Bitcoin was originally developed as a digital decentralised currency with the aim of paying for goods and services (i.e. as a means of exchange). Its purpose has evolved since its creation, however, and today it is also used for a variety of other purposes as well – including as a store of value more similar to that of gold.
USD Coin, on the other hand, was created as a way to put US dollars on the blockchain. This was done to enable them to be moved anywhere in the world within minutes. They were also designed to bring stability to cryptocurrencies. The USD Coin website explains that: “A price-stable currency such as the US dollar (and similar stable currencies such as EUR, GBP, JPY, RMB, etc.) is critical for enabling mainstream adoption of blockchain technology for payments, as well as to support maturation in financial contracts built on smart contract platforms, such as tokenised securities, loans, and property.”
The two cryptocurrencies also differ significantly in how they were created and how they are maintained.
Bitcoin was created by a pseudonymous person or group of people known as Satoshi Nakamoto, but designed to be decentralised. This means Nakamoto is no longer a controlling influence, rather it is developed and maintained by the Bitcoin community. The Bitcoin network is maintained by a group of developers distributed around the world who contribute to its management on a voluntary basis. It is not governed by any bank, government or entity.
Bitcoin as a cryptocurrency is created when it is ‘mined’ by members of the network. Where fiat currencies are issued by central banks, new bitcoins are issued to miners via a block reward for adding new blocks filled with verified transactions to the Bitcoin blockchain. They do this by using special hardware to solve a complex computational problem, which produces a hash - a seemingly-random 64 character output. To get this number requires many, many attempts. Once the hash is found, the block is closed and it is added to the blockchain. After successfully mining a block, miners are rewarded with newly-created bitcoins and transaction fees.
USDC, meanwhile, relies on an issuer and an underlying pool of collateral and is therefore centralised. It’s based on the open source asset-backed stablecoin framework developed by the Centre Consortium. It is based on an open membership scheme that eligible financial institutions can participate in. It offers a solution with detailed financial and operational transparency, operating within the regulated framework of US money transmission laws, with established banking partners and auditors.
Unlike Bitcoin, USDC is not designed to be mined at all, rather it is simply issued. A USDC token is created when a customer ‘buys’ a token from an approved issuer. For every US dollar received, the issuer will apply an ERC-20 smart contract to create an equivalent amount of USDC. This is then sent back to the customer The US dollar that was originally sent to the issuer is then held in reserve as collateral. The customer has their USDC, which is redeemable against the issuer for the equivalent fiat currency US dollars. This guarantees that every USDC token is backed by a US dollar and it’s redeemable on a 1:1 basis.