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The rise of cryptocurrencies has shown the banking world that our money options can change. Much like the rise of digital currencies following the expansion of the dot com boom, cryptocurrencies are taking the world by storm.
While there are many benefits to using cryptocurrencies, including contributing to open banking during tumultuous political times, cryptocurrencies like Bitcoin and Ethereum are unfortunately volatile. In as little as a few hours, a single cryptocurrency value can rise and then drop about 10%. Its volatility is evident when you look at the graphs of the cryptocurrency lifespan, which rises and drops in extreme percentages when compared to fiat currencies.
So while the creation of cryptocurrency is good on the one hand, better and more sophisticated technology can improve its functionality for everyday usage.
Here at Sila, we’re optimistic that crypto won’t go anywhere. In fact, we’re placing our bets on stablecoins as being a huge market player when it comes to digital currency expansion. What’s even more interesting is the rise of central bank digital currencies (CBDCs). In this article, we’ll tackle each and tell you why we think they can both contribute to our complex global financial systems.
While the creation of the stablecoin gave rise to the central bank digital currency (CBDC), both are distinctly different. Both play a significant role in the evolution of digital currencies.
Stablecoins are cryptocurrencies that are tied to another asset in order to secure or balance out the value of the cryptocurrency. Stablecoins were designed to reduce the volatility of cryptocurrency, and one of the best ways to do this is to offer collateral. Things like gold assets, other fiat currencies, or the modification of other crypto assets keep the stablecoin stable so that it can be used more often.
CBDCs, on the other hand, are digital currencies backed by government entities or actors. CBDCs are actual money and don’t rely on crypto money. This means that they do not have to deal with the regulatory ambiguity like cryptocurrencies tend to. Since they are issued and managed by a government agency, they can be treated similarly to a fiat currency.
So while stablecoins helped to create CBDCs, it seems like CDBCs might be more powerful and more useful. We don’t believe this is the case, as the number of stablecoins continues to grow. The development of stablecoins does not rely on governmental agencies.
So while stablecoins might contend with a number of regulatory issues and might still experience volatility because of their cryptocurrency counterparts, stablecoins can still be created by private entities and are useful in areas where government agencies are the problem or where private businesses need to make more stable currencies other than the national currencies.
Even if CBDCs prove more fruitful in the long-run, they must still rely on the private sector to manage and improve CBDCs. In this way, the exchange of information and managing power might be competitive between government agencies and private entities, but this means that people are interested in the two forms of currencies.
So there are tradeoffs to each type of currency: CBDCs are more secure, government-funded digital cash. This means that they are less reliant on the crypto market fluctuations and can clear up regulatory and accounting issues.
On the flip side, CBDCs are tied to government actors, and they seem to have continued to control the development and management of the asset. Therefore, in countries where the currency is the only thing that provides people with freedom against an oppressive government, then CBDCs aren’t useful, and in fact, giving more power to the governments.
Stablecoins also give additional competition to CBDCs, so private companies and cryptocurrency can affect the stablecoins available.
Much like CBDCs, stablecoins have a future in a number of areas. From gaming to eCommerce, digital banking, and non-fungible tokens (NFTs), stablecoins give backing to digital currencies in a way that CBDCs, cryptocurrencies, and fiat currencies have never been able to do.
It’s funny that in March of 2020, Harvard Business Review declared stablecoins to be the next big thing in eCommerce. The rise of digital payment services is a long-time coming, and we here at Sila believe in this market opportunity. Now, we are seeing the Federal Comptroller giving banks the green light to begin cautiously adopting stablecoins.
Proponents of stablecoins often correlate its use with the prevalence of the credit card (which raises the question: will people eventually come into crypto debt? Probably). Credit cards were marketed in the 1980s as a payment method that allowed people to buy what they need, rather than what they could afford. Its introduction also transformed the ability for marginalized groups to own spending power, like women and people of color.
Now, credit cards are commonplace (and an issue), but they open up doors for people to buy essentials, build credit, and build social capital. It’s clear that stablecoins will be creating the next revolution of financial opportunities and wealth. Its ability to open the doors to global banking means giving economic spend power to countries considered third-world or financially unhealthy. Crypto gives more people with less access to digital assets and can grow their assets in new ways, creating new wealth and reducing poverty.
We know stablecoins aren’t perfect, but they provide opportunities, which is a great thing to have in a currency. More than that, stablecoins, in addition to cryptocurrencies, are the first privately owned currencies. Right now, they aren’t considered fiat currencies, but soon they will become the first privately-owned fiat currencies, which allows more individuals (and more people in general) the control of fiat currencies, financial regulations, and global economies.
We think that this has the opportunity to level the playing field when it comes to financial compliance, which might allow other types of social capital in economic portfolios and more opportunities for growing wealth.
Our mission at Sila has been to open doors to global banking. And we decided to do this in a few ways. The first is by creating our patented SILAUSD stablecoin. This stablecoin is driven by Ethereum and pegged to the US penny, so it is extremely precise and far less volatile than other stablecoins.
We also know that without an intelligent way to send money, stablecoins can be considered worthless. So we decided to put the power to create payment methods into the people’s hands. Our ACH API SDK packages, which exist in various programming languages, give regular business owners the chance to build their own fintech solutions.
With the ability to link bank accounts, securely log in, perform identity verification checks, securely store digital cash (in an FDIC-backed bank account), and send stablecoins, the custom Sila digital wallet or payment gateway is unprecedented.
By purchasing with Sila, you have access to building an app or payment gateway so that you can process payments, send ACH transactions, and avoid costly credit card transactions. Users of the Sila API have access to all these features as well as a private Sandboxing environment for testing. The ACH API can be customized entirely, white-labeled, and implemented into an existing financial payment system if you so desire.
We’ve clearly invested the whole pot into stablecoin because we believe in its opportunities and versatility. By being a clear competitor to CBDCs, stablecoins can continue to grow the digital currency marketplace and offer more banking opportunities worldwide.