What are cryptocurrencies and how do they work?
Cryptocurrencies are a digital currency accessible to all users of the world. There are currently more than 1,300 and over the years they have gained more and more value. Most of them are based on blockchain technology and can be held in a digital wallet.
The most famous cryptos are bitcoins (BTC), ethereum (Eth) and bitcoin cash (bch). They May be purchased by any exchange (for example Coinbase https://www.coinbase.com/join/dibu_8?src=ios-link ).
The problem of most cryptocurrencies is that their value is variable. For example, until some time ago, one bitcoin cost $11,000, and today it costs $7,685.
So if I buy $100 for bitcoin in a few days'time, they may become more or less dependent on the trend of cryptocurrency.
To solve this problem we can buy stablecoins.
What does stablecoin mean?
For stablecoin, it means virtual currency that does not change value with time.
USD Coin is a Fiat cryptocurrency and is worth exactly 1 us dollar and its economic value is linked to the dollar's trend.
Raw materials Stablecoin
There are also Other stablecoins that are not linked to any coin Fiat. There are also stablecoin that follow the price of raw materials such as silver, gold etc. For example, 1 Digix Global (Digix Gold) is worth 1 gram of gold and follows the trend of gold.
The most known decentralized stablecoin is DAI and it is not related to any Fiat coin or raw material. To the first look may seem to be a stablecoin that can't be decentralized, since one or more entities operating the money reserve funds is needed. With that is possible with DAI and it is composed of a series of complicated mechanisms of incentives that allow the value of the dollar to be kept to bear its value.
So there is no bank account with an Fiat currency funds but a coded incentive mechanism in smart contracts on ethereum and some token (mkr, weth and Peth) operated within the oracles. This mechanism has always managed to maintain the value of DAI near a dollar.
The stablecoins will replace the Fiat coin in the future ?
The problem of criptcurrencies is that they are known and bought by few people in the world, today many people instead buy cryptocurrencies to make investments instead of as a Method of payment. Another problem is the slow score of the Blockchain, for example, the Bitcoin is slow in terms of transfers and the fees are too high. In future, with advancing technology the crypto will play a fundamental role in our daily lives and perhaps in a few years we could use some DAI to buy coffee!