Financial Education

Understanding USDC And Why It’s Revolutionary

August 3, 2020

USDC, while perhaps not the most well-known, is a fairly common and well-used cryptocurrency, and certainly one to be familiar with when using Digifox.

You’ll likely notice any money you deposit into Digifox through your bank account or a card will show up in the form of a token called USDC.

USDC stands for United States Dollar Coin, and there are well over a billion USD coins currently circulating. USDC is a collaboration between two of the most respected names in digital finance, Circle and Coinbase. These companies manage and distribute the coin on the Ethereum network with smart contract wallets, making it an ERC-20 token. Circle is a payment services company backed by Goldman Sachs, and Coinbase is one of the leading enterprise companies for digital assets which allows its users to buy, sell, and trade their crypto assets.

USDC is backed 1:1 with the United States dollar. This makes the USDC token what is known as a “stablecoin”. A stablecoin is simply a cryptocurrency that is backed by a real-world resource. Bitcoin, for example, is backed supply and demand, which means it fluctuates more like a commodity or gold. This makes its value extremely volatile, but since USDC is backed by the U.S. dollar, its price and value is consistent and reliable.

How do I know my dollar is secured? Couldn’t Coinbase or Circle just steal my dollar?

Once you purchase USDC, new coins are ‘minted’ and placed in your possession via your crypto wallet. Your dollars are stored in a bank vault owned by the issuer and held in reserve. These vaults are audited every month and constantly monitored. The reports from these audits are published for the public to see so they can be completely confident their UDSC is backed by a real dollar.

So is USDC just constantly being minted? What happens if someone wants to get their actual dollar back?

When someone would like to exchange their USDC back into a regular dollar amount, the issuer takes back the crypto and sends the user the equivalent dollar amount. Since this crypto they’ve taken back is no longer backed by a dollar in a vault, if the coins were to stay in circulation they would decrease the overall value of every other USDC coin. To avoid this problem, the crypto that is no longer backed by a dollar is erased. By constantly minting and erasing coins, USDC maintains its 1:1 ratio.

This all makes USDC a very secure and stable coin to put your dollar behind. However, it also means it will never go up (or down) in value. USDC can fluctuate on rare occasions, but its structure always leads back to it being worth about one dollar. If your goal is to grow your investments and see the value increase, USDC is likely not quite what you’re looking for (unless you invest with either Compound or Celsius). If your goal is to work with businesses, send money long distances, maintain the value of your savings, or even use it to buy other cryptocurrencies, it’s perfect!

Why is USDC important? Why not just use dollars?

Traditional dollars are sent through archaic payment networks that lack opportunity, come with long wait times, and heavy costs.

With USDC, Digifox is able to provide a wide range of new opportunities, settlements in less than one minute, and dramatically reduced costs compared to many traditional payment methods. USDC combines the traditional security associated with the U.S. dollar with the benefits of cryptocurrencies, making it the best of both worlds.

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