fiat

What is a stablecoin?

| roger nunn

The name Stable coin suggests that it could be a special coin used to pay for looking after your horse. It is not that.

I started buying and selling crypto in 2017. At the time I had heard of Bitcoin and Ethereum. I was then fascinated to discover that there were a multitude of other coins, each of which had its own use.

I bought small amounts of several different coins and came across Tether (USDT). As the name suggests, its value was pegged to the US $. I could easily buy and sell US $ and couldn’t see the point of having a cryptocurrency that was always worth 1$.

When trading between crypto currencies, however, I soon realised that exchanges always provide trading pairs that include stable coins.

The added complication comes when you find that there a multitude of different stable coins, each of which are issued by different people and usually for a specific platform. The value of each stablecoin is kept at or around 1 US$ by depositing fiat cash (or equivalent) with financial institutions. Further complications are brought in through the creation of DEFI stable coins that are backed up by crypto currencies rather than fiat.

It is getting ever more complicated, especially when you realise that you can trade stablecoins against each other, taking advantage of small variations in their value.

Briefly, any coin in the list that remains at around US$ 1 over time is probably a stablecoin, useful for trading or transferring value around the world.

One way only from fiat to crypto

| roger nunn

When you want to buy crypto (probably bitcoin) you can create an account on any of a number of exchanges and simply transfer fiat currency straight into the crypto of your choice.

This might be more difficult in a jurisdiction with monetary controls but it works easily for me, being based in the European Union.

Once you have the crypto on your exchange account you can trade it for other cryptos or transfer it easily either to another exchange or to a wallet.

It’s seamless, easy, usually cheap and very fast and of course it operates 24/7.

Returning the crypto to fiat feels slow and heavy by comparison, with banks taking some time to make the money available. It really feels like a step backwards in time, like returning to writing cheques for bills and then waiting 3 days for the funds to clear.

I can wait for universal adoption of crypto, easy transfers without the cost and time lost using fiat

What is a crypto exchange?

| roger nunn

I am writing about individual parts of the crypto world as if they are discrete. They are not discrete but I like to see the function of each part as separate, it helps me to see clearly.

Holding crypto is a matter of having the right series of numbers, something that is simplified through software in wallets. Trading crypto is the ability to buy crypto with fiat currency ($, €, etc), exchange one crypto currency for another or buy fiat with crypto.

Buying crypto with fiat or selling it back relies on using banks, and so is subject to bank charges, regulations and delays that can be imposed at any time.

An exchange is one way to trade one crypto for another. The user creates a trading account on the exchange and then can transfer crypto from a wallet for trading. The exchange does not normally buy and sell the crypto directly, it is a market place where traders put in buy or sell requests. So when you want to exchange crypto (e.g. exchange bitcoin for etherium), you are relying on another trader who wants to make the same trade reversed. The exchange simply facilitates it by hosting the traders’ accounts and charging for the service.

Once you start trading in crypto you see the benefits of a market that is open 24/7, has fast trades and low costs. It doesn’t help you choose your strategy, though, as it’s easy enough for the crypto that you are hodling to drop hugely in value in a matter of minutes.

Using an exchange can be very exciting, though, especially if you can learn to control your emotions and follow a trading strategy.

This is a very simplistic view of exchanges, it is supposed to help by giving an overview of its place in the crytpo world