One of the main criticisms leveled against the cryptocurrency market is the lack of stability. A given cryptocurrency token might be worth thousands today and nothing tomorrow. One only needs to look to Bitcoin for proof of this. After hitting an all-time high of almost $20,000 in December 2017, it quickly plummeted to a quarter of that value shortly afterward. Bitcoin has since climbed back up to $8,000, slowly but steadily. The same cannot be said for a number of altcoins that also took a hit in early 2018. Many of them are not in existence today.
But crashes like these is not the only cause for the market volatility. Every time a hacking incident happens on a cryptocurrency exchange, values go down. Ultimately, the value of a cryptocurrency comes down to the amount of trust the holders and traders have in it. In this way, cryptocurrencies are not too dissimilar to fiat money. Fiat money is not backed by anything other than trust in the government. This is why countries like Zimbabwe have 50 trillion dollar notes — hyperinflation and lack of trust. So what could make people trust in cryptocurrency more? Assets with intrinsic value.
What is a stablecoin?
As the name implies, it is a cryptocurrency that is stable. In the past, creators of this kind of cryptocurrency have backed up the value of them with assets like diamonds and gold. This is similar to the gold standard we once had with fiat money. The fact that you at any moment can trade in your tokens for real, tangible gold maintained the people’s trust in them. If there is anything that could bring cryptocurrency into the mainstream proper, then it would be the backing of real assets. But not everyone has these assets to back up their tokens. Is there an alternative? Some experts muse that perhaps a cryptocurrency backed by fiat money could be the solution.
IBM and FDIC collaborates with stablecoin startup
A new stablecoin by the name of USB Anchor has been formally backed by the US Federal Deposit Insurance Corporation (FDIC), which means that the value of it is linked to the US dollar. In addition to this backing, IBM has also partnered up with Stronghold — the company behind USB Anchor. The reason for this partnership is that IBM sees the potential for using stablecoins in the systems they use when working with clients in the financial sector.
Cryptocurrency expert weighs in
Charlie Clarence-Smith works for a law firm by the name of Pinsent Masons. Clarence-Smith thinks the new partnership between Stronghold, IBM, and the FDIC is the way forward. According to him, it could potentially be what will bring cryptocurrencies into the mainstream. This would mean that businesses would be able to make faster, cheaper, and safer transactions. Clarence-Smith said:
Stablecoin is a concept that has been much talked about in the crypto-asset market, so it is exciting to see a real example emerge. Interest in stablecoin stems from the fact that liquidity concerns are eradicated, and from the principle that the coin’s value mirrors that of the fiat currency. Furthermore, stablecoins are transferred on a blockchain rather than using traditional payment schemes.