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Cryptocurrencies and traditional money: allies or rivals?

Cryptocurrencies and traditional money: allies or rivals?2 min read
  • 10 October 2022
  • by By the Unicorn Hunters editorial team with information from CryptoCon

A revolution doesn’t always mean a complete and immediate rupture with what already exists. There’s no shortage of innovations that, without losing their transformative drive, were finally combined with more traditional concepts and resources. In the case of cryptocurrencies, this can be seen in a new generation of blockchain-based coins that don’t respond to any national central bank but which share traditional (or fiat) currencies’ goal of stability. Stablecoins represent a space where cryptocurrencies and traditional money have found a way to complement each other. On the one hand, they have the characteristics we expect from digital currencies: they take advantage of blockchain technology, they’re not emitted by a central bank, they can be used to acquire goods and services and they’re highly efficient for making fast, reliable and low-cost international transfers.

However, it's in their differences from options such as bitcoin and ether that a likeness to fiat money arises. Most typical cryptocurrencies (for want of a better phrase) are subject to swings in supply and demand, which means that their prices see constant fluctuations.

Stablecoins, on the other hand, anchor their value in a traditional asset – traditional money being one of the most often used. As a result, we can find stable cryptocurrencies whose value is linked 1:1 to the US dollar (USD), the euro, the Mexican peso or the Peruvian sol, for example.

Of course, such a cryptocurrency will be sensitive to the price variations of the linked currency on global markets, but these fluctuations are not usually at all comparable to those currently seen in many cryptos, whose worth can be a rollercoaster of steep ups and downs.

Use in Latin America

Tether is one of the world’s most popular stablecoins. It’s generated and administered by the company Tether Limited. This detail is something that displeases many in the crypto community because, while it isn’t issued by a central bank, it is controlled by a central body.

Tether comes in four versions, each tethered to a fiat currency: USDT (linked to the US dollar), EURT (euro), CNHT (Chinese yuan) and MXNT (Mexican peso). In each case, the parity is 1:1. USDT is the most popular stablecoin owing to the US dollar’s dominance in world markets. In fact, according to CoinMarketCap rankings, USDT is consistently among the Top 5 cryptocurrencies on the entire market.

This stability and connection with well-known traditional currencies has proved to be popular among consumers. For example, in Latin America, USDT is increasingly being used as a means to protect savings in countries with high levels of inflation (such as Argentina and Venezuela) and to send remittances. In a region with a heavy dependence on remittances, USDT has become a useful resource for making international transfers based on a traditional currency with an accessible cost per operation.

Although Tether Limited does not provide any specific details on activity in Latin America, some experts estimate that stablecoins account for 24.5% of all the crypto operations in the region, with USDT representing the lion’s share of that. It’s believed that at the global level, USDT accounts for 50% of all operations carried out with stable cryptocurrencies.

As the case of Tether shows, we should be wary of false dilemmas: it’s not always a case of choosing between crypto and fiat. If you’re interested in joining the future economy, but don't want to lose the stability provided by traditional money, the crypto world has this option for you.