A stablecoin is a cryptocurrency whose market value is tied to some external reference such as sterling or gold. They are considered less volatile investments. The UK government’s move to regulate stablecoins may usher in a new era for blockchain technology. How will this change affect businesses, consumers, and individuals? This move could potentially help UK maintain its position as a leader in digital transactions and payments, creating more job opportunities.
A crypto ‘coin’ is a digital token that can be sent electronically between users anywhere in the world. Unlike traditional finance and payment systems, cryptocurrency networks are not controlled by a single company or central authority. As they are operated by a global, decentralized network of computers, transactions are virtually impossible to fake or hack, and there is no single point of failure. Historically, the speed and cost of transfers have been controlled by a complacent sector. By eliminating the middleman, peer-to-peer crypto payment systems offer much cheaper and real-time payments. You can compare it to handing a friend a five-pound note. Businesses will save more by making cross-border payments, which will reduce fees, chargebacks, and settlement times.
Stablecoins & CBDCs Counter Blockchain Volatility & Promote Bitcoin Adoption as per 2021 BIS Survey
With thousands of headlines about volatile prices and massive potential gains from major coins like Bitcoin over the last ten years, these virtues have been obscured by crypto’s popularity as an investment vehicle. The result has been a lag in crypto payment acceptance, as the perception of crypto has changed from a payment system to speculative investment. Day traders conduct leveraged crypto trades as a result of crypto’s use as a high-risk investment. Several popular coins now see weekly drops and gains of 20 percent or more.
Using crypto as a payment when that morning coffee could cost £3 or £10 would be extremely unappealing. Stablecoins will largely solve this problem. Stablecoins and Central Bank Digital Currencies (CBDCs) eliminate the volatility that makes crypto spending impractical for everyday use. They are an important part of the ‘spendable crypto’ puzzle. The move to regulate stablecoins is likely to increase the chances of wider adoption of bitcoin after a 2021 BIS survey revealed 86 percent of governments are considering CBDCs. Banks around the world are also backing stablecoins – a potential gold rush. It is for this reason that the UK decided to move them inside the regulatory perimeter. As a result, industry leaders are now offering technology that will enable crypto companies to issue cards that allow customers to spend these assets like “normal” money, unlocking the benefits to people and businesses alike. The PWC report revealed that more than 80 percent of central banks are considering or have already launched a central bank digital currency, indicating the strong future of digital money.