Cryptocurrency vs. fiat currency
Are you familiar with fiat currencies and crypto currencies? Both are currencies in one form or another and are open to public use worldwide. But both are different and different in their own way. There is always one group that favors the use of cryptocurrencies while the other has a soft corner for fiat currencies.
In the cashless society, crypto money plays a huge role
If you look at the market of the 1970s and 1980s, you will find that cash played a dominant role. But with the change in technology, electronic transactions have become a common norm. Today, more and more people are influenced to become a cashless society. With the move towards a cashless society, cryptocurrencies play a big role.
Cryptocurrency and fiat currency are always in conflict
Cryptocurrency and fiat currency are popular types of digital currency, especially when it comes to online transaction. Both are currently used currencies in the market but have some differences in them. There are a hell of a lot of ads you will hear every day comparing crypto money and fiat money. This article will highlight the difference between the two in a more comprehensive and clear manner.
Distinguishing what currencies mean
Before you can understand the difference between the two, you need to understand what they are and how they are defined.
A fiat currency is a legal tender that has the backing of a central government and operates in physical form. For example US Dollars, British Pounds, Euros, etc. On the other hand, cryptocurrency is not legal tender and has no central government or bank backup.
Therefore, the difference between crypto currency and fiat currency is noted as follows:
• Cryptocurrencies are decentralized and global in nature. There is no legal entity or government that controls the currency with its laws and regulations. Fiat currency is centralized, under the control of bank and government laws and regulations.
• Cryptocurrencies exist only in the digital realm. On the other hand, you will find that fiat currencies have a tangible and physical existence.
• There is a limited supply of cryptocurrencies with a maximum range of them available in the market. Whereas fiat money has an unlimited supply as the government and bank have the right to produce coins and paper money when the situation calls for it.
• Bitcoin and other cryptocurrencies are created by computers, while fiat currencies are issued by local government and banks.
• Cryptocurrencies are presented as public and private pieces of code. On the other hand, fiat currencies are presented in the form of coins and paper money.
• The value of crypto currencies is not recognized by market supply and demand. Whereas the value of fiat currency is determined by market regulations of supply and demand.
The different types of crypto and fiat currencies
Over the last decade, the popularity of cryptocurrencies has become a huge success. It was in 2009 when Bitcoin was first introduced and years after several other types of cryptocurrencies emerged. Starting with Litecoin. Dogecoin, Ripple to Dcash and Zcash, there are tons of them. On the other hand, fiat currency has rich and ancient roots, with the Great British Pound dating back to 775 AD. It is considered the world’s oldest currency still in use.
The differences in anonymity between the two currencies
When using fiat currencies, you must go through a user identification or verification process. You are requested to upload your recent photograph and some of the required documents to be issued as per the public authorities. You don’t need to go through any of the necessary processes with cryptocurrencies. Although your personal information and confidential data do not become public, but all your transactions are recorded and tracked in both fiat and crypto currency.
Fiat Currency vs. Cryptocurrency: Level of Transparency
• The level of transparency with crypto-type currencies is considered higher. This is because revenue streams are displayed on a public chain. Everyone can witness their own and other people’s transactions.
• The decree or the government. currencies are not transparent as there are no public chains to see people’s income streams.
Relatively historical roots
If you compare crypto money with that of its counterpart, fiat or government currency, you will find that its existence and creation makes the difference. Fiat or government currency dates back to 775 AD with the introduction of the Great British Pound. This is why fiat currency is easily accepted by people everywhere.
On the other hand, the crypto coin was perhaps first introduced only a decade ago, with the introduction of Bitcoin in 2009. The challenge facing Bitcoin and other cryptocurrencies is to match the massive popularity and growing fan base of fiat currency. Cryptocurrency is undoubtedly gaining more and more importance and popularity in the economic market, but it is still not widely accepted in society as a fiat currency.
Comparative history of the two currencies:
• It was in the 11th century that China’s Song Dynasty was perhaps the first to issue paper money. They were not allowed to be exchanged for valuables such as gold, silver or silk.
• There were tally sticks which were introduced as fiat or government currency. 1100 Tally sticks were introduced as a battle for the scarcity of gold.
• 1971 was the year fiat currency gained worldwide recognition. President Nixon introduced it to eliminate the system of tying the dollar to gold.
• It was in 1998 when the idea of an anonymous e-money system came from Wei Dai. Bitgold – the first cryptocurrency was created by Nick Szabo, but it did not receive as much attention as Bitcoin.
• In 2009, Bitcoin was introduced to the market, which became the first cryptocurrency to be accepted worldwide. A series of several other cryptocurrencies were introduced in 2011 and thereafter. Some of the popular ones include Litecoin, Dogecoin, Ethereum, Ripple, Zcash, Dash and so on.
The characteristics of the two currencies
The potential of cryptocurrencies and fiat currencies, access to their features is important. You will find that in some of the criteria Bitcoin and other cryptocurrencies outperform fiat or government currency, and in some cases the latter outperforms. It is absolutely your decision to choose the type of currency (cryptocurrency or fiat currency) based on your personal needs and requirements.
Let’s compare their traits in terms of certain factors.
• Both crypto coins and fiat currencies are interchangeable in nature.
• As far as portability is concerned, both currencies provide more or less equal position.
• Regarding non-consumable criteria, crypto-currency and fiat-type currency have the same status.
• Crypto-type currencies have high durability compared to fiat currencies which have a moderate level of durability.
• Both crypto or virtual currencies and fiat or government currencies provide safe and secure transactions and exchanges.
• Crypto or digital currencies are highly divisible in nature. On the other hand, fiat-type currencies are moderately divisible.
• In terms of transaction process, cryptocurrencies are easy and hassle-free. While on the other hand the traction process associated with fiat currencies is easy but not like crypto.
• Crypto-based currencies are decentralized and global in nature, unlike fiat currencies, which are centralized and operate under government laws and regulations.
• Crypto-based currencies are highly scarce, while fiat currencies are unlimited because the government can issue coins and paper money whenever it needs to.
• Cryptocurrencies are based on mathematical algorithms and are programmable. Fiat currencies are not programmable at all.
• Fiat currencies are sovereign in nature while crypto currencies are not.
The process of functioning of currencies
You can find the significant differences between crypto or digital currencies and fiat currencies in the way they both work and the transaction process that takes place. They are contrasting in nature. Transferring money using Bitcoin is very fast and you absolutely do not need a third party association.
On the other hand, if you are involved in the exchange of money using fiat type currency, a mobile wallet is used. You can exchange an amount of electronic money that is transferred to an amount of equal electronic value. Both fiat and crypto currency allow you to buy anything you want. But the processes involved are absolutely different from each other.
Depending on the things you buy, you will find that one form of currency is better than the other. It’s absolutely your choice.
Is Bitcoin, a cryptocurrency, better than fiat currency?
The long-term benefits and possibilities of Bitcoin are yet to be established. But cryptocurrency gurus and experts have predicted that they will go a long way, especially by revolutionizing the way online transactions are done. In the current market, Bitcoin is mainly included in online casinos and gambling, but it is not limited to it.
Also, when comparing fiat currencies, Bitcoin allows you to wrest power and authority from banks and government because it is not controlled. Cryptography-based currency has the ability to create or offer free market capital. Fiat currencies are affected by inflation and market changes, unlike crypto-based currencies. Such aspects lead people to believe that crypto-based currencies will soon take over mainstream currencies and bring about a transformation in the way money is used.
Why is Bitcoin considered a better aspect than fiat currencies?
• Bitcoin enables you to recreate free market capitalism.
• The power to control money rests entirely with individuals, not banks, as with fiat currencies.
• When there is inflation, Bitcoin is not affected. But fiat type currency will be easier to lose and will be affected by it.
• Bitcoin currency is simple and easier to exchange and transfer than fiat or government currencies.
• Transaction fees associated with Bitcoins are much cheaper and easily available.
Cryptocurrencies seem to be a favorable option among people
Fiat currencies are the centralized and legal way to exchange money. But cryptocurrencies have gained immense popularity in the past few years. There will never be anyone to act as an intermediary as in the case of banks. Moreover, cryptocurrencies are much cheaper and cheaper than conventional fiat currencies.
Send money anywhere directly without waiting for bank approval
You can send money directly to anyone in the world and it’s super fast. The money is cleared within minutes. You don’t have to wait for the traditional clearing and verification processes of banking systems, which can take up to several days to get permission. Since it is decentralized and does not fall under government laws and regulations, no one has the power to do anything with your account.
Blockchain technology has a very big role to play
Thanks to cryptocurrencies, it gives us the power and authority to become our own bank and take control of our finances. This is due to blockchain technology, which offers a higher level of sophistication when dealing with finances. In fact, there are some major financial industries that have started to incorporate the idea of technology.