What is USD Coin USDC and how does it work?

Many cryptocurrencies have proven to be a great alternative to fiat coins thanks to decentralization, but price volatility remains their main drawback – this is where USDC comes in handy. This article answers the question “How does USDC work?” and explains what makes stablecoins different from fiat currencies, Bitcoin and altcoins. You will find out how to spend USDC, how it can work in times of market volatility, and why its safety is still questioned by the SEC.

What is USD Coin USDC?

USDC is a stablecoin, or cryptocurrency backed by dollars or assets denominated in dollars like US Treasury securities. The reserve assets of USD Coin (USDC) are kept in segregated accounts, supervised by US regulated financial institutions.

USDC keeps the peg to the US currency at 1:1. How? If you start a transaction to purchase a single USD Coin using fiat money, it will be deposited and stored as one US dollar, and a fresh batch of USDC will be created as a result. The USDC is burnt if you sell a USD Coin in exchange for fiat money, and the fiat money is then sent back to your bank account.

How does USDC work?

In contrast to cryptocurrencies like Bitcoin, the mining process does not result in the creation of a new USDC. Instead, people and companies who deposit United States government-backed cash into their Circle accounts create fresh USDC tokens. By converting USD to USDC, a 1:1 replica of that asset is produced, whose transaction history is recorded and kept up to date with the use of blockchain technology.

On the other hand, when USDC is deposited in exchange for USD, the tokens are burnt to guarantee that the quantity in circulation corresponds to the amount of currency that is always held in reserve. To maintain the value of USDC's peg to the value of USD, Circle holds the corresponding amount of USD at the time of issuance. 

Highlighted characteristics

Here are the major features of USDC tokens:

• The USDC token undergoes monthly audits by Grant Thornton, one of the top accounting companies. These checks demonstrate that users have access to the same amount of fiat-backed USDC reserves as the whole supply of USDC that is in circulation.

• Sending USD via USDC is faster than via a bank.The main advantage of USDC is that it allows users to swap Bitcoin without having to send and receive fiat money between cryptocurrency exchanges. Transferring USDC is speedier than sending fiat money since payments are almost instant and can be made whenever you want. It can also be more affordable, depending on the network where the USDC is handled.

• It's not decentralized. In contrast to digital currencies like Bitcoin and Ether, USDC is issued by a centralized body that is subject to rules. All of a USDC holder's cryptocurrency may be blocked if a regulatory agency determines that action must be taken against them. 

Who created USDC?

Center, a joint venture between Circle, a peer-to-peer payment system, and Coinbase, one of the biggest cryptocurrency exchanges in the world, originally announced USDC in May 2018 and minted it in September of the same year.

The Center Consortium works to offer the standards and governance needed to create a digital financial ecosystem. When compared to other stablecoins already on the market, such as Tether (USDT), USDC has sought to strengthen stablecoin regulation, transparency, and licensing criteria. Initial funding for USDC came from Goldman Sachs, Breyer Capital, and other top dogs totaling $110 mln.

Advantages and Disadvantages of USD Coin

Like any stablecoin, USDC has certain pros and cons – let’s have a look at them.

Pros	Cons
Stable price. Fully backed by reserve assets subject to US regulation. A great hedging asset against inflation.	It is useless as an investment asset because its price will not grow. The list of reserve assets for USD Coin USDC is not fully disclosed. It is not immune to inflation of the US Dollar.

How to use USDC

Thanks to its price stability, USDC can be used in the following cases:

• Protection against volatility;

• Pricing in fiat currency on cryptocurrency exchanges;

• Stable price-pegging;

• Remittances.

How is the USDC Coin different from other stablecoins?

USDC is a fiat-collateralized stablecoin, which means it is linked to a fiat currency. By design, all fiat-collateralized currencies are all centralized. It differs from other stablecoins like USDT by its partner organizations and the source of USD backing it.

Why does USDC have value?

Due to price stability, USDC tokens can be used with confidence as a unit of account, a store of value, and a medium of exchange — the three functions of money. Due to this, Circle has expanded as a method of payment for people and businesses all around the world. Crypto investors also store USDC as a hedging instrument when they expect volatility of other assets in their portfolio.

Why buy USDC?

USDC may be helpful to cryptocurrency investors who want to keep their money in a safe haven during times of market fluctuation. In contrast to other stablecoins that rely on an algorithm to keep their peg to the dollar, a USDC smart contract is not the only guarantee – it is supported by officially certified government reserves.

Additionally, USDC holders can use this currency to pay for goods and services over a vast network of dApps. Due to USDC's stable peg, buyers and sellers can conduct transations without worrying that their purchases will lose value after they are made, which is a problem that frequently arises when using more volatile crypto assets.

Where to store USD Coin

You can buy USDC on all major crypto exchanges, and if you want to use it for trading, the same platforms can serve as a hot wallet. Also, since USDC is an ERC-20 token, it can be stored in any decentralized Ethereum wallet (Metamask, MyEtherWallet, or Mint), as well as the versatile OWNRwallet.

The latter option is highly recommended because:

• OWNRwallet is a multi-asset non-custodial cryptowallet where you can easily and securely exchange, withdraw and store USDC tokens and many other digital currencies.

• It features an in-built exchange that allows users to trade assets.

• Users can order a Visa prepaid card (options for both private and business clients are available).

• You can buy cryptocurrency right on the platform using the purchase gateway.

• Your data stays safe – OWNRwallet does not store users’ private data.

• You can set customizable fees for transactions to speed them up or save on low-priority transfers.

Conclusion

USDC (USD Coin) is a widely-used stablecoin that operates on the Ethereum blockchain, providing stability and liquidity in the volatile cryptocurrency market. It offers a transparent and regulated digital asset that enables seamless and efficient transfer of value, making it a popular choice for users seeking stability and reliability in the realm of cryptocurrencies.

 

FAQ

Is investing in USD Coin risky?

No, because its price always stays around $1 USD. If you need to preserve your funds, deposit USDC to your cold wallet – you are very unlikely to lose money. Redeeming USDC for US dollars is possible at any moment.

Can I buy less than $1 of USD Coin?

While US dollars can be divided into cents, you can buy USD Coin worth less than one dollar – as little as 0.001 USDC is available for purchase.

What is USDC crypto used for?

This stablecoin is often used as a hedging tool in combination with volatile crypto assets. It also serves for bank remittances, global crowdfunding, and pricing of cryptocurrencies in fiat.

Is USD Coin USDC a good investment?

Since its price always equals $1 USD, you will not generate any profit if you hold USDC. 

What is the difference between USD and USD Coins?

USD is a national fiat currency, minted by the US Government, while USDC is a crypto token. Its price is pegged to USD, which means the value of USDC can be affected by inflation of USD.

Why use USDC instead of USD?

It can be a better alternative to bank transfers, allowing for fast and quick cross-border transactions. Also, USDC is used for crypto-to-crypto trading operations and long-term storage of funds