While they both offer a store of value and medium of exchange, cryptocurrencies and fiat currencies differ in quite significant ways. Below we’re going to explore their differences and highlight the benefits of the new age option.
What Are Cryptocurrencies?
Cryptocurrencies are digital currencies that can be used to pay for goods and services or bought as an investment option. They exist entirely online, unlike fiat currencies which are also represented by notes and coins and are operated using blockchain technology.
Designed as a peer to peer payment system, cryptocurrencies do not require the authorization needed by banks and other financial institutions.
Cryptocurrencies were first introduced to the world through the Bitcoin whitepaper in October 2008. Its creator, an anonymous entity known as Satoshi Nakamoto, designed the cryptocurrency as a response to the global financial crisis that saw countless people lose large amounts of money.
This new age money system was created to put the power back into the people’s hands and allow them to own and manage their money without any authoritative influence.
What Is Fiat Currency?
When people refer to fiat currency, they are referring to government-issued money that is not backed by a commodity and instead controlled by the governing body.
These currencies are generally defined by the borders of the country and used as legal tender when buying goods and services. Examples of fiat currencies are the US dollar, the Euro, and the British pound.
How Is Cryptocurrency Different From Fiat Currency?
Crypto and fiat differ in a number of ways, which are outlined below:
1. Most cryptocurrencies are decentralized
To varying degrees, most cryptocurrencies are not controlled by an entity or government. The cryptocurrency may have a unique agenda in how it operates and seeks to be priced. Instead of one entity in charge, the networks operate using sophisticated technology (blockchain) and a community that follow a number of set protocols.
2. Cryptocurrencies are secured by cryptography
Cryptocurrencies use a computerized, global ledger that tracks every single issued token or coin, powered by cryptography that ensures no “counterfeits” can ever exist. Fiat currencies can be counterfeited and are tracked by a centralized bank or mint, where ledgers are stored with imperfect public information.
3. Cryptocurrencies are not tied to any geographical boundaries
The beauty of cryptocurrencies is that exist online, meaning that they can be traded and managed from every corner of the globe. Cryptocurrencies can be used globally as long as there is an internet connection, whereas fiat currencies are typically tied to a specific nation or geography where it is considered legal tender.
4. Cryptocurrencies have their processing fees priced into each transfer
Cryptocurrencies often have a transfer or processing fee priced into each transfer that is based on how busy the network is at the time, while fiat currencies in physical form and digital form alike often require high processing fees, a long period of time and an intermediary to be transferred globally.
5. Cryptocurrencies allow for faster and cheaper international transactions
Due to the nature of blockchain technology, transactions conducted using cryptocurrencies vs fiat currencies can be executed in a fraction of the time, at a fraction of the cost. When sending fiat currencies, the original amount is often traded between various currencies incurring fees along the way before reaching the recipient in their local currency.
Crypto vs Fiat
In conclusion, fiat currencies have their value tied to a government-issued currency while cryptocurrencies’ value is tied to its native blockchain. Want to learn more about the crypto industry? Our Oobit blog is packed with insightful information, ranging from simple explanations to current news topics.