Stablecoins are crypto assets whose values are pegged to fiat currencies, such as the US dollar. Stablecoin operators generally maintain a reserve of fiat currency which equals the token’s circulating supply.
With the rapid rise in stablecoin circulation over the past few years, central banks have increased their efforts to develop their stable digital currencies. These centralized fiat copies are called Central Bank Digital Currencies (CBDCs), or cryptos backed by a country’s central bank.
Rather than being pegged to a fiat currency, CBDCs are a digital form of the country’s legal tender. This article will explain some of the critical differences between Stablecoins and CBDCs, and why CBDCs add very little to the global economy.
The Past Decade
Cryptos have come a long way since the inception of Bitcoin in January 2009. While still a speculative asset, cryptos are evolving into an asset class that is a legitimate investment opportunity as respected investing apps continue to onboard crypto trading.
The technological foundation of cryptocurrencies, the blockchain, has been shown to have utility in several public and private applications. Blockchain is now being applied in fields from the supply chain to medicine, gaming, ticketing, art, and finance.
What has also changed is crypto, and blockchain’s favorability with governments. Different crypto projects have garnered different levels of openness to regulation, and different governments have different perceptions about the advantages or threats of cryptos.
With these recent advances, two unique kinds of digital currencies have resulted. Stablecoins and CBDCs have emerged as potential options that could be widely used for commerce and trade in the future. Being related to fiat, these digital currencies may, at first glance, be similar, but there are significant differences between them.
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