“First they ignore you, then they laugh at you, then they fight you, then you win.”
That’s been the story of cryptocurrencies as the US government in its latest crypto-friendly move has said banks can now conduct payments using stablecoins.
Wait, what are stablecoins?
As the name implies, stablecoins are coins that are stable.
These are cryptocurrencies that are less volatile than other crypto assets. Think of it this way:it’s common to see the value of cryptocurrencies move in excess of 10 percent in either direction within a few hours. Say, by 10 am 1 bitcoin = $34,000 and then by 1pm 1 Bitcoin = $37,000 or $30,000. This makes many cryptocurrencies unsuitable for everyday public use.
To minimize the price swings that occur in a crypto asset, stable coins were created– they are usually pegged to fiat currencies like the dollar and often exchange-traded commodities.
The U.S. government has also touted that blockchain networks “may be more resilient than other payment networks” due to the large number of nodes needed to verify transactions, which can, in turn, limit tampering.
This approval, however, was not without the warning that banks should beware of potential risks, including fraud, and guard against money laundering and terrorist funding by expanding their compliance practice.
Looking ahead: This approval could be imitated by other countries and lead to an increase in the usage and value of some of the over 200 existing stablecoins.
This move also indicates there is a gradual acceptance that crypto currencies and cryptonetworks are going to be the foundation of future payments systems and other financial services applications.