Have you heard of the stablecoin Dai and wondered how it works? Well in this post I'm going to break down how it works and why I believe it is one of the most important cryptocurrencies. Plus i'll also show you how to buy it and how you can store it securely.
Let me know in the comments if you use Dai and what you use it for.
What is Dai
Dai is a stablecoin. It aims to be worth $1usd. So 1 usd = 1 dai. What's unique about Dai is that it's completely decentralized and uses smart contracts to maintain it's stability.
Because Dai is always going to be worth around $1usd, it's perfect as a currency. You don't need to worry about spending your Dai only to have it rise in value in the future. One of the main reasons why Bitcoin is such a good store of wealth is that there is a belief that it'll rise in value. So many people don't spend it. But with Dai you're free to spend it and use it as a currency.
Why not just use U.S Dollars
There are over 1.8 Billion people world wide who don't have access to a bank. This allows these people to hold a form of value without having to have a bank account. As it's decentralised you can store Dai yourself in a wallet and no one can shut down or block that wallet. It's always yours.
Protection Against Hyperinflation
Hyperinflation is caused by a government printing so much money that it basically becomes worthless. It is currently happening in countries all over the world. In these countries people can't even buy a loaf of bread without having to carry around bags of cash.
Dai could help prevent this. It's worth approximately $1 USD. And will be worth $1 USD in the future. So you can use it to store value and protect yourself against hyperinflation.
For example if you needed to pay a lot of people everyday, you could write a simple script to do this for you. And because Dai is decentralized you can send Dai any day of the week at any time. It' doesn't matter if it's a bank holiday or a Sunday, Dai will always work.
Cheap and Easy to Send
You can send Dai anywhere in the world in a few minutes. And it will only cost a few cents. International bank transfers can take days to complete and can cost 10's of dollars.
How is Dai a Stable Coin?
How is Dai a stable coin? Well for each Dai there is at least $1 worth of crypto backing it. Unlike other Stable coins which rely on a company holding collateral, Dai uses smart contracts to handle the entire process. There is no one company controlling Dai.
So how does it work? Well a user opens what is called a CDP (Collateralized Dept Position) with Maker. That user would deposit ETH or another crypto into the CDP and depending on the ratio, they would earn Dai in return. The user would be able to claim back that Eth but depositing Dai. And the amount of ETH they would get back would be determined by a ratio. These ratios help keep the price of Dai at $1USD. It's simple economics and math.
As a user of Dai, you don't need to worry about how this works. You can buy Dai on any exchange and know that it'll be worth close to $1 well into the future.
Here is a video of a much better job of explaining it than I am doing:
Where to Buy Dai?
Dai is available on many popular exchanges. Here are my favorite places to buy:
Dai was recently added to Coinbase. In my opinion Coinbase is the easiest way to buy crypto online. You can use a credit card or bank account and signing up is fast and easy. Coinbase offers a cloud wallet that has proven to be secure and trusted. Although I'd recommend always moving large amounts of crypto into your own wallet.
Kucoin is a popular exchange. I've previously written about Kucoin Shares. They also support Dai. To buy Dai on Kucoin you can either deposit Bitcoin (or another crypto) or buy Bitcoin on Kucoin which you can then use to buy Dai. Kucoin isn't as easy to use as Coinbase and I'd recommend it for more advanced users.
How to earn free Dai
Coinbase has a feature called “Earn” which lets you earn free crypto in return for learning about that crypto. All you have to do is watch a video and answer an easy question at the end of it. You can earn $6 worth Dai for watching three short videos! And you'll learn more about Dai and how it works.
Tip: Get $10 worth of Bitcoin for free – If you sign up to Coinbase through this link and buy $100 worth of Dai, you'll get a bonus $10 worth of Bitcoin completely free.
How to Store Dai
I recommend using the Wallet app. It's a mobile app by Coinbase and allows you to store crypto on your phone. It's not a cloud wallet – you control the keys. And because it's stored on your phone you can easily back it up. Using Wallet is easy. Just download it, generate a receive address and then you send Dai to it.
Just search for Wallet in the app store. (Wallet is a seperate app to the Coinbase app).
The Future of Dai
Dai could become one of the currencies of the future. Because it's value stays the same, it's perfect for spending. I believe that in the future Dai will be used for international payments and money transfers. And Dai works really well with other cryptos. I can imagine a future where we all store our wealth in Bitcoin or other cryptos and Dai to transfer that wealth around the world.
Dai is still relatively new, and support is limited but I can only see it getting more and more popular. With it now listed on Coinbase it could explode in popularity.