Cryptocurrencies are increasingly gaining acceptance among individuals and businesses, and there is a possibility that they may replace the typical monies in future. The fact that a lot of people are already using cashless electric money is an indication that the world is ready for a cashless society.
Despite the high opposition by regulators, Cryptocurrencies can be a neutral global money transfer system that is both secure and verifiable. Unlike the traditional money economy, the cryptocurrency economy is still young but has changed the conversation about what money should be in the future. Read on to learn more about the differences between crypto and fiat monies.
What Is Fiat Money (Fiat Currency)?
This is the currency issued by the government and is regulated by a central authority like a central bank. The currencies don’t need to be backed by a physical commodity because they act like a legal tender based on the economy’s credit.
What is Cryptocurrency?
A cryptocurrency is a virtual currency used as a medium of exchange. These digital currencies ensure their transactions through cryptography technology. Instead of having a central controller, Cryptocurrencies are limited entries in a database like a blockchain so that no one can change or manipulate them. An example of a cryptocurrency is Bitcoin.
The Differences between Cryptocurrencies and Fiat Money
You can use both monies for transactions, but there are some differences:
Unlike the traditional currencies that are issued and regulated by the government, Cryptocurrencies are digital mediums of exchanges without a central body controlling them. Some governments have banned Cryptocurrencies over fears that they can be used to finance illegal activities like money laundering and terrorism.
Typical currencies are either coins or notes, but Cryptocurrencies are virtual coins that only operate online. The physical aspect of traditional money is sometimes a nuisance, especially when doing huge transactions that need vast amounts of money.
People can exchange money physically or digitally through electronic payment service, but the exchange of cryptocurrency is only in digital form as they are created by computers and only exist as private pieces of code.
The virtual aspect of Cryptocurrencies means the only form of storage is in digital wallets. These wallets offer secure storage, but users must be careful to avoid cybercrime issues like hacking. Physical money, on the other hand, can be stored in both physical and digital forms. People store their hard currencies in banks, or they can store the money in digital form through online wallets.
It is hard to determine the amount of physical money in circulation as it has an unlimited supply. The central banks have no cap on the amount of money that should be in circulation. This is different from Cryptocurrencies because most of them have a cap on the number of coins that should be in circulation. For example, Bitcoin has set their cap at 21 million, meaning that there is no time when there will be more than 21 million Bitcoin coins.
The decentralisation of cryptocurrencies makes them a global currency that is accepted everywhere as long as businesses accept it as a mode of payment. Some centralised currencies, on the other hand, are not readily acceptable outside the country’s borders. Individuals using these currencies may be required to convert them to hard currencies before making international transactions.