USD Coin is a cryptocurrency launched by Circle in 2018. It is managed by Centre, co-founded by CoinBase and Circle. 

Its symbol is USDC, and it is a fiat-collateralized stablecoin, meaning its value is pegged to a fiat currency to maintain its value. The fiat currency in question is the USD, and the token’s value is held at 1:1 to the currency. 

1

The USD Coin Network

USD Coins run on the Ethereum blockchain. So, the tokens are created on the blockchain, which can then be easily transferred. 

Another essential part of the USDC network is the local banks. There has to be a legal reserve for all USDC tokens that have been created. 

Circle ensures that a US dollar backs up each USD Coin. US dollars are submitted by the users and stored in a bank supported by the network.

2

Maintaining the Blockchain

USD Coin is supported by several blockchains, including Ethereum, TRON, Solana, Algorand and Stellar.

Maintaining the blockchain for USDC is similar to maintaining other blockchains. USDC is an ERC20 token on the Ethereum blockchain, which means it creates smart contracts on the blockchain.

This eliminates the need for intermediaries since smart contracts occur between two parties on the blockchain. To break it down, let us understand the process chronologically.

When a USDC transaction takes place, there are certain conditions that the transaction needs to meet. Certain conditions are laid down in smart contracts, and the transaction is executed only when these conditions are met.

Hence, there is no need for the nodes to verify the transaction. If the conditions are not met, the transaction will not take place. The elimination of the intermediaries helps to build transparency between the two parties.

3

Mining USD Coins

There is no cap on the number of USDC tokens in the market. So you can create as many USD Coins as you want. Unlike with other cryptocurrencies, where the process of creating more tokens is called mining, here it is called tokenization.

The reason is that USDCs are tokenized USD, so the process is different. It involves three steps:

  • The user must send US dollars to the bank account of the body issuing the tokens
  • The issuer puts USDC smart contracts to use and creates an equal amount of USDC tokens
  • US dollars are held in reserve, while the newly minted tokens are sent to the user’s account.

You can clearly understand that the USDCs are tokens of the deposited dollars.

4

USD Coin's Value

The USD Coin is a stablecoin. So it tackles one of the greatest problems people have with cryptocurrencies: volatility. Crypto values may hit the roof today and come crashing down tomorrow. This discourages a lot of users from investing in cryptocurrencies.

But that is not the case with USD Coins. The value of the token is fixed at 1:1 to USD, which means that the value of one US Coin is equal to $1. This helps keep the price of the token stable.

Since the price of USDC is, more or less, stable, the coin is not much of an investment. However, it is a better option for buying, selling and financing. It almost functions as a digital currency meant for regular use.

But for non-US people, USDC might be a good investment. Since the value of their currency would be less than dollars, it would be profitable for them.

In case of inflation in their territory, USDC could act as a great backup source for funds. Moreover, if the value of the US Dollar goes up, they will still receive a large amount if they choose to convert the tokens to traditional money.

FAQ

What is a stablecoin?

A stablecoin is a type of cryptocurrency which overcomes the problem of price fluctuations. The value of stablecoins remains stable because reserve assets back them.

Why is USD Coin said to be centralized?

Circle has to store cash in reserve in a local bank to mint USD Coins. The involvement of banks in the process makes USDC a centralized cryptocurrency.

Is USD Coin a good investment?

USDC is a good investment for non-US residents because the value of US dollars will be higher than their currency. But for US-based investors, USDC is more suitable for regular digital transactions.

What is a blockchain?

A blockchain is a protocol that stores information in the form of blocks. As more transactions are conducted, more blocks are added, which creates a chain. 

Why do people say that USDC is a tokenized US Dollar? 

To mint a USD Coin, people have to deposit USD in a local bank. So, USDC is a tokenized USD because people receive USDC as a token when they deposit the dollars.

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