Stablecoins are the fiat-backed currencies of the crypto world. However, they might come off as a bit confusing to some. That’s what we’re here for. In this guide, we’ll break down how to trade stablecoins safely.
What is a Stablecoin?
As mentioned above, stablecoins are cryptocurrencies tied to fiat currencies or even precious metals. Examples include Tether, which is backed by the US dollar, or TrueUSD, also backed by the US dollar.
These assets are used to harness the power of blockchain technology without experiencing the volatility of Bitcoin and similar assets.
How to Trade Stablecoins Safely
You can purchase stablecoins very similar to the way you buy traditional cryptocurrency. It’s best to head to a platform like Gold Exchange for this. Once there, sign up for an account and input a funding method.
Now, it’s time to browse stablecoins. Exchanges are typically safer than most other places to buy stablecoins. This is due to a high focus on encryption and other security methods, alongside cold storage and insurance. Most exchanges also apply know-your-customer (KYC) and anti-money-laundering (AML) policies as well. Basically, this means users cannot anonymously purchase crypto and stablecoins. All identities must be revealed, so any suspicious activity can be traced back to a trader.
Of course, you could head to a decentralized exchange without these policies. However, understand these spaces might not be as safe to trade stablecoins.
Once you’ve found your stablecoin of choice, it’s time to buy. Your assets will be stored in the exchange’s online wallet, which isn’t particularly safe. Note that online wallets are always at risk of being attacked by hackers and other bad actors. It’s best to move your stablecoins to another wallet ASAP.
The best options include a hardware, desktop, or even a paper wallet. Hardware wallets are USB sticks that are never connected to the internet, providing the ultimate protection for your assets. Desktop wallets install to your hard drive and remain unconnected while they’re closed. A paper wallet is a QR code stamped onto a piece of paper. These assets cannot be accessed without scanning that QR code.
Acquire one of these wallets, and send the stablecoins to their wallet address. Of course, make sure the wallet supports your chosen stablecoin first. From there, these assets are much safer.
What to Understand When Buying Stablecoins
Now that you’re aware of how to buy and store stablecoins safely, make a note of what to keep an eye on when searching for the right exchange.
You might notice that there’s no such thing as a “stablecoin exchange,” meaning these assets are always associated with traditional crypto. Traditional crypto comes with a risk, as these assets are targeted by hackers. It’s entirely possible your exchange of choice has a history of loss from hackers and bad actors. Make sure to do your due diligence before committing to a platform. Otherwise, your assets and payment details could be at risk.
From there, pay attention to the social media conversation surrounding these exchanges and the assets themselves. For example, Tether has a lot of controversy surrounding it and BitFinex. Due to that uncertainty, it might be best to associate with another stablecoin and exchange.
Conversation is a good way to discover any security issues with a platform or if it has previously been hacked. Here, you can also see if there are problems with customer support and an exchange’s general usability. If many customers are having the same problem with something, you can expect to deal with it as well.
Also, don’t expect to profit big from most stablecoins. Keep in mind these assets are designed to be, well, stable. Generally, users hold them as a way to avoid fiat, as well as to invest in a different cryptocurrency when the time is right. Know your reason for investing in stablecoins, and commit to that before getting involved.
