With the emergence of digital currencies such as bitcoin, the future for fiat currencies seems to be at stake. Although both of them are means of payment, they have many differences between them.
Below are the six differences between cryptocurrency and Fiat currency.
Fiat currencies have a physical existence, unlike cryptocurrency. Cryptocurrencies are stored in digital wallets as codes. And can only be accessed through an electronic device such as a laptop or mobile phone. These assets cannot be touched or felt. They merely exist as codes that have a value. On the other hand, fiat currencies exist as coins and paper money that can be felt. At times it can be a hassle to carry a large amount of cash for a transaction.
2) Centralization and Decentralization
The world economy operates on fiat currency, controlled by the central banks. The regulations and policies of the government determine the value of a currency. Cryptocurrency, however, is decentralized. It means there is no central body like a bank or a government influencing its value. When people begin to trade crypto, they have the utmost authority over their assets. Contrary to the cases of banks.
Cryptocurrencies have a limited supply of coins. For instance, Bitcoin has a total supply of 21 million coins, with half yet to be mined. Limited supply helps prevent additional coins to enter the market and cause inflation.
Fiat, on the other hand, has an unlimited supply. The central bank can print and issue money anytime they want. Due to unlimited supply in the market, it is hard to know how much money is circulating. With crypto, however, it is possible.
Cryptocurrency is stored in digital wallets, accessible through electric devices such as laptops or personal computers. These coins only exist online and cannot be stored elsewhere but in wallets.
Fiat money can exist digitally and physically, both, which makes it more versatile. Online payments are completed through debit/credit cards, and now platforms such as PayPal have helped users spend fiat money online.
As per safety is concerned, blockchain technology has helped cryptocurrency become more secured than ever. It gives the trader anonymity and transparency. Fiat, on the other hand, is backed by the government, and transactions are opaque. It makes it a much safer option as transactions are monitored by the government. Threats such as stealing and scamming can be tackled with the help of the police.
Most countries have not yet acknowledged cryptocurrency, which prevents the police from getting involved in the cases. Once a transaction is registered, it is impossible to undo it.
Despite the rise in popularity, cryptocurrency remains sidelined when it comes to worldwide transactions. Some stores have started to accept cryptocurrencies as a means of payment. Recently, car manufacturing giant Tesla started to accept bitcoin.
In a matter of time, digital currencies such as bitcoin may start to give fiat a difficult course.
Fiat and cryptocurrency have established themselves as top legal tenders, but the debate continues surrounding which one is better.
Crypto does have the advantage over fiat, but it is not mature enough to take over the system that has existed for over a century. Further development is required to see where crypto stands in the future.