What is USD Coin (USDC) and the difference between bitcoin and USD Coin

What is USD Coin (USDC) and the difference between bitcoin and USD Coin

Sponsor



    The USD Coin (USDC) is now available to buy, sell, and store  through both Instant Buy and the market Exchange.Here’s the lowdown on what to expect, why people are buying it, and how to get it.

    WHAT IS USDC?

    USDC is a stablecoin. A stablecoin is a cryptocurrency that’s pegged to a single underlying asset, or a basket of assets. In the case of USDC, it’s pegged to a single asset: the US dollar. Essentially, what USDC is doing is creating a ‘digital dollar’ by tokenising it and putting it on the blockchain.

    WHY WOULD I NEED THAT?

    Stablecoins are a bridge between the old financial system and the new. A digital version of the US dollar has a number of benefits over its paper counterpart. For one, it’s easier to transfer and can be moved anywhere in the world almost instantly. The ‘fiat version’ of the US dollar moves slowly because it has to contend with traditional financial institutions, their legacy processes, jurisdional regulations, and so on. USDC bypasses these barriers. Tokenising the US dollar also provides additional functionality, making it easier to program with and to use in dApps.

    WHAT CAN I USE IT FOR?

    People use USDC for a wide variety of reasons. One of the primary reasons is to hedge against volatility during bigger market movements – either in cryptocurrency or your own local currency. In countries where the local currency is more prone to volatility, holding USDC allows you to store your wealth in a currency that is historically more dependable as it’s still the world’s reserve currency.


    Another use case is for when you’re selling crypto. When you sell, you may want to keep your funds on the platform. If you keep it on there as USDC, you don’t have to pay the fees to withdraw and deposit.

    WHY USDC AND NOT ANOTHER STABLECOIN?

    USDC has a market capitalisation of over $5 billion. There are a number of stablecoins out there that you may have heard of, such as Tether. We believe that USDC holds a number of advantages over these other coins, particularly when it comes to safety.


    USDC is fully collateralised. This means that its reserves are held on a 1:1 ratio with the US dollar. So, for every 1 USDC out there, the original issuer of the coin holds 1 US Dollar in collateral. This is supposedly true of other stablecoins, but USDC is unique in that it’s issued by financial institutions who say they operate using the highest standards of corporate governance and commit to providing full transparency. All USDC issuers must report their USD holdings, which are in turn published by accountancy firm Grant Thornton LLP on a monthly basis. These monthly reports are available online to anyone who wishes to view them. This means you can be confident that USDC is always 100% redeemable for dollars.


    USDC is governed by Centre, a membership-based consortium that sets technical, policy and financial standards for stablecoins. Centre consists of Circle and Coinbase. These are two of the most established companies in the cryptocurrency space, with a long track record of reliability, success, and following strict regulations.

    WHAT IS THE DIFFERENCE BETWEEN BITCOIN AND USD COIN?

    Bitcoin was originally developed as a digital decentralised currency with the aim of paying for goods and services (i.e. as a means of exchange). Its purpose has evolved since its creation, however, and today it is also used for a variety of other purposes as well – including as a store of value more similar to that of gold.


    USD Coin, on the other hand, was created as a way to put US dollars on the blockchain. This was done to enable them to be moved anywhere in the world within minutes. They were also designed to bring stability to cryptocurrencies. The USD Coin website explains that: “A price-stable currency such as the US dollar (and similar stable currencies such as EUR, GBP, JPY, RMB, etc.) is critical for enabling mainstream adoption of blockchain technology for payments, as well as to support maturation in financial contracts built on smart contract platforms, such as tokenised securities, loans, and property.”


    The two cryptocurrencies also differ significantly in how they were created and how they are maintained.


    Bitcoin was created by a pseudonymous person or group of people known as Satoshi Nakamoto, but designed to be decentralised. This means Nakamoto is no longer a controlling influence, rather it is developed and maintained by the Bitcoin community. The Bitcoin network is maintained by a group of developers distributed around the world who contribute to its management on a voluntary basis. It is not governed by any bank, government or entity.


    Bitcoin as a cryptocurrency is created when it is ‘mined’ by members of the network. Where fiat currencies are issued by central banks, new bitcoins are issued to miners via a block reward for adding new blocks filled with verified transactions to the Bitcoin blockchain. They do this by using special hardware to solve a complex computational problem, which produces a hash - a seemingly-random 64 character output. To get this number requires many, many attempts. Once the hash is found, the block is closed and it is added to the blockchain. After successfully mining a block, miners are rewarded with newly-created bitcoins and transaction fees.


    USDC, meanwhile, relies on an issuer and an underlying pool of collateral and is therefore centralised. It’s based on the open source asset-backed stablecoin framework developed by the Centre Consortium. It is based on an open membership scheme that eligible financial institutions can participate in. It offers a solution with detailed financial and operational transparency, operating within the regulated framework of US money transmission laws, with established banking partners and auditors.


    Unlike Bitcoin, USDC is not designed to be mined at all, rather it is simply issued. A USDC token is created when a customer ‘buys’ a token from an approved issuer. For every US dollar received, the issuer will apply an ERC-20 smart contract to create an equivalent amount of USDC. This is then sent back to the customer The US dollar that was originally sent to the issuer is then held in reserve as collateral. The customer has their USDC, which is redeemable against the issuer for the equivalent fiat currency US dollars. This guarantees that every USDC token is backed by a US dollar and it’s redeemable on a 1:1 basis.


                                         
    Sponsor