Although the world of cryptocurrency is a radiply-growing market due to its undeniable benefits, it has its own downside: extreme volatility. One moment, a digital asset’s price skyrockets, then the next thing you know it’s already losing half of its value. Their prices fluctuate on a daily basis, making them unsuitable for people using crypto to pay for goods and services.
This is where stablecoins come into play. They belong to a class of cryptocurrencies that aim to keep the price of digital currencies stable at all times, backed by reserve assets like gold or fiat. One of the most popular stablecoin in the market is the USD.
Are you interested to know how stablecoins like USD Coin work? Learn how its different from other cryptocurrencies in the market when you read this article.
Getting started with USD Coin
USDC is a service that aims to tokenize the US dollar to encourage users to utilize them on the Internet, as well as in public blockchains. This opens new doors for lending, risk-hedging, trading and the solution for the volatility of cryptocurrencies.
Created by the Centre consortium and released on September 26, 2018, the USD Coin (USDC) is a fiat-collateralized stablecoin pegged 1:1 with the US dollar. Meaning to say, people can buy 1 USD Coin for US$1, with each digital coin held in US-regulated bank accounts. It is considered to be an alternative digital currency to other stablecoins such as TrueUSD (TUSD) and Tether (USDT), to name a few.
This is the main reason why the USD Coin cryptocurrency is highly attractive for users who want to get involved in the crypto market without dealing with price risk. Together with an ERC-20 compatible wallet, you can treat it as a savings account while participating in the highly volatile crypto market.
How does it work?
Unlike fiat currencies, USD Coins aren’t made out of money-making machines. In order to convert cash into USDC tokens, it has to undergo a three-step process called tokenization:
- For a USD Coin to be generated, a user must send USD to the token issuer’s bank account.
- Using a USDC smart contract, the issuer will create an identical amount of USDC.
- Once they have been successfully generated, the user receives their tokens. Meanwhile, the replaced US dollars are maintained in reserve.
On the other hand, the process is reversed when converting USDC back into US dollars:
- Before a user can redeem an equivalent amount of USD for USD Coins, they should contact their USDC issuer and send a request.
- The issuer sends a request to the USDC smart contract to swap the tokens for USD and remove an identical amount of USC Coins from circulation.
- The issuer reinstates the requested amount of US dollars from the reserve back to the user’s account. Once done, the user receives the net amount equivalent to the value of tokens, excluding the fees.
What makes USDC different from its predecessor, Tether, is that the developers are required to maintain full transparency, collaborating with various US financial institutions to retain full reserves of the US dollar.
How to buy USD Coins
Luckily, USDC tokens can be bought through various exchange platforms on the Internet, including:
However, Coinbase remains the top choice for the purchase of these tokens, especially when you’re a novice investor. To get you started, here are the following steps you should follow:
Step 1: Create your own Coinbase account
Download the Coinbase app on your mobile phone and enter your email address and strong password to create an account.
However, due to the platform’s Know Your Consumer (KYC) regulations, you will be obligated to provide identification documents for further verification. Depending on where you reside, the verification process may take a bit longer than expected.
Step 2: Choose a payment method
Click on the payment method option to choose your preferred payment method. The options include debit cards, bank accounts or wire transfers.
Step 3: Search for the USD Coin
To start a trade and purchase USDC tokens, click the button showing opposite arrows then click ‘Buy’. Type ‘USD Coin’ into the search bar and once it appears, click on it to view the purchase screen.
Step 4: Enter your desired amount
Input the total amount you want to spend in buying USDC tokens using your local currency. Once you’re done, select the ‘Preview buy’ button to view the complete details of your purchase. Ensure that the amount is accurate before confirming.
Moreover, since USDC is considered to be an ERC-20 token that mainly operates on the Ethereum blockchain, you can use any Ethereum wallet to hold tokens of your choice. This includes Jaxx wallets, MetaMask or Mint, among others.
Step 5: Start using your USDC tokens
Now that you have successfully purchased USDC tokens, you can use them for various transactions. You can instantly send money with low fees, buy items in decentralised apps and blockchain-based games like Axie Infinity and Splinterlands while evading the risks of hyperinflation.
Start your crypto investments with USD Coin cryptocurrency
Dealing with big price swings associated with the most sought-after cryptocurrencies like Bitcoin and Dogecoin may discourage some people from joining the crypto craze. Fortunately, the meteoric rise of stablecoins like the USD Coin cryptocurrency allows for a decentralized mechanism with steady valuations.
Moreover, what makes USDC superior and more reliable than other digital currencies is that it prioritizes user security. If you’re looking for a way to stabilize your crypto assets, utilising stablecoins can help you deal with sudden fluctuations that can hurt your investments.
To know more about USD Coin’s future projects, stay tuned for the latest updates here at Cryptoshimbun!