USD Coin FAQ

What is USDC?

USD Coin, or USDC, is a type of cryptocurrency known as a stablecoin, which is pegged to the value of the U.S. dollar at a 1:1 ratio. This means that for every USDC in circulation, there should be a corresponding U.S. dollar held in reserve. USDC is designed to offer the benefits of cryptocurrency—such as digital payments and speed of transactions—while maintaining the stability of the traditional dollar, thereby reducing volatility commonly associated with other cryptocurrencies like Bitcoin or Ethereum.

How does USDC work?

USDC operates on blockchain technology, primarily on the Ethereum blockchain as an ERC-20 token, but it's also available on other blockchains like Algorand, Stellar, and Solana. When someone wants to create USDC, they deposit U.S. dollars into a bank account managed by the Centre Consortium, the organization behind USDC. In return, an equivalent amount of USDC tokens are minted on the blockchain. These tokens can then be transferred, traded, or used in transactions. When someone wants to redeem USDC for actual U.S. dollars, they must burn the tokens, effectively removing them from circulation, and the equivalent amount in U.S. dollars is then released from the reserve.

What are the technical aspects of USDC?

USDC leverages smart contract technology on Ethereum, which ensures that the token adheres to strict rules regarding issuance, redemption, and management. The smart contract code is transparent, allowing anyone to audit it for correctness and security. USDC tokens use cryptographic security to ensure that transactions are immutable once recorded on the blockchain. Additionally, USDC employs multi-signature wallets for security in token minting and burning processes, requiring multiple parties to agree on transaction validations. The transparency of USDC is further enhanced by regular attestations of the reserves by Grant Thornton LLP, which publishes reports verifying the reserves against the circulating supply.

What are the advantages of USDC?

One primary advantage of USDC is its stability, which makes it a safer option for those looking to transact in cryptocurrency without the price swings typical of other digital currencies. It's also highly liquid, making it useful for quick conversions between traditional finance and crypto. USDC can be used for efficient, low-cost international transfers, bypassing traditional banking systems which might be slow or expensive. Moreover, it's programmable money, meaning it can be integrated into decentralized finance (DeFi) applications for lending, borrowing, or as collateral.

What are the disadvantages of USDC?

The main disadvantage of USDC is its centralized aspect since it relies on the Centre Consortium to manage the reserves and issue tokens. This central control might be seen as a point of failure or trust issue, especially if there's doubt about the actual backing of the USD reserves. Additionally, while USDC aims to be pegged to the dollar, any bank or financial system instability could potentially affect its reserve backing. There's also the risk of regulatory changes affecting how stablecoins can operate or be accepted.

How can I buy and store USD Coin (USDC)?

You can buy USDC using our buy app here. After purchasing, you can store USDC in a variety of wallets, ranging from hot wallets (online or software wallets) which offer convenience but less security, to cold wallets (hardware or paper wallets) which provide high security at the cost of accessibility. For those deeply involved in crypto, using a wallet that supports interacting with DeFi platforms where USDC can be staked or lent out might be beneficial.

What are common uses of USDC?

USDC is commonly used for quick and inexpensive cross-border payments, as a stable means of transaction within the cryptocurrency ecosystem, and as a unit of account in decentralized finance applications. It's also used for payroll in some crypto companies, for remittances, and in trading platforms to hedge against the volatility of other cryptocurrencies.

What are the risks associated with USDC?

Risks include potential regulatory crackdowns on stablecoins, which could affect USDC's operation or legality in certain jurisdictions. There's also the counterparty risk where the reserves might not be as fully backed as claimed, although attestations help mitigate this. Technical risks like smart contract vulnerabilities could lead to losses if not managed properly. Market liquidity risks in times of high volatility might also affect the ease with which you can convert USDC back to USD.

How is USDC different from other cryptocurrencies?

Unlike most cryptocurrencies which are prone to high volatility, USDC offers price stability due to its 1:1 peg with the U.S. dollar. It's not designed for speculation but for utility in payment and value transfer. While Bitcoin or Ethereum might serve as a store of value or platform for decentralized apps, USDC primarily functions as a tool for financial transactions with the added benefits of blockchain technology like speed, transparency, and reduced intermediary involvement. However, its centralized aspect contrasts with the decentralized ethos of many other cryptocurrencies.