What are the differences between Bitcoin and USD coin? First, it was the Bitcoin, and later on came the other crypto coins such as USD Coin that were initially created as a digital and decentralized currency.
There is a lot of difference between a USD coin and any other crypto coin, Bitcoin in particular. This article will let you know all about it, if you do not know it already, that is.
The primary aim behind creating these digital currencies was to act as a means of exchange, which means paying for goods and services.
In addition to that, there are several other differences between these two coins. It includes the purpose of their creation as well as the risks involved in them.
6 Differences Between Bitcoin and USD Coin
Knowing the difference between Bitcoin and USD Coin will let you know which particular crypto coin is worthier to invest given the present scenario. Here are a few basic differences between them.
The purpose of Bitcoin as well as other crypto coins has evolved dramatically after its creation. Today, these coins are being used for a wide range of different purposes which includes and is not limited to a store of value, much similar to that of gold.
In comparison, the USD Coin, on the other hand, was created with the sole purpose of putting US Dollars on the blockchain. The main intention behind that is to enable moving them anywhere in the world in a matter of a few minutes. And, more importantly, the design of these coins intends to bring some sort of stability to cryptocurrencies.
The two cryptocurrencies, Bitcoin and USD coins or USDC, also differ notably in the ways they were created and are maintained. As for Bitcoin, it was created by Satoshi Nakamoto, an individual or a group.
Bitcoin is created when it is mined by the users or the members of the Bitcoin network. The miners are issued new blocks as a reward for their contribution in creating new blocks and verifying transactions on the Bitcoin blockchain.
This is done by using specialized hardware and mining equipment which is capable of solving any complex computational problems. This produces a hash which is a 64 character output that seems random.
This can be attained after making a lot of attempts and once it is achieved, the block is closed. It is then added to the blockchain and the miners are rewarded for their effort with transaction fees and Bitcoin that are newly created by them.
Much unlike Bitcoin, the USDC on the other hand is not designed at all to be mined. It is, as said earlier, issued. Therefore, USDC basically relies on the issuer and not on the miners as it is in the case of Bitcoin.
The creation of a USDC token happens typically when a customer purchases a token from the approved issuer. The process involves creating a corresponding amount of USDC for every US dollar that the issuer receives and applying for an ERC 20 smart contract.
After that, this is sent back to the customer and the US dollar that was paid to the issuer initially is held in reserve as collateral. Now, the USDC that the customer receives is redeemable for an equal amount of fiat currency, which is usually in US Dollars, against the issuer.
This entire process warrants that every USD coin is backed by a US Dollar and it can also be redeemed on a 1:1 ratio.
Bitcoin was typically designed to be decentralized. This means that the control or influence is not on the creator but it is maintained by the Bitcoin community.
This group is a network of developers around the globe who look after the management of Bitcoin on a voluntary basis and is not governed by any government, bank, or any other central entity.
USDC, on the other hand, is dependent on the underlying pool of collateral. This means that it is centralized as opposed to Bitcoin. This particular crypto coin is based on the asset backed and open source stablecoin structure that is developed by the Centre Consortium.
It also supports an open membership scheme that allows different financial institutions to take part and at the same time presents a much better solution.
This is because it is more detailed and there is a lot of operational and financial transparency. It operates with reputable auditors and banking partners and within the regulated framework of money transmission laws of the United States.
USD Coin, commonly known as USDC, its ticker, is a stablecoin by Coinbase. As said earlier, this is tied with the US Dollar on a 1:1 basis which means that every USDC unit available in the market is supported by $1.
This is typically held in reserve and comprises a mixture of short-term US Treasury bonds and cash. This particular crypto coin is typically issued by regulated fiscal institutions. This digital money of this digital age facilitates cashless transactions which are becoming more common today.
All Bitcoin transactions are recorded in a public ledger. A copy of this ledger is available on the servers that can be accessed from anywhere around the globe.
These servers, called nodes, can be set up by anyone using a computer. It is across these nodes that the consensus on the ownership of the coins is reached cryptographically.
The common risks of Bitcoin include its volatility and frequent market fluctuations. There are also the risks of cyber theft and fraud since there is very little or no regulation. Based on technology and lock withholding, these coins are beneficial for a few miners while others are left with nothing.
As of now, Bitcoin has limited usability and is not considered to be a legitimate mode of payment by most of the companies. Though it offers significant investment opportunities, this young technology creates a bubble economy.
And, a significant risk is that when the current Bitcoin bubble bursts it may become useless with the holders being unable to unload and thereby incur significant losses.
On the other hand, the risks of USDC, a few of which are similar to that of Bitcoin, are also worth noting in spite of the fact that it offers a high interest rate of 4%. Ideally, this is where the risks of USDC lie.
Since Coinbase is not a bank that offers savings accounts therefore the coins are not insured by the FDIC or SIPC. Moreover, USDC may be tied with the US Dollar but the US government does not play any significant role in it.
Another risk of it is in the rate of interest offered itself because Coinbase has the right to change the 4% APY which poses a considerable challenge to people who expect a stable return on their investment.
The unique nature of the two cryptocurrencies varies as well. As for Bitcoin, this decentralized crypto coin is simple to set up and more transparent and comes with more organized forms to make quick settlements.
As for the uniqueness of USDC coins, apart from those that are common to all cryptocurrencies, the fact that it assures withdrawal of one USDC and receipt of $1 in return without any problem adds to its transparency.
The level of cash held in reserve is verified by competent accounting firms simply to ensure that the levels match with the number of tokens that are in circulation in the market.
Can Crypto Replace US Dollar?
You may know that cryptocurrencies cannot be faked easily and the blockchain technology makes the ledger recording their transaction quite immutable.
A lot of people believe that it is for these specific attributes cryptocurrencies can replace US Dollars one day. However, the experts say that there are several things that need to be weighed to confirm it with certainty.
Another important aspect that ensures its security is the fact that this Coinbase stablecoin is offered with an assurance that US Dollars of equal amount is tied with it and held in a separate reserve safely.
On the other hand, the Bitcoin network is also quite secured since it customarily connects every block with one another both before and after creating it.
This prevents a hacker from tampering with a single record. Rather, a hacker will have to change the entire block containing the record and also all those that are linked to it as well.
Coming to the US Dollars, no matter the value of the dollar is not pinned to the stacks of gold any longer but still these are quite stable in value and a trusted currency.
As of now, the US Dollars are the most reliable reserve currency of the world that supports all characteristics of the global economy and allows making international transactions.
US Dollars became the worldwide standard after World War II. During wartime, banks in France and England shipped their gold reserve to the US fearing their monetary reserve may be stolen or appropriated.
After the war, the allied nations wanted to build some stability and signed an agreement in a small New Hampshire town called Breton Woods in which the US Dollars were considered to be the reserve currency of the world.
It remained a stable source, had a store of value, and acted as a medium of exchange. However, the dollar value went floating after the Vietnam War, but it still remained the global standard.
Now, when Bitcoin and blockchain came into existence in the late 2000s, along with other crypto coins such as USD Coins, later on, they all proved to have the same aspects as the US Dollars.
These are quite stable in terms of source and supply, have quite a significant store of value and can act as a medium of exchange.
However, the additional benefit was offered by the blockchain technology that ensures immutable records of transactions. Check out Cryptocurrencies vs Crypto Assets.
With other useful features and security aspects of cryptocurrencies on the whole such as asymmetric cryptography, digital signatures, hash functions, append-only logs, time-stamped ledgers and more, these coins ensure proper authentication and verification of every transaction.
Even if most of the crypto coins are decentralized, these are safe and the records stay forever as well as conform to this new, digital and high-tech world.
Another significant aspect of the cryptocurrencies, which is also one of its merits, is that crypto mining is not only a process in which the miners get rewarded for solving a complex mathematical puzzle first but in the process they also audit the legitimacy of any crypto transaction.
This minimizes the risk of double spending, which is a common issue with a physical dollar.
All these features and functionalities indicate the potential of cryptocurrencies, with Bitcoin and USD Coins included, of replacing the conventional US Dollars.
It can truly provide significant benefits, whether it is transactional or personal, offering both confidentiality and ownership.
However, everything is not as rosy and promising as it seems. Just like anything else, even cryptocurrencies come with benefits and risks as well.
The risks are much more than the common and apparent ones such as cryptojacking, loss of private and public keys, scamming, and more.
In fact, the government will not let go of its control and authority over the dollar for cryptocurrencies, which is still in its nascent stage.
But, the most significant risk among all is the potential for political involvement that may result in slower adoption of cryptocurrencies.
This is because cryptocurrencies involve a high level of transparency but the governments and political involvement may create significant hindrances in its way due to stringent policies and regulations.
Therefore, there is no scope to deny that problems related to cryptocurrencies need to be solved. One of the most significant ones is the speed of completing a transaction.
Most of the major cryptocurrencies lack transaction speed. While Visa can process more than 70,000 transactions per second, Bitcoin, USD Coin and others can manage to do only a handful.
If these issues are not resolved immediately, US Dollars will not be replaced by cryptocurrencies or even Bitcoin in the near term.
According to the experts, a currency such as the US Dollar which is stable in price just like other currencies such as EUR, JPY, GBP, RMB, and others is vital for facilitating mainstream adoption of Bitcoin and other cryptocurrencies.
It is also crucial for the blockchain technology to use it for making payments.
Apart from that, it also plays a significant role in supporting the maturation of those financial contracts that are built on the smart contract platforms such as tokenized securities, properties, and loans.
Therefore, in these matters the US Dollars still reigns supreme, and there lies the drawback of the cryptocurrencies.
Since these are not backed by the governments, nobody really is obligated to accept these coins as a legal and trustable mode of payment.
The involvement of the state regarding cryptocurrencies needs to be much more than focusing on tax payments or else it will limit the use of private money like these on a large scale.
However, the governments still consider US Dollars to be a useful form of revenue and are highly unlikely to allow this source to be replaced by any private source of money anytime soon.
Bitcoin as such is the oldest crypto coin available in the market but USD Coins are also gaining popularity pretty fast. In spite of the differences between these two currencies, both have huge growth potential making them worthy for investment.