As more and more people become interested in the world of cryptocurrency, a number of altcoins (coins which are not Bitcoin) continue to show up in the top 20 rankings of cryptocurrencies on CoinMarketCap. One of these alt coins, known as Terra, has been on a massive growth trajectory recently, and has therefore come on radar for a number of potential investors.
Terra, is a blockchain which functions similarly to the Bitcoin blockchain. It can be used as a cryptocurrency just like Bitcoin, and it functions on the SHA-256 hash function giving it many of the same decentralized properties as the popular cryptocurrency. But unlike Bitcoin, Terra is something called a stablecoin, which means its value is pegged to fiat currencies. What this does is give people a way to pay digitally with the privacy benefits of Bitcoin, while also giving them some of the stability experienced by fiat currencies.
The Terra creators plan to eventually have a token to match every fiat currency in the world. And they will allow people to exchange them for one another. For example, if you have TerraUSD, and your friend has TerraCNY (Chinese Yen) you will be able to swap these Terra Coins at the current USD/CHY exchange rate. This will make it very easy to process transactions in an economy which is quickly becoming global.
If you are looking at the top charts as you read this article, you may be a bit confused because the coin which is hitting the top charts is Terra (LUNA). Well, Terra LUNA is part of the Terra system, but unlike the other coins which are listed above, Terra LUNA is used to pay for goods and services on the Terra platform. You can compare this to how ether functions for the Ethereum blockchain. When you hold LUNA, this means you hold a piece of the Terra company. Because of the decentralized nature of the cryptocurrency, the more LUNA you hold, the more say you will have in the future of the blockchain.
Even though Terra uses one of the hash functions found in the Bitcoin protocol, it is a proof of stake consensus instead of a proof of work consensus. What this means is that stakers will run nodes to process the transaction on the Terra blockchain. Stakers are chosen based on the number of LUNA tokens they hold and they are then paid for their work processing transactions in the LUNA currency.
Now how do the stablecoins, such as TerraUSD work? Well, TerraUSD is a non-collateralized stablecoin which means that the equivalent amount of USD is not held in an account when you purchase TerraUSD. Instead, the blockchain performs a complicated algorithm to control supply which maintains the value of the cryptocurrency to match its fiat counterpart. For example, if TerraUSD is trading above the value of the dollar, more TerraUSD will be created. And if TerraUSD is trading below the dollar, the protocol is programed to buy TerraUSD back and burn it until the price evens out at a dollar. Although there are no US dollars backing your TerraUSD, every cryptocurrency which is minted on the Terra platform, from TerraUSD to TerraCNY and TerraEUR, is backed by an equivalent amount of LUNA. This means your token is backed by technology similar to an investment made on the Ethereum or Bitcoin blockchain.
Unsurprisingly, Asia has already embraced the stabilized cryptocurrency, and several companies on the continent already accept the currency as payment. Some of the most notable companies are TMON, ALTHEA, Galleria, and EBates. Most of these companies are prevalent in South Korea and Southeast Asia. And this shouldn’t really come as a surprise considering the way Asia countries tend to adopt technology faster than most of the other countries around the world. Even the US seems behind on this one. One payment app, similar to PayPal, called CHAI, already accepts the coin and lets users use it to pay at a variety of merchants. Transactions on the Terra blockchain only take 6 seconds, and the fees are about one third of traditional credit card fees.
If you just search ‘Terra Cryptocurrency’ in your search bar, you may be a bit confused about the results which come up. This is because there was another coin which was known as Terra which was launched back in 2012. That coin is Terracoin which is known by the identified TRC on cryptocurrency exchanges. And while there is no proof Terracoin is a scam, it does seem likely as the token is barely worth anything and the company behind Terracoin doesn’t seem to be doing much, though their website is still there if you would like to email them and see if you get a response.
The Terra which is being discussed in this article is identified as LUNA on exchanges, and this coin does not seem to be a scam, as so many merchants already accept it as payment. However, it is impossible to say with any certainty that any altcoin is for sure not a scam. But all things considered, Terra seems to be one of the good ones.
Here’s the thing about Terra, even though it doesn’t seem to be a scam, it isn’t the same as investing in something like Bitcoin. This is because Terra is pegged to the currency it represents, so if you choose to invest in a Terra cryptocurrency, you are investing fiat currencies, and a number of these currencies are currently experiencing massive inflation because of COVID-19. This means that all of the Terra currencies are also experiencing massive inflation. So, if you have a use for Terra, such as to make purchases, it’s probably a great thing for you to buy and use. But if you were thinking about investing in a Terra cryptocurrency to make money, well, you’re better off just keeping your money in a bank in your country, as it will grow at the same rate. Basically, what this all boils down to it that the Terra currencies are not investment grade.
If you like the project though, and want to vote on future improvements, or want to make money off of staking the blockchain, then buying some LUNA may be worth your while. And LUNA is investment grade, as it functions the same as if you were to invest in a payment processing company like Visa or PayPal. Just remember that investing in any sort of cryptocurrency is risky, and you should discuss any large financial decisions with someone you trust before making them.