SmartCoins are cryptocurrencies linked with an additional asset such as gold or currencies such as the USD. SmartCoin is a name derived from the acronym Simple Miner Administration through Remote Terminals.
In simple terms, a SmartCoin is a peer-to-peer cryptocurrency which has 100% or more underlying assets and typically supported by BitShares‘ core currency, BTS. This allows it to be exchanged at a fixed rate by a trusted price feed. In case of extreme market volatility, SmartCoins are worth the intrinsic value, or face value, of the underlying assets at minimum. Although, like all cryptocurrencies they are fungible, divisible and decentralised. This means that the currency is price stable, while maintaining decentralisation.
Examples of SmartCoins include BitUSD, BitEUR, BitBTC and BitGold among others, ie one BitBTC for example has one or more BTC as underlying assets.
- SmartCoins offer stability by pegging themselves to stable assets like the dollar or gold, but sometimes even cryptocurrencies
- They allow investors to have a diverse portfolio with an exposure to variety of currencies and commodities
- They are backed by market rates which makes them of interest to stock investors as well. This in return also benefits the prices of BitShares’ core currency, BTS, as the markets adopt SmartCoin pegging
- SmartCoins value is kept artificially low as compared to the floating exchange rate of currencies in the international market, which makes it less competitive
- When a currency is pegged it causes minimum fluctuations, but growing imbalances between country of pegged currency and target country can cause troubles as the currency then becomes volatile and cause major fluctuations. Such fluctuations were seen in the British pound in 1992, the Russian ruble in 1997 and the Argentinean corralito in 2002.
The market speculation and the rise of SmartCoin investments makes them very subjective. Like most investments within cryptocurrency is an individual responsibility, SamrtCoin calls for further market observation and knowledge sharing.