Bitcoin vs Stablecoins: Purposes, Benefits, and Opportunities
Bitcoin is a pioneering digital currency that paved the way for Web3 innovation. As the first cryptocurrency available for investments and trades, Bitcoin’s technology established the blueprint for upcoming projects like altcoins, meme coins, and stablecoins.
One reason users needed coins other than Bitcoin is its increasing mining difficulty and growing transaction fees. As more miners contributed to the blockchain, the hash rate exploded, affecting computational needs. In return, this made it almost impossible to mine independently, and transaction fees affected user preferences.
That’s why altcoins appeared, as they would offer what Bitcoin struggles with, such as low transaction fees and alternatives to mining, such as staking. Other assets aimed to provide digital forms of currencies backed by traditional currencies like the US dollar or Euro for more stability. Eventually, these new coins created a window to financial opportunities, such as BTC/USDT spot trading.
Both Bitcoin and stablecoins have various benefits and challenges, so let’s explore their features and potential.
Bitcoin explained
Bitcoin was created as a store of value, so it’s meant to maintain its value over a long period. The cryptocurrency’s scarcity comes from its unique halving process, in which miners receive 505 fewer bitcoins for verifying transactions and mining new blocks every four years. The latest halving occurred in 2024 and decreased the reward from 6.25 BTC to 3.125 BTC. The next halving is expected to happen in 2028 and take the reward down to 1.5625 BTC.
This system makes the cryptocurrency more valuable, so users should forecast prices to rise. At the same time, mining pools will have to upgrade their resources and capabilities, considering how much computational power it will take to maintain a profitable mining rate.
Regardless, Bitcoin’s expansion is obvious as more and more countries accept it and allow individuals and companies to leverage its benefits. Bitcoin transactions are fast and affordable, and due to decentralization, they don’t require the level of bureaucracy needed in traditional financial institutions.
Stablecoins explained
Stablecoins are fiat-collateralized, meaning reserves from fiat currencies like the US dollar secure them. Some of the top stablecoins by market capitalization include Tether (USDT), USDC (USDC), and Dai (DAI). Stablecoins differ from Bitcoin in that their purpose is to navigate its volatility in a safe market. Altcoins hold 1:1 reserves in fiat currencies, so they, most of the time, mirror the prices of US dollars or Euros.
There are other types of stablecoins backed by:
- Commodities, such as gold, silver and oil, through the tokenization process;
- Blockchains like DAI and Wrapped Bitcoin offer users 1:1 units of blockchain stablecoins and a digital currency;
- Algorithms that use market feedback to increase or decrease the demand for the cryptocurrency;
Stablecoins are useful in payments and transactions due to their speed, transparency, and stability. This is why many people, especially beginners, choose stablecoins instead of Bitcoin.
Safety in BTC vs stablecoins
Bitcoin is considered one of the safest cryptocurrencies in the ecosystem due to its consensus mechanism and encryption technologies. It is decentralized, meaning management is not tied to any third parties but rather maintained by miners, validators, and nodes.
At the same time, Bitcoin has gained investors’ trust due to its resilience since 2009. It has withstood moments of high volatility due to numerous factors, such as market sentiments, technological changes, and regulatory news. However, Bitcoin’s fundamental system of immutable records and distributed consensus makes it reliable.
On the other hand, stablecoins could also be considered safe since they’re not exposed to the same level of volatility due to their fiat currency collateral. Still, these fiat-collateralized stablecoins can break their peg and impact businesses.
When it comes to regulation, stablecoins are generally accepted when compared to Bitcoin. Legal frameworks from the US and Europe are approving stablecoins for companies if they adhere to a series of implementations in terms of AML (Anti-Money Laundering) or KYC (Know Your Customer) policies, for example.
The massive Bitcoin potential
Like all cryptocurrencies, Bitcoin has the potential to offer the unbanked a chance to manage their own finances and have access to them firsthand. According to the World Economic Forum, experts estimate that there are approximately 1.4 billion unbanked people across the globe, meaning they lack financial resources. However, this goes beyond users, as individuals with no financial access or resources also negatively impact the local economy.
If Bitcoin becomes accessible and is regulated properly, it could allow anyone to use financial products and services without going through bureaucracy. At the same time, Bitcoin acceptance can push for local innovation by attracting investments that contribute to education.
The practicability of stablecoins
Stablecoins are ideal for investments and trading for beginners and users who don’t want to be exposed to spikes in volatility. Governments approve stablecoins faster than Bitcoin and other cryptocurrencies, proving their value and security to users and companies.
Due to their potential, decentralized blockchains and startups also create their own stablecoins to benefit from both the technology and the security. For example, Ripple launched a stablecoin backed by the US dollar that the Ethereum blockchain and XRP Ledger will power.
The EU already implemented a legal framework on stablecoins called MiCA (Markets in Crypto-Assets), which established consumer protection and market integrity for users leveraging stablecoins. The regulation covers two types of stablecoins: asset-referenced tokens (ARTs) and e-money tokens (EMT).
To operate in the European space, issuers of these two stablecoin categories will have to prove their reserve asset management and publish detailed whitepapers. In addition, they’ll have to conduct frequent audits and report them to the respective authorities.
Do you invest in Bitcoin or stablecoins?
Bitcoin is the first cryptocurrency on the trading market, and its popularity rose from providing users with the opportunity to diversify their investments and access new markets. However, as it became more difficult to mine, developers started creating stablecoins, a type of digital asset backed by fiat currencies that respects features of botch centralization and decentralization. Bitcoin has more chances to become the next legal tender of the world, but stablecoins are accepted by governments faster due to their lack of volatility spikes.
