It is often a fairly common confusion in the crypto ecosystem to think that Bitcoin (BTC) and Stablecoin are the same. There are fundamental differences between them and that is why today we explain it to you.
The difference between Bitcoin and Stablecoin
What is Bitcoin (BTC)?
Bitcoin is the first cryptocurrency characterized by being a decentralized form of digital money that eliminates the need for a financial intermediary. Accordingly, BTC is not issued by any government or company.
A fundamental characteristic of Bitcoin is that its price is determined by everyone who participates in its buying and selling process. Consequently, the price of BTC is determined by the law of supply and demand.
This is how the value of Bitcoin is based on the trust of its users, on its usefulness and popularity.
What is a Stablecoin?
Stablecoins are born as an option in the face of the brutal volatility experienced in the crypto market. Therefore, a Stablecoin is a cryptocurrency that is backed by assets in reserve.
This implies that, for each Stablecoin in circulation, there should be the equivalent in dollars stored. This is precisely why Stablecoins manage to provide price stability.
Therefore, Stablecoins achieve stability through backup or through algorithmic buy and sell mechanisms.
Bitcoin vs. Stablecoins
Knowing the difference between Bitcoin and Stablecoin is essential to start in the crypto ecosystem. That is why CryptoTrend has some of the key differences:
- Price: As mentioned above, the price of Bitcoin is determined through the buying and selling interaction in the market. Whereas, Stablecoins are designed to mimic the value of fiat currencies like the dollar or the euro.
- Applications: Bitcoin’s volatility can be a blessing for some, but for others it can be a problem. That is why Bitcoin is mainly used to do Trading, Exchanges or as a payment method. While Stablecoins can be used as a store of value.
- Supply: Stablecoins do not necessarily have a limited supply as is the case with Bitcoin and other cryptos.
- Centralized vs. Decentralized: Stablecoins wanting to maintain the 1: 1 ratio with a fiat currency are usually centralized. While Bitcoin is completely decentralized.