The Gemini Dollar has Created a Bridge Between Crypto and Fiat, But How Will it Effect Bitcoin and Altcoins?

Stable coins have been frequently debated within the cryptocurrency space for quite some time. In the past, many have been skeptical of stable coins such as Tether. However, prominent figures in the crypto space, such as Charlie Shrem, have high hopes for the Gemini Dollar as it has the potential to create a bridge between crypto and fiat. Charlie’s company, Crypto IQ, published the following statement,
“A solid stable coin is going to enable people to get involved in the cryptocurrency market without having to buy any particular cryptocurrency. This eliminates the risks associated with the high volatility of digital coins.”

While Charlie and Crypto IQ are optimistic, the ‘bridge’ between crypto and fiat must be one that is fundamentally well-constructed and sustainable for decades to come.

The question on everyone’s mind remains the same? ‘How will the Gemini Dollar and other stable coins affect bitcoin?’ Currently, one of bitcoin’s primary use cases is to provide a standard cryptocurrency to trade in and out of altcoins. A lack of fiat pairings in the market forces altcoin buyers to first buy bitcoin with fiat, then trade that bitcoin for the altcoin of their choice. The reverse is true when altcoin owners want to cash out back into fiat. Sellers must first trade their altcoins for bitcoin, then exchange their bitcoin for fiat. This effect can be seen very clearly in an extreme bear market through the frequent increase of bitcoin dominance. As general prices decrease, altcoins will typically see a larger decline relative to bitcoin due to this process. Unless an altcoin has a solid fiat pairing, (for example, Coinbase pairings such as ETH, ETC, BCH, LTC) it will most likely decline as a victim of this effect.

This effect will most likely decrease in the future once more legitimate stable coins are listed on multiple exchanges.

There are certainly advantages to Gemini’s stable coin when compared to the most popular stable coin, Tether. At this time, the Gemini Dollar appears to have more credibility than Tether because it will undergo audits regularly to ensure that the number of GUSD issued is backed 1:1 by existing currency. Tether has been criticized earlier in the year because it refused to perform a scheduled audit, posing the question, “What do they have to hide?”

GUSD is also limited to a strict supply. A supply limit is written into the imply layer protocol. This process is outlined in the GUSD white paper.

“We propose a hybrid solution whereby the custodianship of ‘Impl,’ the smart contract that controls increases to supply of Gemini dollar tokens, involves both an online and offline approval mechanism. To implement this unique approach, we insert a smart contract called ‘PrintLimiter’ into the ‘Impl’ chain of custody. Coins cannot be printed at whim. A limit will always be in place, and any changes to it must be approved by the chain of custodians, both online and offline.
With the approval of an online key, ‘Impl’ may print Gemini dollars up to an amount or “limit” as
specified by ‘PrintLimiter.’ This limit may be increased with approval of an of line keyset (or decreased with approval of an online key). This solution gives the Gemini dollar system the desired level of security and flexibility with respect to token issuance.”

Unfortunately, some are still skeptical of GUSD because it is built on Ethereum and therefore designated as an ERC-20 token. Throughout the last month, individuals are becoming more and more pessimistic about the future of Ethereum. Vitalik has not helped either with his recent comments dismissing significant future cryptocurrency growth. This may lead some to question the reliability and longevity of the Gemini Dollar since it is linked to Ethereum. Nevertheless, it is publicly known that the Winklevoss’s own a significant portion of Ethereum.

Disclaimer: I am not a financial advisor. This is not financial advice. Please do your research independently and make objective decisions. This article is intended to educate readers about the future of bitcoin and the creation of the Gemini Dollar. The author of the article owns cryptocurrency.