Coinbase’s First Stablecoin: USD Coin

Written by John Butler
Posted October 29, 2018

The invigorating thing about cryptocurrency and blockchain is that there’s so much room for innovation, given it’s fairly new to the world.

Recently, something exciting has happened in the crypto/blockchain world. Crypto exchange titans Coinbase and Circle teamed up to create a stablecoin: the USD Coin (USDC). It runs on the Ethereum blockchain.

While Coinbase has put the stablecoin on its exchange this past week, Circle has been issuing it since last month.

What’s so exciting about USDC is not only what it is but also the implications its presence has for the future of our financial systems.

What is USD Coin?

Coinbase and Circle’s USD Coin is a little different than other cryptocurrencies, given that it’s a stablecoin.

A stablecoin is a kind of cryptocurrency that’s meant to be less price volatile. To do that, the stablecoin is pegged to, or backed by, another currency or commodity such as the U.S. dollar or gold.

It’s similar to how the U.S. dollar used to be backed by gold and silver.

The USD Coin in particular is pegged to the U.S. dollar at a 1:1 ratio. So one USDC is equal to $1 USD.

A stablecoin can even be pegged to other cryptocurrencies.

The USD Coin is an ERC-20 token, so it is compatible with most decentralized applications on the Ethereum blockchain.

Now, USDC isn’t the first stablecoin ever. Tether is a stablecoin from Hong Kong that is “tethered” to the U.S. dollar at a 1:1 ratio, just like USD Coin. Unfortunately for Tether, it’s not doing so well.

It has fallen below $1 USD, breaking the 1:1 balance between the stablecoin and the pegged U.S. dollar.

Be mindful that the USD Coin is not designed or intended to replace the U.S. dollar. Rather, it’s meant to make the U.S. dollar cooperative with cryptocurrency and blockchain’s framework.

By having a stablecoin like USD Coin on crypto exchanges, you’re basically trading real U.S. dollars like you would Bitcoin, Ethereum, and other cryptocurrencies.

So What’s the Big Deal?

Coinbase and Circle’s USD Coin is a pretty big deal for several reasons.

First, the USDC is the first stablecoin Coinbase is allowing to trade on its exchange. Since it is an exchange that only trades cryptocurrencies, it is important to note when it’s including new forms like stablecoins.

Second, the USD Coin helps blockchain developers and tech companies, since it's easier to program with. The stablecoin’s private keys make it simpler for a program to send and receive USDC through the blockchain.

With easier programming comes more time and energy for further development and innovation.

Third, the USD Coin’s presence is showing us another reason cryptocurrency and blockchain are here to stay. The USDC is one of many new stablecoins this year that have emerged on the scene. As crypto and blockchain are still fresh and growing, players in the industry are constantly looking for new, innovative ways to use them.

Lastly, the USD Coin is helping to ease doubts about cryptocurrency volatility and transaction transparency. With the U.S. dollar peg, USDC is less volatile, making it attractive to investors.

As the stablecoin is on a public blockchain, there is full transparency as to where it is on the chain. It is much easier for the USDC stablecoin to be stored locally than currencies in a typical bank.

Coinbase and Circle’s vision is for an open, international financial system where people can trade and send funds all over the globe, with no high transfer fees and processing times.

USD Coin is a product of that goal.

What we’re seeing here with USD Coin is the beginning of an open financial system where cryptocurrency and blockchain technology are being used with government-issued currency to back them up.

We’ll see how well USD Coin does, but it appears we may be hearing a lot more about stablecoins in this industry.

Happy investing,

John Butler, Jr.
Contributing Editor, The Token Authority

For digital currency, 2017 was a landmark year…