Each investment asset has a measure of value. Stock, bond, real estate, gold – all these instruments can be simply compared using the valuation in the base fiat currency. In the traditional markets, these are the currencies of the national central banks, such as dollars, euros, British pounds, etc. The situation on the crypto market is in many ways very similar. To estimate the rate of various cryptocurrencies, fiat money or major cryptocurrencies can be used. Let’s take a closer look at what a base currency is and how it is used in cryptocurrency trading.
What is meant by base currency?
The base currency is a way of representing an identifiable measure of the value of different assets. In order to exchange one type of asset for another, a trading platform is necessary.. In the case of cryptocurrencies, such a platform is the cryptocurrency exchange. You can read more about it in our previous article.
There are more than 1000+ cryptocurrencies on the crypto market, and in theory, they can all be used for trading. However, due to the fact that all currencies vary in a number of users, capitalization, frequency and usability, the concept of the base currency is used. As a base currency, we want to see stable coins with a numerous variety of trading pairs. In cryptocurrency trading, the term “trading pairs” describes a trade between one type of cryptocurrency and another. And to compare the fair and universal value of different cryptocurrencies, the exchange rate is used to the base currency. At that way, the second cryptocurrency will be called “quote currency“.
How does it work?
Base Currency is used for calculation of the total value of your deal or portfolio and occasionally for crypto trading.
Unfortunately, not all trading pairs are available, meaning that a direct exchange of one coin for another isn’t always possible to perform. In this case, you will be prompted to use the base currency as an intermediate. For example, if you want to exchange Dogecoin (DOGE) to Ripple (XRP) but the DOGE/XRP pair is not available, you will be offered to exchange DOGE for the base currency and then base currency for XRP.
Main Base currency list
For a better understanding, we have selected a number of examples of base currencies used for trading on crypto exchanges. You can clearly see the base currency exchange rate depending on which currency is selected chosen.
Current capitalization: $4.03B
This is a cryptocurrency token issued by Tether Limited in 2015, which claims that its value is partially covered by U.S. dollar reserves held in its bank accounts or by obligations on the part of other companies. The main idea of the developers of this token is to allow the participants of the cryptocurrency market to use a stable digital asset, the rate of which is pegged to the U.S. dollar and does not feel as strong fluctuations as the rates of other cryptocurrencies. Tether is released on the platform Omni, which is a superstructure (layer) over the Bitcoin blockchain.
Bitcoin is the first and by far the most popular cryptocurrency. It was created by the mysterious Satoshi Nakamoto in 2009 as the first ever electronic decentralized currency, operating on a peer-to-peer basis. The main advantages of this cryptocurrency are the large number of trading pairs, high liquidity and popularity among users. Bitcoin is the most popular cryptocurrency at the moment, so its base value determines the prices of all traded coins.
A platform for the creation of blockchain-based decentralized online services (decentralized applications) based on smart contracts. Implemented as a single decentralized virtual machine. It was proposed by Vitalik Buterin, the founder of Bitcoin Magazine, at the end of 2013, with the network being launched on July 30, 2015.
Litecoin is a blockchain project based on the Bitcoin protocol. It is a peer-to-peer network consisting of a chain of linked blocks of transaction information. The main objective of the project is to develop a means of payment that is more convenient, quicker and cheaper than traditional national currencies. Litecoin is used as the base currency on currency pairs of more than 160 cryptocurrencies. More than 400 different combinations of traded pairs based Litecoin are available on the market.
Binance coin (BNB)
Binance Coin (BNB) is a token that is issued in consequence of ICO’s conduct by the Binance Cryptocurrency Exchange. The BNB token is issued on the blockchain of Ethereum cryptocurrency and is used to pay trade fees and participate in special promotions. There are 57 cryptocurrency pairs traded with the exchange token. According to the regulations, Binance plans to use 20% of its profits each quarter to buy out and burn Binance Coin’s cryptocurrency until it burns up to 50% of the total supply of Binance Coin tokens (100 million).
If you want to learn in practice how the base currencies operates in the cryptocurrency market, you can do so usingthe Plutus Wallet application.