Award-winning documentary, Cryptopia: Bitcoin, Blockchains and the Future of the Internet (now playing on Tubi), attempts to explain the technology behind cryptocurrency and why these assets are so volatile.
But there’s another side to crypto — a hybrid of blockchain that’s backed by fiat currency or another tangible asset, like gold, can remove much of the volatility. These types of coins are called stablecoins or asset-backed coins.
These special coins have other advantages too. For example, if you’ve wanted to invest in gold but couldn’t afford an ounce to get started, asset-backed cryptocurrencies could also be an option.
What Are Asset-Backed Cryptocurrencies?
Today, more than 2,000 different cryptocurrencies are traded worldwide. This makes it difficult to judge the value of many of them.
In general, they are not seen as a good form of currency because they lack any intrinsic value. Traditional cryptocurrencies like Bitcoin have high volatility and can be unpredictable, making them too risky to be accepted as a form of currency by most businesses.
Asset-backed cryptocurrencies are different and are touted as more stable, secure, and often more liquid. This stems from them being backed by something with a known value.
This can be US dollars, euros, real estate, individual commodities as well as baskets of them. This is recorded in the blockchain.
(Realize though, that even asset-backed stablecoins can become unstable, as in the case of UST’s stablecoin which recently lost its peg to the dollar. The stablecoins built on the Algorand blockchain however i.e. USDt from Tether and USDC from Circle seem to be backed by a high proportion of cash and cash equivalents making them more reliable )
Asset-Backed Cryptocurrencies vs Bitcoin
Asset-backed cryptocurrencies are the next generation of cryptocurrencies that have some advantages over Bitcoin:
- Providing stability to the cryptocurrency markets.
- Easier to use as a form of currency.
- Allows the small investor to profit regardless of the size of the investment.
- Allows any asset that has value to be tokenized.
Gold-backed cryptocurrencies are the most popular type of asset-backed cryptocurrency. These digital currencies have their prices tied to the price of gold. The prices can be monitored on a chart like this.
Gold-backed cryptocurrencies are traded on a digital exchange, with the gold being stored by a trusted third party.
Gold-backed cryptocurrency should generally be more stable than Bitcoin. Some of the most popular gold-backed cryptocurrencies today are:
Stability of Gold-Backed Cryptocurrencies
All asset-backed cryptocurrencies are only as stable as the underlying product they are backed by. Are they more stable than Bitcoin? They can be, but of course, this is never guaranteed.
Bitcoin can fluctuate wildly from day to day. A gold-backed cryptocurrency will typically not be quite as volatile due to the fact that the price of gold is not as volatile.
Stablecoins are backed by tangible assets. Hence, they are theoretically less volatile and more useful as currencies.
They also provide those interested in gold a simple way to invest.
This is a guest post from HotDog.com (formerly KillTheCableBill.com). Fire Cable TV & Save $$$ Streaming.