In today’s fast-paced digital financial world, understanding the nuances of the various forms of digital financial assets is crucial. With the collapse of the banking sector and the rise of the digital wallet era led by platforms like Purpl in Lebanon, we often encounter terms like cryptocurrencies and stablecoins. But what really sets these two apart? Here’s a detailed exploration.
What are Cryptocurrencies?
Cryptocurrencies, often referred to as simply “crypto”, are digital or virtual forms of currency that use cryptography for security. Born out of the digital revolution and the demand for more privacy and decentralization, the most famous of them all is Bitcoin, introduced in 2009.
Advantages
1. Decentralization: Most cryptocurrencies operate on decentralized platforms.
2. Limited Supply: Cryptocurrencies often have a capped supply, potentially driving demand.
3. Transparency: Many cryptocurrencies operate on public ledgers, offering transparency for transactions.
Disadvantages
1. Volatility: Cryptocurrency prices can be highly volatile, posing investment risks.
2. Regulatory Concerns: Lack of a global regulatory framework can lead to uncertainties.
3. Limited Acceptance: Not all businesses accept cryptocurrencies as payment.
What are Stablecoins?
Stablecoins are a type of cryptocurrency that pegs its value to an external reference, like the US dollar or gold. This pegging mechanism is designed to reduce volatility, hence the name “stable” coin.
Advantages
1. Stability: Pegged to stable assets, reducing the volatility often seen with other cryptocurrencies.
2. Bridge to Fiat: Acts as a bridge between the fiat and digital world, facilitating transactions.
3. Transparency and Security: Like cryptocurrencies, stablecoins can offer transparency with the added benefit of stability.
Disadvantages
1. Over-reliance on Collateral: Some stablecoins require backing or collateral, which if mismanaged, can affect the coin’s stability.
2. Regulatory Concerns: Stablecoins too, can face scrutiny and regulatory challenges.
3. Centralization Risks: Some stablecoins are issued by private entities, which can lead to centralization concerns.
Real-World use cases
Cryptocurrencies
1. Investment: Many view cryptocurrencies like Bitcoin and Ethereum as a store of value or a speculative investment.
2. Cross-border Transactions: Cryptocurrencies can facilitate international transfers without the need for currency conversion or traditional banking systems.
3. Decentralized Applications: Cryptos serve as fuel for various decentralized applications and platforms.
Stablecoins
1. E-commerce: Stablecoins offer a stable medium of exchange for online transactions.
2. Remittances: Stablecoins can make remittances more efficient and less costly.
3. Trading Pairs: In the crypto world, stablecoins provide a stable trading pair against more volatile digital assets.
Conclusion
Both cryptocurrencies and stablecoins offer unique advantages in the expanding universe of digital money, especially when an economy no longer trusts the banking sector, the local currency and experiences hyperinflation, digital assets act as a hedge against inflation. While cryptocurrencies pave the way for a decentralized financial future, stablecoins build a bridge between the traditional and the new-age digital world.
Did you know that Lebanon ranked 14th in the MENA region with an estimated $5B received through different cryptocurrencies between March 2022 and March 2023? It is worth noting that dealing with cryptocurrencies does require a strong risk appetite and security knowledge to avoid being scammed or losing value of your digital assets due to the strong volatility. At Purpl, we always thrive to remain at the forefront of digital evolution, offering seamless financial transactions and enabling financial inclusion, may it be when you receive funds from abroad to cash out in USD or spend digitally at merchant. Stay tuned for more updates!
Written by: Karl Naim
