What is a Stablecoin?

Cryptocurrencies have been wildly volatile. Speculators may profit or lose money trading the changes, but for those who want an online currency that maintains predictable value, the fluctuations are not as desirable.

Hence, a stablecoin is cryptocurrency that is pegged to a stable asset, whether gold or fiat currencies (such as the US dollar, British pound or Japanese yen) and is backed by a reserve which corresponds with the coins in circulation.

Theoretically, a stablecoin will remain relatively constant in price, as it is a representation of a known asset.

In other words, cryptocurrencies indexed to traditional fiat currencies have the aim of reducing volatility and increasing confidence.

However, this introduces its own controversy, since cryptocurrencies are by nature decentralized and not linked to governments or banks.  So although stablecoins could be popular in the short run, a decentralised currency that is stable and doesn’t have a central organization behind it will better represent the intent of cryptocurrencies in the long run.