Cryptocurrency, what is it? Can I put it in my bank account? Can I stash some Bitcoins under my mattress? Many have entered the market and have bought or traded in crypto, but others are left wondering what it is and how they can use it. Cryptocurrency has taken the world by storm and people are left wondering where is came from and is it worth buying. Most importantly, what is the difference between cryptocurrency and everyday fiat currency.
Let’s take a closer look at the similarities and differences between Cryptocurrency and fiat.
No one really knows when money was first invented but historians believe people used metal objects as money for their transactions back in 5000 BC. Could you imagine carrying a bag full of metal to the grocery store just to buy some food, we definitely live in a better time now.
As money evolved….
Fiat money once backed by a commodity is considered legal tender by the government today. In the early years of fiat money there was the gold standard act that backed fiat money by gold. That has long gone and money is now used as good faith and credit around the world. Since fiat money is no longer backed by a commodity, it can be printed to produce more at anytime.
Cryptocurrency is strictly digital currency that works on blockchain and uses cryptography for its security. The most popular cryptocurrency being Bitcoin has paved the way but many have followed suit such as Ethereum, Litcoin, Ripple and many more.
Cryptocurrency is a decentralized system, unlike fiat currency which is centralized, meaning its controlled by central banks or governments. Cryptography allows cryptocurrency creation to be controlled and also secures the transactions of digital assets. In Fiat currency we depend on banks or governments to secure our transactions.
Just like everything else in the world, there are pros and cons to both fiat and cryptocurrency.
Let’s take a closer look at the pros and cons
– Fiat currencies are usually pretty stable depending on the strength of their governments. For example, USD stays relatively stable, we have never really seen a drastic change.
– Fiat currency is controlled by the government, hence it can be printed at will. So, if there is an emergency of some sort fiat currency can be sent for aid.
– Fiat currency is not backed by anything so the government and central banks can control its supply, which helps with economic stability. For example: Interest rates
– As we stated in the pros section that fiat currencies can be printed when needed as it helps when it’s provided for a crisis, but does become a problem when you print to much. Inflation becomes an issue and affects the whole country.
– Mismanagement by the government affects the stability of fiat currency. If the country is doing well, the country’s economy is doing well but if the is mismanaged, the whole country suffers. We see this example with Venezuela today.
– Fiat money can be counterfeited so consumers are more likely to be frauded.
– Since fiat is centralized and the banks control our fiat, we are subject to paying high fees for transactions, holding and transferring fiat.
– Delayed transfers and wires of fiat by the banks. If you want to wire or transfer money to loved ones across the world, it may take days depending on where its being sent and the banks that are sending and receiving the funds.
– Can be accessed anywhere in the world. No banks are needed as its dentrelized, so if you don’t have access to a bank where you are, it doesn’t limit you access to cryptocurrency.
– Cryptocurrency creation is limited or a set amount, which helps prevent against inflation.
– Transfer of cryptocurrency happens almost instantly and there are no restrictions on the amount that can be transferred.
– No high bank fees for transfers, deposits, transactions, monthly etc… There are low fees and network fees associated with transactions but nothing like what the banks charges.
– Cryptocurrency is verified on the blockchain and cannot be duplicated or counterfeited.
– Transactions are impossible to change. Once a transaction occurs its uploaded to the blockchain and cannot be deleted or changed. Hence, keeping all transactions transparent.
There are many more pros and cons we can list but the above sum up the most notable ones.
Cryptocurrency is slowing gaining traction in many industries and you can see more and more signs of vendors accepting crypto. Just recently Richmond Hill, Ontario announced that they will accept crypto for tax payments.
While cryptocurrency users want to see a world wide adaptation of crypto, it surely will take some time for the world to accept it. When fiat money was first introduced, it took awhile for people to adapt to the concept as it was something new, it’s the same when it comes to cryptocurrency.