that unlike Bitcoin their value is determined by some stable and underlying asset, for example, national currencies like the US dollar. Stablecoins account for almost 10% market cap in all digital currencies.

However, be it Stablecoins or Bitcoin, both of these digital currencies use blockchain technology. The perks of using blockchain technology are that businesses and individuals don’t need to bother about the settlement period for payment, the processing is faster and easier, and last but not least - blockchain involves lower transaction fees. Given these similarities and dissimilarities of Bitcoin vs Stablecoins, we’ll explore more about them in the following lines.

Bitcoin vs Stablecoins Comparison & Key Differences

Exploring Stablecoins - Worthy Alternative of Bitcoin:

Stablecoins, as the name indicates, are a special kind of digital currency, that was introduced in the market with the purpose of creating a currency that would maintain a stable value.

The main problem with traditional digital currency is that the price of the currencies keeps fluctuating which makes it a problem for anyone to trade with it. Stablecoins solve this big problem by keeping their value tied to a well-acknowledged asset. There are three popular types of Stablecoins, they are -

Flat-Backed Stablecoins:

It is the most famous form of Stablecoin which derives its value from a stable currency, the US dollar or Euro for instance. Examples include Tether, USD Coin, etc. This Stablecoin works on the 1:1 backing principle, i.e. 1 Stablecoin = equivalent amount of currency in the bank.

Blockchain-Backed Stablecoins:

Unlike government-issued currency, the value of Blockchain-Backed Stablecoins is tied to other traditional digital currencies. For any unit of blockchain-back Stablecoin, the holder is allotted more units of the underlying digital currency. DAI and Wrapped Bitcoin are some of the most popular Blockchain-Backed Stablecoins.

Commodity-Backed Stablecoins:

Precious elements like gold and silver have long been a trusted asset of investment. That’s why Commodity-Backed Stablecoins keep their value tied to commodities like gold, silver, or oil. This works by tokenization of the commodity and as it is backed by physical assets, price fluctuation in these types of digital currencies is way lesser than in Bitcoin.

Algorithmic stablecoins:

Algorithmic stablecoins neither use a physical asset nor any other currency to determine its value. Instead, they use sophisticated algorithms to maintain stable prices. To do this, the algorithm takes feedback based on the market price of the Stablecoins and increases or decreases the demand for the coin, thus maintaining a stable value. Some of the notable examples of Algorithm-based stablecoins are FRAX, AMPL, etc.

Exploring the known and known about Bitcoin:

If there’s one single digital currency to name among the ever-expanding list of digital currencies, it’s going to be Bitcoin. Blockchain technology, the concept of a decentralized currency, and everything that people talk about today boils down to the rise of Bitcoin. The first known transaction in Bitcoin took place in 2010 although it was a year back in January 2009.

The fact that sets Bitcoin apart from traditional transaction mediums is that Bitcoin was the first successful implementation of a decentralized system. Unlike, normal money, in which the central bank or the government has full control, no single person has control of Bitcoins.

The Bitcoins are transacted using the computation power of computers kept anywhere across the world. This is where the concept of blockchain technology comes into action.

The blockchain technology, on which digital currencies like Bitcoin operate, is like a ledger containing each and every transaction done on Bitcoin. Nobody has control to make any modifications to the ledger as they are stored in ‘blocks’ in numerous computers.

Bitcoin transaction volatility

Despite all these technologies, the prominent problem with Bitcoin lies in Bitcoin stability in transactions. Due to rapid changes in supply and demand, the price of Bitcoin keeps fluctuating - this has been one of the reasons why Bitcoin has not found its place in the list of traditional mediums of transactions.

Stablecoins for daily transactions

The purpose of Stablecoin was to offer a practical solution for daily transactions.

As most of the Stablecoins maintain a fixed value with nominal changes in price over a period of time, this makes it practical to buy or sell things using these currencies.

Stablecoins can be used for both offline and online purchases. In online purchases, Stablecoin as a payment option to avoid paying the transaction fees charged by payment gateways.

Stablecoins utility in payments

Stablecoins bring the best of traditional currency and the best of Bitcoin combined to the table.

Stable price

First, its price is stable - which is the goodness of traditional currency. For example, USDC is a popular Flat-Backed stablecoin whose value is tied to the US dollar. As the value of 1 USDC will always be equal to $1, it becomes convenient to use it as a replacement for traditional currency.

Speed

Second, Stablecoin leverages the advantages of Blockchain technology. This technology makes the transaction happen in real time. Neither the sender needs to wait a few business days, nor the receiver needs to wait to receive their money.

Transparency:

Compared to traditional payment systems including bank transfers, and checks, transactions made via stablecoins are way more transparent as everything is logged on the blockchain, minimizing the risk of fraud. Not only is this helpful for the sender, but it is also helpful for the receiver too.

Also, if the user is the sender or receiver from a place where banking service is less developed, Stablecoin acts as a perfect alternative to pay and receive money.

In addition to that, with Stablecoins, one can send the money irrespective of their region or territory. This reduces the hassles of currency conversion and currency exchange.

Conclusion:

We hope we have been able to settle the debate of Bitcoin vs. Stablecoins. Summing up everything, the final answer is in terms of stability stablecoins are far more stable than Bitcoin. Now for the query “Bitcoin or Stablecoins for payments”, as we discussed earlier, Stablecoin is much more convenient for daily use as a daily transaction medium than Bitcoin.

Also Read : How to Use Blockchain for Cross-Border Payments?

FAQs

Is Bitcoin more volatile than Stablecoins?

Yes, Bitcoin is way more volatile than Stablecoins. Often various micro and macroeconomic factors, and news disturb the value of Bitcoin. It has also been observed in the past that the value of Bitcoin has increased or decreased drastically due to news and speculations. In comparison, Stablecoins, especially those that follow currencies, are much less prone to huge market fluctuations.

Best Stablecoins for transactions

Although over the period, the number of Stablecoins has also increased, just like other digital currencies, there are some names in the list that are great to use for transactions.

USDC (USD Coin) - Already mentioned in this post, this coin is one of the most popular stablecoins.

USDT (Tether Coin) - Tether Coin is as popular as USD Coin and is its value is also tied to USD.

Are Stablecoins safer than Bitcoin?

Stablecoins are far more safe than Bitcoin in terms of market volatility and price fluctuations. Some stablecoins, such as USDC, are almost as safe as normal currency; holding 1 USDC is almost like having a dollar in your traditional payment app.

Also, compared to Bitcoin, Stablecoins are easier and more convenient for transactions as the value remains almost constant.

Bitcoin vs USDT: Which is better for transactions?

One-word answer: USDT. The reason is that: Bitcoin derives its value from the number of sales and the number of buyers, however when it comes to USDT, the value is completely dependent on the price of the US dollar.

There are additional factors too like faster transaction completion, lower transaction charges, and reduced waiting time, which makes USDT a better choice than Bitcoin for transactions.

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