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If you are to buy cryptocurrency in India, you probably think Bitcoin is the most widely used cryptocurrency across the globe; there’s a good chance that you’re wrong. Bitcoin might be quite popular, but according to CoinMarketCap, the crypto with the highest daily and monthly trading volume happens to be Tether or USDT, even though its market cap is significantly smaller than that of Bitcoin.
Now, what is Tether? Tether is a particular kind of cryptocurrency, known as stablecoins. If you were to buy Bitcoin or any of the altcoins on any cryptocurrency exchange in India, you’d find most of the trading is done in USDT. Indeed, most seasoned crypto traders rely on stablecoins while trading to protect their holdings, and for a good reason, too: traders quickly switch to a stablecoin when they expect a crypto coin’s price to fall.
Why, you ask?
Well, to find that out, let’s first see what stablecoins actually are, shall we?
So, What Are Stablecoins?
Simply put, stablecoins are cryptocurrencies that act like fiat currencies; reserve assets advocate them. The value of a stablecoin can represent that of a physical currency, a valuable asset like gold, and even another cryptocurrency. For instance, the value of Tether or USDT is pegged to the US dollar; 1 USDT is equal to 1 USD, so the USDT and USD maintain a 1:1 ratio in terms of value. The primary objective of stablecoins is to offer price stability – unlike regular cryptocurrencies. As of right now, most stablecoins exist on the Ethereum blockchain.
Key Characteristics of Stablecoins
Stablecoins combine the better features of cryptocurrencies and fiat money, so they essentially carry the best of both worlds. Here are some of the key characteristics of stablecoins that you should be aware of if you want to buy cryptocurrency in India:
- Stablecoin prices don’t fluctuate as wildly as regular cryptocurrencies. Crypto prices are ever volatile and unpredictable at the best of times. This particular trait of cryptocurrencies is one of the factors that’s keeping them from becoming a mainstream mode of payment. However, stablecoins are tied to underlying assets that collateralize them and keep them grounded, so they are suitable for mainstream adoption.
- Since stablecoins are basically cryptocurrencies, transactions are processed fast while maintaining the counterparties’ privacy and security, making them fit to be used for regular transactions.
- Using stablecoins for transactions also means you pay the lowest possible trading charges, regardless of the cryptocurrency exchange in India you use to trade and store your crypto.
- Like with the usual cryptocurrencies, you can send funds to anyone in any corner of the world using stablecoins without needing intermediaries.
Categories of Stablecoins
Stablecoins can be categorized into three classes based on the types of assets that keep them collateralized. If you intend to buy cryptocurrency in India, you should be aware of these classifications:
- Fiat-Collateralized Stablecoins: Fiat-collateralized stablecoins – also known as centralized stablecoins – are the most widely used stablecoins. These have either fiat currency reserves or physical assets backing them up. Therefore they are the best option in terms of stability.
Fiat-collateralized stablecoins have a central authority figure/ organization (for example, financial institutions like banks) behind them that holds a certain amount of fiat currency and issues an equivalent number of stablecoin tokens as collateral. Precious metals like gold, silver, etc., and even commodities like natural gas, oil, etc., can also be used as collaterals by authority figures to issue stablecoins.
Aside from Tether, TrueUSD is another fiat-collateralized stablecoin pegged to the USD at a ratio of 1:1.
- Crypto-Collateralized Stablecoins: Crypto-collateralized stablecoins, as you have probably guessed, have cryptocurrencies (like Bitcoin, Ethereum, or Ripple) to ground their values.
You might be wondering what’s the point of crypto-collateralized stablecoins since any price fluctuations of the underlying crypto would affect the stablecoin as well. However, to combat that very issue, crypto-collateralized stablecoins are
over-collateralized, i.e., the stablecoins released for circulation are smaller in number compared to the number of cryptocurrencies kept in reserve. Additionally, crypto-collateralized stablecoins are trustless and not controlled by a singular authority figure.
MakerDAO’s DAI is perhaps the most popular crypto-collateralized stablecoin, with Ethereum acting as collateral.
- Non-Collateralized/ Algorithmic Stablecoins: Finally, algorithmic stablecoins are uncollateralized – they don’t have any reserves backing them up. However, they use smart contracts and autonomous, distributed algorithms to mimic the mechanism that works behind an institution like a central bank and keep the values stable. An algorithmic stablecoin network can automatically issue new coins when the price goes up and burn existing coins to decrease the coin supply when the price goes down.
Should You Consider Investing in Stablecoins?
The foremost criticism against stablecoins is that they are inherently centralized, which sort of defeats one of the primary purposes of cryptocurrency – a decentralized financial system. Therefore, once you buy stablecoins, you’d have a central authority figure holding power over your funds. Moreover, in theory, these centralized organizations can withdraw the issued stablecoins at any moment since the code inside the stablecoins allows them to burn or freeze these coins. Naturally, they can also issue more stablecoins if they see fit.
That being said, stablecoins have still provided the general populace with a gateway into the crypto space by extracting the uncertainty associated with the regular cryptocurrencies’ values. They hold the potential to become a preferred alternative to traditional money and bring about a more global adoption of cryptocurrencies. Therefore, if you want to buy cryptocurrency in India, you should definitely consider investing in stablecoins.
Wondering which cryptocurrency exchange in India you should buy and store your crypto on? WazirX has earned a reputation for being the safest and most cost-effective platform within the Indian crypto community to buy and sell well over 100 cryptocurrencies! To find out how you can open a crypto trading account and buy cryptocurrency in India, you can give this blog post over here a read!
Happy trading!
Frequently Asked Questions
How To Invest In Cryptocurrency Stocks?
Cryptocurrency can be purchased in two ways: through mining or exchanges. The process of confirming and adding transactions to the blockchain public ledger is known as cryptocurrency mining. Cryptocurrency exchanges are another option. Exchanges make money by charging transaction fees, but there are alternative platforms where you may communicate directly with other cryptocurrency traders.
What Is Cryptocurrency?
A cryptocurrency is a digital currency secured by encryption, due to which chances of activities such as counterfeiting and double-spending taking place get close to impossible. Cryptocurrencies get created on blockchain technology ( a distributed ledger enforced by a distributed network of computers). Cryptocurrencies are unique in that they do not get issued by any central authority. The term "cryptocurrency" comes from the encryption techniques used to keep digital currencies and the network safe.
Is Bitcoin And Cryptocurrency The Same Thing?
Bitcoin is a cryptocurrency that was designed to facilitate cross-border transactions, eliminate government control over transactions, and streamline the entire process without third-party intermediaries. The absence of intermediaries has resulted in a significant reduction in transaction costs. Satoshi Nakamoto, the creator of Bitcoin, created the first cryptocurrency in 2008. It began as open-source software for money transfers. Since then, plenty of cryptocurrencies have emerged, with some focusing on specific fields.
Are Cryptocurrencies Legal In India?
In India, cryptocurrency is legal, and anyone can buy, sell, and trade it. Because India lacks a regulatory system to regulate its operations, it is presently uncontrolled. According to the Ministry of Corporate Affairs, companies must now document their crypto trading/investments inside the financial year.
Is Cryptocurrency Banned In India?
No, cryptocurrency is not banned in India. India has seen its ups and downs in the crypto sector concerning its legal status. The Reserve Bank of India (RBI) issued a circular in April 2018 advising all organizations under its jurisdiction not to trade in virtual currencies or provide services to assist anyone in dealing with or settling them. A government committee proposed outlawing all private cryptocurrencies in mid-2019, with up to ten years in prison and severe penalties for anyone dealing in digital currency. The Supreme Court overruled the RBI's circular in March 2020, allowing banks to undertake cryptocurrency transactions from dealers and exchanges.
How Many Cryptocurrencies Are There?
There are over 5000 other digital currencies available on the internet in addition to Bitcoins. The only problem is that they haven't gotten the users' attention. Besides Bitcoins, a few other digital currencies have gained popularity among users. It's been more than ten years since Bitcoins were first released, and now they've achieved new heights thanks to their phenomenal success.
Are Cryptocurrencies A Good Investment?
Cryptocurrency has the potential to make you extremely wealthy, and the potential to cause you to lose your money. Crypto assets, like any other investment, come with many risks and potential rewards. Fundamentally, cryptocurrency is an excellent investment, particularly if you want to gain direct exposure to the demand for digital currency.
What Is Meant By Bitcoin?
Bitcoin is a digital currency that was initially released in January 2009. It is based on ideas offered by Satoshi Nakamoto, a mysterious and pseudonymous figure, in a whitepaper. The name of the person or individuals who invented technology has not been revealed. Bitcoin promises lower transaction fees than other online payment systems, and unlike government-issued currencies, it is decentralized.
How Many Bitcoins Are There?
There are 18,730,931.25 Bitcoins in circulation as of June 2021. The total number of Bitcoins that would ever be there is just 21 million. On average, 144 blocks are mined every day, with 6.25 Bitcoins per block. The average number of new Bitcoins mined every day is 900, calculated by multiplying 144 by 6.25.
What Is The Meaning Of Bitcoin?
Bitcoin is a type of cryptocurrency that was first introduced in January 2009. It is invented based on the key concepts and notions presented in a whitepaper by Satoshi Nakamoto, a mysterious and pseudonymous figure. The name of the individual or people who invented technology is yet unknown. Bitcoin promises reduced transaction fees than existing online payment methods, and a decentralized authority controls it, unlike government-issued currencies.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
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