In the cryptoverse it is very common for the user to come across some terms and expressions previously unknown to him. But frequently used by experts and users with more experience in trade platforms.
It is merely not enough to know what a digital currency is. One needs to understand the relationship between cryptocurrencies and traditional currencies and also the technologies involved and the solutions that this market offers.
In this blog, you will be able to better understand the concept, advantages, differences and characteristics of fiat money and crypto. This information will help to create a clearer picture of the role and position of cryptocurrencies in the global economic scenario, as well as their impact on users’ financial strategy. So read on and learn more!
In this post you will we will delve into:
- Concept of fiat money
- Concept of cryptocurrencies
- Characteristics and differences between fiat money and crypto
- Advantages of fiat money
- Advantages of cryptocurrency
1. What is fiat money?
Fiat money is the term given to all those coins and paper money which are printed and issued by governments and central banks around the world. Thus, the Dollar, Euro, Real and the British Pound are all examples of fiat money.
All those non-convertible securities are known as Fiduciary Currencies, i.e., not linked to metals and without intrinsic value. Hence, the value of the Fiduciary Currencies is related to the trust of the person who issued the latter. Checks, promissory notes, drafts, and any other payment orders and securities are considered to be fiduciary.
2. What is cryptocurrency
Cryptocurrency – crypto asset – represents a recent financial technology. Created in 2009, Bitcoin was a precursor, but today there are other specimens with their characteristics and particularities, such as Ethereum and Litecoin which were all created to address some issues which Bitcoin had and to improve on them.
Cryptocurrencies are based on a P2P (Peer-to-peer) network, which is characterized by being a decentralized network in which there is no need for an intermediary (Central Bank or Government) to carry out the financial transactions.
In this manner, computers themselves, through the work developed by programmers, verify and concretize the transactions carried out with cryptocurrencies. In such a way that the same coin can not be used without these criteria.
Cryptocurrency users store them in virtual portfolios, wallets, and purchase, sale, and exchange transactions occur in blocks. Each block connects to the previous one by means of a code, based on Blockchain technology.
3. What are the main characteristics and differences between cryptocurrencies and fiat money
Undoubtedly the main difference between them is that for fiat money there is a central issuing authority, while in the world of cryptocurrencies, there is no control from any central authority. In addition to this, there are other characteristics that differentiate fiat money from crypto as can be seen below.
On one hand, fiat money has an unlimited supply. Central banks have the possibility to issue as many as they want, and can manipulate their value in relation to other currencies. Cryptocurrencies on the other hand have a limited supply.
This means that the provision of cryptocurrency is controlled by an algorithm, meaning that there is a limit to the issue of these currencies. Bitcoin, for example, is expected to reach a maximum of 21 million coins.
This makes cryptocoins such an interesting asset, since demand is constantly increasing while maintaining the same level of supply. This will hopefully lead to a future in which the value of cryptocurrencies will appreciate in the face of its inherent scarcity .
Cryptocurrencies are decentralized. This is undoubtedly another feature that strongly differentiates the two types of currencies. Decentralization indicates that there is no institution or government that controls this currency.
In this way, the only people who keep the system up and running are programmers who work on an open network of computers scattered around the world.
This attracts the interest of users worldwide. Since the currency stands out because there is no control of banks or government institutions. And this is what happens with fiat coins.
This happens because there is neither a physical presence nor a responsible body, such as a bank. When the crypto transaction takes place in the network and takes more than an hour to complete, it is practically impossible to change it.
This can be seen from a negative perspective by some users. However, it is important to point out that immutability offers more security to users since it ensures that no transactions can be tampered with.
The situation is a bit different with regards to crypto. Since there is no central bank, users do not necessarily have to identify themselves when transacting their currencies. Thus, when a transaction is performed, the system checks the previous transactions to confirm that that user has the value in Bitcoins, not requiring their personal identification.
Identification occurs only by the address of the wallet; this would be the only way to try to recognize the user. However, it is important to note that some countries’ legislation requires exchanges to perform identity checks on their customers before allowing them to trade virtual currencies. This makes it easier to track the user.
4. What are the advantages of fiat coins?
As you can see, the characteristics of each coin by itself already point to its advantages. In the case of fiat money, decentralization can be seen from a positive perspective, but also negative, depending on the purpose of the user of that currency.
However, fiat money are much simpler to use. And can easily be exchanged and used in any type of negotiation. Such as purchasing goods, paying college tuition, shopping at a supermarket, etc. Crypto assets still have a more restricted use, which prevents some people from performing simple activities with the use of such currency.
5. And what are the advantages of cryptocurrencies
Moreover, the lack of a direct relationship with a bank means that crypto can be transferred anywhere in the world, at any time of the day. Without the interference of an organization, bank or governmental entity.
Anonymity is an important advantage, as it provides security for users and the guarantee that no one will have access to their financial information. Still, it is impossible for your crypto assets to be confiscated by a government or for liens in court proceedings.
Lower costs are also an advantage. The storage and conduct of purchase, sale and exchange transactions are extremely low compared to fiat money. Finally, this ensures more security for users, because transactions can not be undone.
As you can see, there are important differences between the two coin models. While fiat money are more widespread in the market and offer unrestricted consumption possibilities to its users, cryptocurrencies are more restricted. This leads to having a more limited use within the market and the means of consumption.
However, this scenario will change in the near future. The high valuation of cryptocurrency has given its prominence on the world stage. The recent elevation in cryptocurrencies value together with the notion of decentralization has led people to turn their attention to this alternative.
Even if in a small amount, having crypto allows the user to feel included in this field. Benefiting from its possible valuation and integrating a modern network with a tendency to expand in the coming years. The optimal time to acquire crypto coins is now, so do not miss out!