Most people believe cryptocurrencies are all about Bitcoin, Ethereum, Binance, and all the currencies that are worth hundreds and gaining influence in the market.
However, the economy doesn’t move around them only but also around what are known as stablecoins. We are sure you aren’t that familiar with them unless you have read our previous review about Tether or maybe taken the time to research on your own.
If you haven’t worried about going through some websites and information, don’t feel bad because even when you have enough resources to access the details you need, you never know which one is reliable. In the world of cryptocurrencies and the economy, it can be a bit confusing to read all the technical details without a clear answer.
In this case, we decided to focus on one in specific you are probably wondering the difference between it and the regular USD we all know.
Is it a cryptocurrency? A stablecoin? And what is a stablecoin, and how does it influence the economy? We will be answering all these questions and more to make sure you are up-to-date with the information and determine what step to take next.
Stablecoins: What Are They & Why Do We Need Them?
Before we jump to USD Coin (USDC), we have to go over the concept of stablecoins so you have a better idea of how this currency will help you nowadays and in the future.
To keep it simple, a stablecoin refers to a type of cryptocurrency whose value is tied to another asset class such as gold or fiat currency to stabilize its price, which is why the value of USDC is always equal to 1 based on 1:1.
Now, to understand how they are linked to cryptocurrencies, we have to mention there are many benefits to cryptocurrencies like bitcoin and ether. One of the most important is that they don’t require trust in intermediary institutions to send payments.
This opens them up to everyone around the world, but one problem with cryptocurrency prices is their unpredictable nature and tendency to fluctuate, sometimes wildly.
Thus, these are difficult to use for everyday people. People expect to know the value of their money in a week for their security and livelihood, and cryptocurrencies don’t offer this at all.
The unpredictability of cryptocurrency contrasts with the stable prices for fiat money (e.g., U.S. Dollars) or other assets like gold. While currencies like the dollar are subject to change over time, cryptocurrencies’ daily fluctuations are more dramatic.
Stablecoins were originally used to purchase other cryptocurrencies like bitcoin. Many cryptocurrency exchanges didn’t have access to traditional banking, and because they can be used anywhere, anytime, they are more useful than currency issued by countries, and money transfers take only seconds.
They also have the ability to work with smart contracts on Blockchains. These contracts are not subject to legal approval like traditional contracts.
The software code dictates how and when money is transferred and under which terms considering that stablecoins can be programmed in a way that dollars cannot.
So far, these coins have been used for seamless trading, lending, payments, and insurance.
Stablecoins are cheaper, faster, and easier to integrate into software than fiat currency.
We know this can be a bit confusing; in fact, it is a lot of information if you aren’t familiar with the entire topic; however, to make sure you are able to handle the topic, we will summarize it with this:
Stablecoins are new cryptocurrencies that attempt to provide price stability. A reserve currency supports them, and they are gaining popularity because they offer both the stability and volatility of fiat currencies and the instant processing of cryptocurrency payments.
So, it is all about a solution to market volatility and adds other purposes based on how the asset uses it.
What Does This Have to Do with USD Coin?
Simple, USD Coin (USDC) is a relatively new stablecoin that is tied to the U.S. Dollar. Thus, you can call it a dollar coin with fully reserved assets.
The partnership between Coinbase and Circle resulted in the release of USD Coin (USDC) on September 26, 2018, and it competes against TrueUSD (TUSD) and Tether (USDT).
USD Coin is basically a service that tokenizes U.S. Dollars and allows them to be used on the Internet and public blockchains as digital assets.
Additionally, USDC tokens are easily convertible to USD. ERC-20 is a smart contract that allows for the issuing and redeeming of USDC coins.
The blockchain lets U.S. dollars be instantly sent around the world and provides cryptocurrencies with much-needed stability. This opens up new trading opportunities, lending, and risk-hedging options.
Because it is worth $1 all year round and is safe and secure in the cryptocurrency world, USDC can be stored in a secure cryptocurrency wallet leading you to have something very close to a savings account.
It is compatible with many ERC-20-compatible wallets and a large number of cryptocurrency exchanges. This allows for real-world money transfers and global commerce, and you could use it as a place to store value in your crypto portfolio.
USDC’s founder companies have extensive experience with cryptocurrency. Coinbase is one of the most popular cryptocurrency exchanges, and Circle is supported by crypto-focused investors like Bitmain and Blockchain Capital.
Thus, you can rely on the background of the stablecoin, and rest assured, it will be your best option when it comes to considering investing besides going for the usual ones like Tether.
Behind the Coin: History of USDC
There’s a lot to cover when it comes to cryptocurrencies. Although we have remarked on the purpose of USD Coin so far, we haven’t told you how the two previous companies and founders decided to start it with Tether and others you can find in the stablecoin market.
We mentioned that it was created by the consortium called CENTRE. This collaboration between Circle and Coinbase aims to create price-stable crypto assets as well as network protocols.
It was launched in 2018, and it is one of the newest stable coins in the market.
It was created out of the recognition that the industry needed a stablecoin with fiat collateral and transparent governance, and USDC aims to address these concerns.
It releases a monthly public attestation for 100 percent fiat token reserves via CENTRE.io and provides CENTRE members with clear regulations and procedures for USDC redemption and creation.
To become issuers, members of the CENTRE consortium have to meet certain operating and membership standards. These include technology, accounting, licensing, compliance, operations, and custody of fiat reserve.
These concerns are addressed by USDC, which releases a monthly public attestation for 100 percent fiat token reserves via CENTRE.io each month. Additionally, CENTRE members receive clear regulations and procedures regarding USDC creation and redemption.
Circle and Coinbase have announced significant improvements to the USDC smart contracts and protocol in 2020. These enhancements are designed to make it easier to use USD Coin for commerce, everyday payments, and peer-to-peer transactions.
There isn’t much background in terms of how people came up with the idea since stablecoins have been in the market for a while.
Thus, if you were expecting a long story compared to Bitcoin or other cryptocurrencies with lots of volatility, there’s none of that here.
How Does It Work? Just Like Other Currencies?
USD Coins don’t just appear out of nowhere for people to buy them.
To better understand it, we have to focus on what Circle claims: That every USDC coin is backed with one U.S. dollar. Tokenization refers to the conversion of U.S. cash into USDC tokens.
For this process to happen, three steps are required to convert USD to USDC:
- The user sends USD to the account of the token issuer.
- The issuer creates the same amount of USDC by using a USDC smart agreement.
- The USDC is issued to the user, while the replaced USD dollars are kept in reserve.
It is as easy to convert USDC to USD as it is to create the token:
- Contact the USDC issuer to request that USDC tokens be exchanged for an equivalent amount of USD.
- The issuer requests that USDC smart contracts swap tokens for USD and remove equal numbers of tokens from circulation.
- The issuer will return the USD amount to the account of the user from its reserves. The net amount is equal to the USDC tokens amount minus any costs.
The USD Coin is not like the stablecoin Tether (USDT). Its developers must maintain full reserves of the equivalent fiat currency and be able to work with many financial institutions.
Thus, many believe USDC is better in the long run to ensure the reserve, which is limited to how much people change USD to USDC, doesn’t fail based on the regulated financial institutions involved.
With this in mind, we have mentioned the use of the currency so far, so there’s no need for us to go over the entire purpose since it is about stability all the way.
Using USD Coin
USD Coin (USDC), a 1:1 representation of one U.S. Dollar, is available on the Ethereum blockchain. It is an ERC-20 token that can be used with any app that supports it.
Circle can be used to redeem USDC or tokenize it. To do this, you will need to create an account and authenticate yourself (KYC).
You also need to link valid bank accounts. On the Circle USD platform, users can perform four actions:
- Tokenize USD.
- USDC Redeem.
- Send USDC to ERC20 Ethereum addresses.
- USDC can be deposited at external Ethereum wallet addresses.
Circle USDC charges no fees for tokenizing or redeeming services, except for a $50 penalty if erroneous or rejected bank transactions.
Coinbase USDC transactions are subject to all normal costs. However, keep in mind that 100 USDC is the minimum amount that can be redeemed, and processing tokens takes place during business days and from 24 to 48 hours.
Should You Buy It or Not?
If someone asks us the same about cryptocurrencies like Bitcoin and Solana, we would say it is worth investing just a bit.
The only problem with cryptos is how volatile they are, and you cannot predict whether you will make lots of money or not in the long run.
However, when it comes to USDC, it is a stablecoin that will maintain its value, so it is a great way to save money instead of having your USD dollars in a bank account, and you could decide to bet on crypto exchange anytime.
But if someone asks about using it as a way to invest and then purchase cryptocurrencies for a long-term benefit, we would consider just options that are direct businesses.
Local lead generation, for example, is a good option that doesn’t require much investment, and you could bet for both lead gen and cryptocurrency simultaneously.
With lead gen, you can make thousands of dollars if you work hard and are patient. The money will come to you passively after a few months or weeks.
It isn’t faster than cryptos (questionable), but it is safer.
You simply need to locate small businesses in your area, save their contact information, and then reach out and build their websites.
Once you have built each website and generate leads for your clients, there is no need to think about them anymore. Instead, forget they even exist.
These are the main benefits of this local lead generation idea, in case you’re still unsure:
- You don’t have to spend much money to make your business profitable.
- If you work hard and put in the effort, your investment will not be lost.
- Lead generation is an excellent way to grow your company. You can either use it for your main income stream or as your own business venture.
- You don’t have to worry about market saturation and competition. There are always new local businesses opening, so there is always a steady stream of deals.
We suggest you bet for USDC as traditional saving accounts and invest a small amount of money in cryptocurrencies.
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