Currently, cryptocurrency is a very popular investment tool, but for many people, the investment risk of cryptocurrency may be too high. However, I hope that while writing this article, you can also understand that although knowing yourself and the enemy may not necessarily lead to victory in every battle, it can at least let you know where the risk is, so that you can avoid these risks and not accidentally touch these dangerous traps that may cause you to lose all your assets.

Before investing in cryptocurrency, I want to tell you a little story. I once had a friend who saw us playing with cryptocurrency, so he spent a large sum of money and immediately deposited it into the cryptocurrency exchange we usually use, and bought more than 200 ETH.

Then something terrible happened. When he deposited ETH into other platforms, he found that the ETF in his hand had depreciated by 0.5% in less than an hour, causing his total assets to evaporate by about 5,000 US dollars in an instant. Sometimes he didn’t feel the money flying away at all, but fortunately, these tuition fees also taught him a lesson. From then on, not only did he not escape the circle, he also became more active in trading and paid attention to small details.

This story is intended to tell you that many cryptocurrencies have the risk of rapid appreciation or depreciation, so when you want to trade, you must also understand the importance of using stablecoins as a medium of exchange.

Still don’t know what stablecoins are?

If you are a novice entering the cryptocurrency circle, you must first understand what stablecoins are, because this is very important for your future investment in cryptocurrency. The reason why stablecoins exist in exchanges is to allow the fiat currency we use in reality to be exchanged at an equivalent value. Compared with the huge fluctuations in cryptocurrencies, it often happens that the exchange rate may be at 2,000 US dollars an hour ago, and in an hour it drops by a full 2,000 US dollars to 4,000 US dollars. Although this is a bit exaggerated, you can observe the historical trends. Compared with this year, the exchange rate between Bitcoin and the US dollar is indeed very different.

Simply put, each unit of stablecoin will be bound to 1 US dollar, which is equivalent to a guarantee. Compared with other digital currencies, the price is much more stable, so it is called a stablecoin.

At this point, you must be thinking that it would be faster to use USD or TWD directly. At this point, I will tell you why stablecoins have emerged. The reason is that the foreign exchange transactions currently conducted in exchanges are not regulated by many financial institutions. However, fiat currency itself is regulated by the government and financial institutions, but cryptocurrencies are not endorsed by any financial institutions or governments. Therefore, these financial institutions and governments do not recognize this transaction at all, whether on the surface or under the surface.

Therefore, the existence of stablecoins is inevitable, otherwise the transaction risk will be relatively much higher, and the transfer time will be much slower. After all, the transfer of virtual currency may only take a few seconds and can be carried out continuously within 24 hours, and it is not restricted by any region. As long as the remittance address specifications are correct, the other party will definitely receive the cryptocurrency you remitted.

But fiat currency is different. Today, if you want to transfer US dollars to a bank account in Iraq, the bank will definitely require you to release relevant documents to confirm the purpose of your transfer and understand that the operation is safe, using complicated procedures to prevent you from transferring money to financial institutions in the alert zone.

If all this fails to dispel your damn idea, you may need to sign a affidavit. After all, if your money is misappropriated before you sign the affidavit, the bank staff must be responsible for the act of assisting you in handling the remittance, because it is his duty to help you avoid being cheated. However, once you sign the affidavit, whether your money has been misappropriated has absolutely nothing to do with the bank staff and the institution. In addition, it takes time to process the funds, and we have no way of knowing when the other party will accept the funds.

At this point, you must think that the bank's confirmation procedures are complicated, but to be frank, this is the difference between decentralization and non-decentralization. Of course, the stablecoins we are discussing today are generally under centralized control. Otherwise, there is no way to exchange cryptocurrencies with legal tender on a one-to-one basis. This means that behind every stablecoin there will be a one-to-one legal tender guarantee and endorsement by relevant financial institutions.

That is why, although they are essentially a medium of transaction, fiat currency needs to be endorsed by a financial institution before the funds can be transferred to another country or other people’s accounts to ensure that fraud is eliminated and that financial institutions provide protection for users.

So once cryptocurrency is regulated by financial institutions, it will become a centralized and secure medium of exchange.

Another difference of cryptocurrency is that it is hidden, so it is more difficult to trace the source of the transaction than normal fiat currency transactions. If the coin address you send is not linked to the relevant bank or financial institution for endorsement, the risk for you is definitely very high. Once the cryptocurrency is stolen by hackers, you will never be able to complain to anyone. This is also one of the risks associated with investing in cryptocurrency.

Another possibility is that you accidentally entered the wrong deposit and withdrawal address. In this case, you cannot apply for compensation from any institution, because the transfer to the wrong address was done by you, and no financial institution will want to endorse this matter for you and provide any compensation.

Therefore, the size of the finger is very important for education. At that time, the Fubon Securities Exchange accidentally entered an order of 80 million for a foreign client as 8 billion. In this case, of course, the stock exchange itself will absorb it, and no institutional unit will want to take responsibility for this matter. Even if it is a related cryptocurrency exchange that you have used for a long time, it has no reason to compensate you. After all, before trading, you must understand that the related cryptocurrency transaction itself has risks.

So if you are using a mobile APP to trade, please change this bad habit and start learning to use a PC to trade. After all, the functions of a PC are much more complete than those of a mobile APP. This way, no matter how fat your fingers are, this kind of shit will not happen.

Not only stablecoins are subject to centralized regulation

In addition to the stablecoins we just mentioned that are subject to centralized financial supervision, there are now many cryptocurrency exchanges that have cooperated with banks or other relevant financial institutions to endorse these cryptocurrency exchanges. Part of the reason for this is that they hope to provide asset protection for these users. Therefore, the current cryptocurrency circle’s KYC and bank account binding rules are becoming more and more stringent.

However, being regulated also means that when the government intervenes, tax issues resulting from profits may follow. In the near future, arbitrage transactions of virtual currencies may lead to some taxes that need to be paid to the government. Of course, I think the results may not be apparent in the short term of about ten years, but it is hard to say what the future will be like after ten years.

Of course, in addition to the centralized cooperation between exchanges and financial institutions, the exchange itself is actually a centralized system. It is only because of the unstable situation of exchanges in recent years that they have to cooperate with financial institutions and guarantee the assets of these investment traders.

Furthermore, most of the derivatives of smart contracts are based on the need to win the trust of users and then cooperate with government or company-related agencies, so that these users have a significant degree of confidence in the product or the system. significant improvement, thereby increasing the number of users.

In the next ten years, I personally think that the medical industry may operate in the form of smart contracts. In the future, when you need to use a company's products, you must use the virtual currency issued by that company to purchase them. Maybe from the current perspective, it may be a good thing for the world in the future, but I think the hidden concerns may lead to certain possibilities of corporate monopoly.

What types of stablecoins are there?

Today, I will introduce the main stablecoin-related currencies that we usually use. I hope that after you understand these currencies, please make good use of them so that you can trade smoothly in the exchange without suffering exchange losses due to market fluctuations.

Tether (USDT)

It was issued by Tether Limited, an affiliate of Bitfinex, one of the world's largest cryptocurrency trading platforms, and launched in 2015.

USDT is a virtual currency pegged to the U.S. dollar. The issuer Tether claims that the USDT it issues is backed by an equivalent amount of U.S. dollar reserves to maintain a 1:1 exchange rate with the U.S. dollar. For the cryptocurrency market with large price fluctuations, USDT provides a safe-haven function similar to legal tender that is not affected by market fluctuations and has stable value.

In addition, Bitfinex is the fourth largest exchange in the world. It has very strict KYC supervision, and the trading volume of USD and USDt is huge. It is very suitable for currency exchange and trading. Friends who are interested in registering this exchange can use the following link to register!

Paxos Standard Token(PAX)

Issued by Paxos, it is also an ERC20 stablecoin built on Ethereum. It is a stablecoin with a 1:1 anchor value to the US dollar. Pax is regulated by the US government and conducts regular corporate financial audits.

TrueUSD(TUSD)

TUSD is also exchanged through USD:TUSD; 1:1, and is based on Ethereum ERC20 cryptocurrency. The difference between TUSD and USDT is that if users want to purchase TUSD, they will go through a formal trust company that complies with AML (anti-money laundering) and KYC (identity verification). It is also a centralized currency. TUSD's trust account will be regularly audited by an external accounting firm, and the US dollar assets in the account will be announced regularly. It is a relatively open and transparent stablecoin.

Dai (DAI) released by MakerDAO

Dai is a USD stablecoin that is different from the above models. Dai is generated by Ethereum smart contracts, allowing users to use "Ether" as collateral on smart contracts instead of using fiat currency USD as collateral. All transactions are publicly recorded on the Ethereum blockchain to achieve complete transparency and security. Compared with the above stablecoins, Dai has achieved "decentralization".

Dai's primary market is quite transparent and will not be affected by regulations like regulated stablecoins such as TUSD, PAX, USDC, and GUSD. Although TUSD, PAX, USDC, and GUSD have achieved currency stability and credit through the endorsement of the government and auditing agencies, the flow of funds is also subject to regulations.

When you want to directly purchase or redeem TUSD, PAX, USDC, or GUSD in the primary market, you will face AML (Anti-Money Laundering) and KYC (Know Your Customer) reviews conducted by banks or issuers of these stablecoins. They can freeze your account at any time as long as they determine that there is a problem with the flow of your funds.

For example, if you want to exchange PAX back to US dollars through official channels, because these companies usually process US dollar remittances through an overseas bank, China is now under the spotlight of the International Anti-Money Laundering Organization. If your domestic bank account finds that there is a sum of US dollars of unknown origin transferred into your account, it is very likely that the amount will be directly frozen.

Gemini Dollar(GUSD)

GUSD, the full name of which is Gemini Dollar, is also an ERC20 token based on Ethereum, and is anchored to the US dollar at a 1:1 ratio by a New York trust company. GUSD has been approved for official issuance and listing by the New York Department of Financial Services (NYDFS), and each GUSD is also backed by 1 US dollar. GUSD can be withdrawn from the Gemini exchange to an Ethereum wallet; if GUSD is deposited back to the Gemini exchange, it can be destroyed.

USD Coin (USDC) issued by Circle

The technology of USDC was jointly developed by exchange giant Coinbase and Circle, a subsidiary of Goldman Sachs. The difference is that USDC is built on the Centre mechanism, which is an architecture dedicated to stablecoins. It operates by pledging assets in the real world and being audited by Centre.

USDC is also a stablecoin with a 1:1 anchor value to the US dollar. Each USDC is guaranteed to be collateralized by the corresponding US dollar, and the company's accounts are also disclosed regularly.

What is more noteworthy is Goldman Sachs' large investment in Circle, which shows that traditional financial institutions have also begun to get involved in the cryptocurrency business, which will have a long-term impact on the legality and property custody of cryptocurrencies in the future.

Conclusion

Finally, I would like to tell you that before you decide to use cryptocurrency for investment, it is recommended that you use the stablecoins mentioned above to exchange your own fiat currency, because this is the most secure way for you.

Therefore, there is generally a US dollar as a guarantee behind each currency, so it is relatively easy for you to know the current correct value of this currency in US dollars per unit, without being affected by market fluctuations, which makes you unsure of the price of the exchange.

However, the existence of stablecoins is necessary. Usage rate is a very important thing for stablecoins. Once more and more traders use stablecoins for exchange, more people will buy them and more people will use stablecoins for transactions. Then the status of this stablecoin will become more and more stable, which is nothing more than a good thing for traders.