In 2018, two digital finance companies, Circle and Coinbase, came together and developed a stablecoin that pegs its value to the US dollars. They named it the USD Coin (USDC).
USDC is a stablecoin, so it doesn’t fluctuate as much as other cryptocurrencies. Its value relies directly on the USD market, so you’d always get a dollar for every coin. Learn more about stablecoins here.
At its core, USDC is more of a token than anything. It is interoperable across five different blockchains, including Ethereum and Stellar, verified through ERC-20 smart contracts. There’s a slight difference between these and mainstream cryptocurrencies. Read more about that here.
The convenience and transparency of USDC have had a tremendous impact on how and where we spend our money. Will it continue to disrupt the global financial systems and eventually replace cash altogether?
You’ll learn all about that in this article, so keep reading.
USDC - How Does It Work?
USD Coins are created through a process called tokenization. It’s similar to printing money in the physical world. The difference here is that one dollar always goes in for each token that comes out.
To get a USDC, a user simply needs to send USD to a token issuer or a cryptocurrency exchange. The issuer creates USDC tokens equivalent to the amount of US dollars received using smart contracts.
The freshly minted tokens would then be sent to the user’s wallet, ready for use. There’s currently $27 billion worth of USD Coins in circulation.
When you want to redeem your tokens for US dollars, the process is the same but in reverse order. Send a request for redemption to the issuer who gave you the token. It would then send the equivalent in US dollars to the account you used to buy the USDC and take back the token.
You can also buy USDC with Ether tokens or any other cryptocurrency and fiat if you already own some. Note that you can end up with more USDC than what you originally bought, and that would also go straight to the wallet.
USDC - Why Does it Work?
The concept of USD Coin is so simple; it took everyone by surprise. Who would have thought a digital version of a dollar would become a trending currency.
Like all cryptocurrencies, the USDC has value because users give it value. Bitcoin and Ethereum exist in the same context, though at a much higher plane.
What distinguishes USD Coin or any stablecoin from typical crypto is the lack of volatility. Since its value is bound to US dollars, holders rarely have to worry about dips or losses.
We say rarely because it does swing, however slightly. So, theoretically, you can sometimes get a USD Coin for $0.99 and then become a penny richer the next few hours.
What Can We Do with USDC?
USD Coin functions exactly like the US dollars, so you can spend it in pretty much any way you would with cash. The only thing you can’t do with a token is to fold it up and stuff it in your pocket.
Here are some of the most typical usage of USD Coin:
- Buy cryptocurrencies. You can trade USDC for any other type of crypto across many platforms. Note that since its value is fixed to the dollar, you’ll be subjected to exchange rate fluctuations when trading for other stablecoins.
- Make online purchases. One of the most significant advantages of using USDC is privacy. Transactions made on DEX are verified by smart contracts. They serve as a receipt of your payment so you can always keep track of your expenses. Commercial purchases are also possible. Companies that accept crypto payments usually take USD Coins as well. They include major corporations like Amazon, Microsoft, Visa, Tesla, and more.
- Earn Interests. Like the regular dollars, you can put USD Coins in an earning program, an exchange may offer, and make passive gains. Since it has a fixed value, you won’t have to worry about depreciation.
USDC - The Limitations
Though super convenient, USD Coin can’t do everything. For example, you can’t just pull out a token and tip your waitress or reset the parking meter.
Aside from the obvious physical limitations, USDC has very subtle setbacks. One comes from the difference of usage between the USD tokens and mainstream crypto.
When dealing with coins, traders either want to grab or get rid of as many as possible at any given time. The constant need to profit dictates when and how they move their coins. In the case of USDC or other stablecoins, liquidity and conversion are the main concerns.
So, in a way, regular crypto is treated as a product while USDC is a service or multiple services streamlined into one transaction to make life easier.
The problem here is that you rely on many different services for a singular feature. Liquidity comes from the assumption that they run smoothly and that the cash reserves are always consistent with what the issuer claims on paper. Mass redemption is also an ever-present issue and can immobilize the market, especially if there are publicized discrepancies in stablecoin reserves.
It is clear USD Coin has a solid standing in traders’ preferences. The convenience and efficiency of spending USDC are almost as enticing as earning them.
We believe stablecoins like USDC will continue to disrupt the financial systems and could eventually change how the world spends its money. Anyone can start owning tokens with a bit of cash or crypto and almost no effort. If you don’t have either and wish to start from scratch, check out how to earn cryptocurrencies here.
All that being said, it’s still too early to decide whether USDC will replace cash once and for all. There are trillions of dollars in cash circulating the markets, and, to most of us, the feel of crisp dollar bills in your hand is still second to none.
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