A volatile Bitcoin chart line with a stable Stablecoin chart line below it on a light green background

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One day in May 2010, Laszlo Hanyecz, a 28-year-old Hungarian-born software programmer, exchanged 10,000 bitcoins for the delivery of two large Papa John’s pizzas. The coins, given bitcoin’s value at the time, cost him $41.

Hanyecz wanted to demonstrate that bitcoin, a form of digitized money that was only a year old, could be used in the real world, for routine transactions. Unlike traditional currencies, bitcoin enabled users to make payments under a pseudonym, without the involvement of a central bank — a feature that money launderers, drug traffickers, and online scammers were quick to take advantage of. But it remained uncertain whether cryptocurrencies could live up to their promise as currencies, achieving the same stability and ubiquity as government-backed money.

Papa John’s delivered Hanyecz’s pizzas. But 11 years later, with bitcoin hovering above $32,800, the programmer’s order proves the exact opposite point that he was trying to make. If Hanyecz spent the same number of bitcoins on pizza today, it would cost him $328 million. Bitcoin has turned out to be far too volatile to serve as a reliable medium of exchange. 

Nowadays, almost no one touts bitcoin and other decentralized, peer-to-peer cryptocurrencies as a way to buy your groceries or pay your mortgage. Enthusiasts pitch them as a potentially lucrative investment, a hedge against inflation, and a tool for evading government surveillance.

But there is one form of cryptocurrency that is still angling to replace the credit cards and cash in your wallet. Stablecoins, which peg their price to physical assets outside the cryptocurrency space, aim to combine the best of both worlds. Like traditional cryptocurrencies, they enable users to make transactions quickly, cheaply, and privately. But like regular money, their value is fixed to currencies such as the dollar, or to commodities such as gold. That means they aren’t susceptible to the wild price swings that have plagued bitcoin. And they can be redeemed at any point for their backing assets, which makes them feel safer and more trustworthy. 

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The result has been what some observers are calling a “stablecoin invasion.” Tether, which maintains a one-to-one peg against the US dollar, is now the third-largest cryptocurrency, right behind bitcoin and ethereum. According to a recent report, there are now at least 200 stablecoins in the market or under development, including USD Coin (USDC), Binance USD (BUSD), Dai (DAI), TrueUSD (TUSD), and Paxos Standard (PAX). In the first five months of this year alone, the supply of stablecoins pegged to the dollar more than tripled, to $100 billion. “The pace of growth has been just astonishing,” said Nic Carter, a founding partner at Castle Island Ventures.

At the moment, stablecoins are mainly used within the crypto ecosystem, in much the same way dollars are used in traditional financial markets. Venture-capital firms like Castle Island use stablecoins to fund their investments in startups. Crypto traders keep a ready supply on hand for fast transactions and accessible collateral. And a growing number of investors are parking stablecoins …read more

Source:: Business Insider


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