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Stablecoins: Why Have They Become Popular And How Do They Work?

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The emergence of stablecoins has been one of the most significant events in the digital asset industry in recent years. In this guide, you will learn why they have become popular and how the different types of stablecoins work. 

Stablecoins Are Here

In the past, stablecoins raised eyebrows and the crux of the issue was whether they are really supported by the dollars that they have claimed but the narrative has changed. The maturation of the market has brought about diverse companies finding institutional support that has helped them to gain trust. For example, USDC is certified by Goldman Sachs and Circle.

The emergence of stablecoins is attributed to one of the biggest problems facing cryptocurrencies: volatility. Through different mechanisms, stablecoins aim to reduce volatility to keep their prices stable. 

Types of Stablecoins and Their Significance

Currently, there are four types of stablecoins in the market.

Fiat-Backed Stablecoins

US dollarFiat-backed stablecoins are cryptocurrencies that endeavor to retain a stable token value that is attached to the value of a specific fiat currency. These coins largely work by controlling the token supply—either by creating or destroying tokens—in order to maintain a 1:1 ratio between the number of tokens in movement and the quantity of collateralised fiat they have in their reserves.

In this form of stablecoin, a company or central body will manage the receiving of new fiat and in return, issue a corresponding sum of fiat-backed tokens. The company is the guardian of the fiat reserves that backs up all the tokens. It is important to note that this central arrangement necessitates a certain level of trust, mostly through third-party audits, in order to ascertain or verify and validate that the fiat reserves are fully in tandem with the token supply. In essence, whenever a holder chooses to redeem cash with his tokens, the company will transfer the fiat money to the bank account of said holder and then the equivalent coins will be destroyed.

This stablecoin is considered very simple as it is easy to understand. Also, fiat currencies are deemed stable as it is backed and ensures little or no fluctuation in the underlying prices. On the other side, due to its centralised nature, it is exposed to diverse risks and liabilities such as the bankruptcy of the central body. Also, it requires a third-party (external auditors) in order to verify the credibility of the accounts and this isn’t in tandem with the code of conducts of cryptocurrency.

Examples of Fiat-backed Stablecoins are tether (USDT) and True USD (TUSD).

Asset-backed Stablecoin

goldAs the name implies, the stablecoins are backed by assets. The most common and popular asset used as collateral is gold which is a popular precious metal. The reason for many investors’ choice of precious metals is not far-fetched. Its ability to retain its value pretty well as compared to other assets. It is most valued when the investors are able to fall back on it during a market recession while every other asset depreciates.

For gold-backed stablecoin, one coin characterises a specific value of gold, for example, one token is equal to one gram of gold. The physical gold itself is most times, kept with a trusted third party. Even though commodity-backed stablecoins are not as popular as fiat-backed coins, they still offer a credible substitute for those who prefer to transact in tokens backed by genuine, concrete value by way of precious metals.

A good example of a commodity-backed stablecoin is Digix’s Gold token (DGX). 

Cryptocurrency-Backed Stablecoin

These are coins backed by other digital currencies such as bitcoin or ether. Crypto-backed coins are not at the mercy of a single currency but rather backed up by a mix of cryptocurrencies. This ensures a reduction in volatility risk and eliminates one point of failure. Due to this, many crypto-backed stablecoins are over-collateralised in order to survive the extreme price fluctuations of the underlying cryptocurrencies. The most common form of crypto-backed stablecoins entails users staking (and locking-up) a certain amount of cryptocurrencies into a smart contract, which will then result in the creation of a fixed ratio of stablecoins.

A well-known example of crypto-backed stablecoin is the MakerDAO’s Dai token (DAI). It is a decentralised, crypto-backed coin with a value that is fixed against the U.S. dollar. It does not rely on any third-party since it operates on a blockchain. It accomplishes price stability through an independent system of smart contracts, called Collateralised Debt Position (CDP), which respond to diverse market undercurrents.

Seignorage-Style Stablecoin

This is the only category of stablecoins that is not backed by anything. These coins make use of an algorithmically governed method to contract and develop a stablecoin’s money supply. Therefore, as the demand for the coins increases, the supply of stablecoins are created to minimise price, returning it to stable levels. The foremost purpose here is to get the coin’s price as close as possible to $1.00. 

This guest contribution was provided by Precious Onyejegbu, founder of NGExchanger, a cryptocurrency exchange platform in Nigeria.

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Can Cryptocurrency Disrupt the Online Gaming Industry?

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Cryptocurrencies have had a marked impact in various industries over the past few years, generating hype and controversy in equal measure.

When it comes to online gaming, there is ample opportunity for bitcoin and its contemporaries to cause disruption. But what shape will this shakeup take and how will this differ depending on the segment of the market that is affected?

Online Casino Sites

Bitcoin Gambling ICOsThe rise of digital gambling services has been fuelled in the recent past by the relaxing of regulations surrounding web-based wagering, as well as the streamlining of the transactions required to deposit and withdraw cash from casino sites.

In spite of ongoing efforts to address claims that some countries are too liberal in terms of online gambling regulation, continued growth is anticipated and the industry could generate $100 billion annually within the next half-decade.

Unfortunately, most mainstream casino sites do not offer direct deposits and withdrawals using cryptocurrency. If you want to snap up bonus deals at Casumo or any other popular site, you will most likely have to rely on a credit or debit card transaction.

Indirect use of cryptocurrency can be achieved in this context through certain payment platforms. Skrill, for example, offers a crypto-oriented aspect of its service that can then allow for conversion into a classic fiat currency.

The reason that online casino sites are anxious about embracing cryptocurrency is that it is still subject to a significant degree of volatility, with signs that this state of affairs will persist indefinitely. This is something that players are also considering from a practical perspective, with the investment opportunities presented by cryptos being seen as enough of a gamble in their own right, without bringing the likelihood of losing money at a casino into the equation.

Esports

esportsOnline gaming used to be casually competitive, but it did not take long for professional players to emerge and tournaments focused on showcasing their skills to be developed.

Prize money for major events based on titles like Counter-Strike: Global Offensive and Starcraft can spiral into the tens of millions of dollars, while huge audiences from around the world tune in to see their favourite players and teams do battle.

The influence of cryptocurrency in this area of the market is similarly nascent and in the process of evolving, rather than being a truly disruptive force that is impossible to ignore. What is more relevant to esports is the way that blockchain technology is leaving its mark at the moment.

Blockchain provides the backbone of cryptos and ensures that security is optimal. This is being adopted by certain emerging online gaming service providers in order to reduce the chances of cheating and prevent unwanted outside intervention in both high profile esports events and everyday face-offs between amateurs in their own homes.

As with online casinos, gambling is also being factored into the esports scene at the moment, with both cryptocurrency and blockchain technology facilitating the emergence of new solutions to make this a possibility.

Being able to place a wager on the outcome of a digital competition in the game of your choice is not a new concept. What is gaining traction at the moment is the ability to bet on how well you will perform in a match that you actively participate in.

Platforms which let players host their own mini-tournaments, gamble on the result and make money while they play the games they love can use crypto services to make this happen. This is a dramatic shift from the traditional approach to online gaming and will continue to cause changes as the industry matures.

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3 Reasons Why Africa Is Set For A Cryptocurrency Explosion

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Cryptocurrency Explosion

Bitcoin and other forms of cryptocurrency have irrevocably changed the way we think about money from a fundamental standpoint. Where most forms of hard currency are subject to government oversight and regulations, cryptocurrencies are typically free from such restrictions. Hence, it is easy to see why bitcoin was a favorite amongst dark web users and criminals. Controversy aside, cryptocurrencies are considered the way of the future and have the potential to bring about a revolution.

With a massive population and its wealth of natural resources, the continent of Africa has been described by Forbes as being the last frontier of investment. Now, in the face of changing times and an increasingly connected world, cryptocurrency is making its way to Africa.

Join us as we take a look at why Africa may be the next big thing for cryptocurrency.

1. The Lack of an Organised Financial System

With its bloody history of colonisation, political instability, and civil wars, Africa’s growth in the banking and finance sector has been lacking. Despite initiatives undertaken by the IMF and World Bank, financial inclusion in Africa remains low.

A lack of political will and resources has made the task of developing a banking infrastructure a daunting one. As a result, this has left a sizable amount of the population with little to no access to financial services.

Fortunately, because cryptocurrencies can be transferred and received by anyone with an Internet connection, the need for middlemen or banks is eliminated. Throw in the fact that Internet connectivity in Africa has been on the rise and we have all the elements required to see an increase in cryptocurrency uptake.

The trend can be witnessed by the number of cryptocurrency exchanges appearing across Africa. From Golix in Zimbabwe to the Naira Exchange in Nigeria, one can expect to see an increase in uptake in the years to come as Africans move beyond banks and their legacy services.

2. The Youth Factor

African tech startupsWith an entrepreneurial community and a high rate of tech-literacy, it should come as no surprise that a rising number of youths in Nigeria have turned to freelancing in lieu of traditional employment. Working with members of the international community, these freelancers offer a variety of services that range from copywriting to programming.

Unfortunately, the notoriety of Nigerian Internet fraudsters has resulted in some complications for burgeoning freelancers. For example, payment companies like Paypal do not allow the transfer of funds into Nigeria in order to discourage Internet fraud. On the other hand, payment companies who do offer such services to Nigerians often do so at an exorbitant cost.

To work around this, freelancers in Nigeria have turned to accepting cryptocurrency as a form of payment in lieu of cash transferred online. Among the crypto-literate in Nigeria, bitcoin is seen as being on par with the US dollar.

3. Cryptocurrency As a Stable Form of Currency

The African continent is no stranger to civil wars and unstable governments. From Venezuela to Zimbabwe, we’ve seen how hyperinflation can decimate the value of a nation’s currency.

Bitcoin creator Satoshi Nakamoto has often cited that bitcoin was intended to be immune to economic turmoil due to its decentralised nature. Suffering from crippling hyperinflation, citizens of Zimbabwe have turned to Bitcoin and other cryptocurrencies despite being banned by the Reserve Bank of Zimbabwe.

Kenyan Shilling

Tech-savvy Zimbabweans have often cited that utilising bitcoin as a medium of exchange allows them to hedge the value of their cash against hyperinflation. In a nation where financial services are sketchy at best and foreign investment is minimal, bitcoin provides Zimbabweans with a measure of much-needed stability.

Further proof of this can be seen by how Venezuelans have turned to bitcoin and other cryptocurrencies in lieu of the now defacto useless Bolivar. Being free from bank and government intervention, cryptocurrencies allow citizens to freely transfer funds into or out of the country with minimal fuss.

Cryptocurrencies have the potential to democratise financial services due to their independence. With adoption rates of Bitcoin and cryptocurrency set to explode in Africa, you just need to hold your horses and wait for the value growth.

This guest post was contributed by cryptocurrency writer Benjamin Lee. 

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eatBCH – Bitcoin Cash Community Has Raised Over $10,000 to Feed Vulnerable South Sudanese

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eatBCH

eatBCH is a charitable cause launched with the aim to help feed individuals who live in Venezuela’s struggling economy through donations in Bitcoin Cash (BCH). After initially launching in Venezuela, eatBCH was also launched in South Sudan to bring the “peer-to-peer electronic cash-to-food system” to the central African nation.

To find out more about the eatBCH initiative in South Sudan, BitcoinAfrica.io spoke to one of the organisation’s volunteers, Garang Deng.

eatBCH in South Sudan

EatBCH South SudanIn a conversation over Telegram, Garang Deng told BitcoinAfrica.io that the eatBCH South Sudan team, which works on a volunteer basis, was inspired by the initiative’s impact in Venezuela after which a team member got in touch with eatBCH Venezuela to find out more how the charitable cause was run in the South American country.

After several of today’s team members attended the Africa Blockchain Conference in Kampala in May 2018, the group decided to launch an eatBCH initiative in South Sudan.

“We launched it there and got our first donation, and we bought some food items on our way back home,” Deng explained.

Since there are no businesses or vendors that accept bitcoin cash and no local cryptocurrency exchanges in South Sudan, the eatBCH team uses Ugandan exchange Coinpesa to convert the BCH to mobile money, which it then uses to make its food purchases.

“We started the charity part-time on weekends in the capital, Juba, in our neighbourhood and then expanded to some of the most affected areas by the conflict, such as the town of Yei or Bor. There, we were able to feed over 500 internally displaced people, mostly elderly and children. We were able to do that through our colleagues whom we trained after coming back from the blockchain conference,” Deng elaborated.

Since May 2018, the eatBCH South Sudan initiative has managed to raise over $10,000 said Deng.

More to Come

Future plans of eatBCH in South Sudan are “to teach people to use this money to improve their lives not only for feeding but to trade with it. Also, we are planning to send these kids who work on the streets to school if we are able to get the support we need.”

Anyone that is interested in contributing to the charitable cause on a voluntary basis is welcome to do so. Currently, the broader team includes students from high schools and colleges who help to distribute the food to children and the elderly.

Moreover, anyone wishing to contribute financially to the cause can donate to eatBCH’s Bitcoin Cash (BCH) wallet found on the initiative’s Twitter and website.

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