What are “stable coins”?
It is a digital coin that has been tied to another asset and is not governed by any central bank around the world, and so has a stable (low volatility) value.
The above three factors are what makes stable coins the digital currency of the future – their stability allows for day-to-day transactions to take place like buying a coffee at Starbucks or shopping online at Amazon.
Volatility Does Not Induce Practicality
According to siliconrepublic.com, the problem with the major cryptocurrencies of today is that their prices change on a daily basis. It is not uncommon to see Bitcoin, for example, to increase or decrease its value by over 10% on any given day, which may be a good buy or sell for investors but would definitely damage a bitcoin holder or merchant who is trading in it – one is definitely going to get the short end of the stick that day.
Stable coins, which are tied to tangible assets like gold, for instance, will not have these sharp increases or decreases in price and so they will make it possible for consumers to consume without having to worry that $10 worth of their digital money is now worth only $8.
In a nutshell, the purchasing power of stable coins remains, well, stable.
Stable Coin Traits
Stable coins will have to exhibit certain traits in order to make them a reliable form of trade and a long-term holding for investors. These include:
Low Volatility (Price Stability)
Integration (Partners, Networks)
Without these characteristics, a digital currency has no chance to maintain both long-term and short-term stability making it impossible to function as a mode of practical currency in the real world.
The Potential Case Of Ripple And Amazon
A stable digital coin being tied to an asset does not just include modern forms of currency like the U.S. Dollar or gold, but can also mean being tied to a tangible asset like property or a large corporation.
Take, for instance, the talks of Ripple partnering with Amazon, the largest online retail store on the planet. Now, Ripple has been criticized for not being completely decentralized but if it does partner with Amazon it would be the closest thing that resembles a stable coin to date.
The immediate result of Ripple becoming a part of Amazon’s network would most probably increase its price but would also increase its worthiness as a valuable asset a sit would now have a practical outlet for use.
Amazon seems to be interested in Ripple for the following reasons:
The number of Ripple XRP currently in circulation (100 Billion)
Quick transaction time (10 Seconds)
Low transaction cost (.00001 XRP)
If Amazon decides to use Ripple as its go-to digital currency then it is expected that a number of other stable-like coins will follow suit and the world of cryptocurrency as we know it will start to take on an air of legitimacy which is good for both customers and long-term investors alike.