Published in El Pais, April 30th 2019.
I have written about cryptocurrencies in the past as I am heavily involved in them myself, both as an investor, day trader and as a miner. There is one type of cryptocurrency that I have avoided writing about simply because I personally have no interest in them, Stable Coins. They are called that because they will always be valued at $1, no more, no less. My lack of interest is obvious, you cannot make money off them but that does not mean they are useless and for those that create a successful stable coin can potentially make money charging fees on their platform and companies like Facebook and JP Morgan are starting to take notice.
First, I will answer the obvious question, “How can you guarantee that one coin will always be worth $1?”. The question can be easily answered. To create a stable coin, one must create a blockchain where one person or organization is always in compete control. Next you ensure that the amount of coins in circulation equal to the amount of dollars that were paid for them and when the coins are exchanged for real money you destroy them. Essentially the cryptocurrency is a virtual replacement for a real dollar.
So, a company has created a stable coin, what can they do with it? The answer to that question really depends on what the blockchain was designed for. The ones created by Facebook and JP Morgan will be focused on a payment platform, so people can send money around the world at a much cheaper price. Companies also like the fact that unlike most cryptocurrencies the price will always be a $1 so there is less risk. Sure, it can’t go up 25% in a day like Bitcoin, but it also can’t go down 25% in a day, like Bitcoin.
Finally, the last question, “Why bother with traditional cryptocurrencies if we have coins that will always remain the same?” While stable coins do take volatility out of the equation they can really be only used on a micro level. That is, you can only send money on the JP Morgan coin if both you and the person you want to send money to has an account with them. Other currencies have no restrictions and can reach a much wider market, even one wider than Facebook.
So, there we have it, a summary of a type of cryptocurrency that is starting to get real businesses attention. Will it be around for a while? Absolutely! Will it take over the crypto market? Probably not.