Electronic payments are rapidly becoming part of people's everyday lives. Today, shoppers pay in shops with their smartphones, withdraw cash from ATMs and pay for online services with just one tap of the screen. Along with the development of traditional financial instruments, the cryptocurrency transaction market is actively growing. To understand how is cryptocurrency different from fiat money and to identify the pros and cons of each type, let's take a closer look at the key features of both systems.
Fiat money: revealing the concept
Fiat money is a form of currency that the government of each country puts into circulation without backing it with physical assets. Such money serves as the official means of payment within the country. All matters relating to the national currency are controlled by the central bank. The paper on which banknotes are printed has no real value in itself. The price of fiat money is determined by economic processes within the country and is supported by the trust of market participants. In addition to issuing currency to the population in exchange for goods and services, the state guarantees the protection of its currency from counterfeiting.
Electronic versions of fiat money are a digital form of traditional currencies. Money is stored in electronic banking systems, allowing users to freely manage their financial resources. Account holders can freely withdraw cash within their balance, make transfers between accounts, and perform other operations, such as purchases or transfers to other users.
Thanks to modern technology, cashless payments in fiat currency are now available almost everywhere. All that is required is an internet connection and special devices or applications. The use of electronic fiat money opens up wide opportunities for capital accumulation, investment, payment for services and debt repayment.
Cryptocurrency: understanding the concept
Cryptocurrency is a new form of payment that differs significantly from fiat money. It can be used to perform the same tasks - purchases, transfers, investments, salary payments, and others - while the state has no influence on the payment processes. Cryptography technology is used to conduct transactions. The blockchain system protects all processes from third-party interference, making transfers more secure. Bitcoin remains the most expensive cryptocurrency, which is where the history of this financial institution began. When it comes to making payments, investing in liquidity pools or using other instruments, BTC is not the most popular. It is less popular than TRX, ETH and stablecoins.
Today, more than 580 million people around the world use cryptocurrency. Below is a table of the countries with the highest usage.
| Country | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|---|
| Argentina | 16% | 14% | 21% | 35% | 26% | 30% |
| Brazil | 18% | 12% | 12% | 22% | 28% | 24% |
| India | 8% | 8% | 10% | 22% | 27% | 22% |
| South Africa | 16% | 17% | 18% | 23% | 22% | 22% |
| Portugal | 9% | 8% | 14% | 15% | – | 20% |
| Switzerland | 10% | 9% | 13% | 18% | 21% | 19% |
| Chile | 11% | 12% | 14% | 14% | 15% | 18% |
| Dominican Republic | 10% | 10% | 11% | 15% | – | 17% |
| Mexico | 12% | 11% | 9% | 12% | 13% | 17% |
| Australia | 7% | 8% | 9% | 16% | 17% | 16% |
| Netherlands | 10% | 9% | 10% | 19% | 19% | 16% |
| South Korea | 6% | 8% | 8% | 19% | 20% | 16% |
| United States | 5% | 7% | 8% | 15% | 16% | 16% |
Here's what fiat mean in cryptocurrency: the term ‘fiat’ refers to a government-issued currency that is not backed by tangible assets, while cryptocurrency is based on blockchain technology and is not dependent on any government.
Advantages of fiat currency
Security, accessibility, and demand are the main advantages fiat currency of over cryptocurrency. We use it in our daily lives, and 100% of the country's population is familiar with it. It can be paid for in cash or by bank transfer. The legality of this payment method is protected by law.
Fiat money is used for international trade. In most countries, you can exchange your money for the currency of another country. The exchange rate depends on the country's economic level and the demand for the currency abroad.
Within a country, fiat money can have low volatility. The purchasing power of money is affected by inflation, which devalues the currency over time. If the economy develops steadily and without sharp fluctuations, this results in low volatility and the ability to calculate risks for investment projects.
We must not forget about user security: you can get your money back if you decide to cancel your purchase and return the goods; you can block your card through the app so that it cannot be used if lost; you can restore access to your account if you forget your password or passcode. All this makes fiat money accessible and safe for most customers.
Disadvantages of fiat currencies
The main disadvantages of fiat money are related to the following key factors: Link to government policy. The value of money is heavily dependent on government actions. Political instability, wars or economic crises reduce confidence in the currency and negatively affect the economy. Centralisation and government control. The management of fiat money is concentrated in the hands of central banks and governments. Such centralisation creates risks of restrictions on the use of funds and the economy's dependence on the decisions of the authorities. Susceptibility to inflation. Rising prices and declining purchasing power make fiat money vulnerable to inflation, especially during periods of economic downturn. High risk of cybercrime. Although the state protects fiat money from counterfeiting, electronic versions are vulnerable to hacker attacks and cyber threats. Physical security issues. Lost paper money cannot be recovered, and the wear and tear of banknotes requires constant replacement. Lack of anonymity. Government agencies are always aware of the amount of funds in accounts and the transactions of account holders, which limits the confidentiality of transactions.
These factors highlight the weaknesses of fiat money and explain the interest in alternative forms of payment, such as cryptocurrencies.
Advantages of cryptocurrency
Anonymity is the main advantage of cryptocurrency over fiat currency. The system only knows the wallet address; all other user data remains anonymous. No fiat currency can provide this level of confidentiality.
The second advantage is related to blockchain technology, which is decentralised. The network is controlled by its participants, not by the state. This reduces the level of control by the authorities. They can restrict the use of cryptocurrency in the country, but not its operation itself.
Other advantages of using modern solutions in the financial environment: Low commissions. Transactions take place without intermediaries, directly between the parties to the transaction. Security. The blockchain system does not allow transfers to be stolen or sent to another account. Money can be lost, but only if the user themselves gives the access key to fraudsters. Speed of transactions. Modern blockchain technologies allow up to 700,000 transactions to be processed per second. This is a lot, since SWIFT processes no more than 35,000 transactions during the same period.
Disadvantages of cryptocurrencies
Complexity compared to fiat currency is one of the most popular factors that users cite as to why they avoid getting involved with cryptocurrency. When working with blockchain, it is important to monitor the sending of each transaction. If you make a transfer to another network, the funds will be lost forever. In a traditional system, when sending to a non-existent address, the funds are returned. High volatility is another disadvantage that is important to consider when choosing a cryptocurrency. There is a risk that after purchasing an asset, its value will decrease.
The summary table shows the differences between crypto wallets vs fiat wallet.
| Parameter | Fiat | Cryptocurrency |
|---|---|---|
| Popularity | High | Limited |
| Control | State | Decentralised |
| Anonymity | Low | High |
| Commissions | High | Low |
| Volatility | Low | High |
| Transaction reversal | Possible | Impossible |
| Transfer time | Slow | Fast |
| Storage reliability | Average | High |
| Security | Average | High |
Cryptocurrency is better than fiat currency in terms of lower fees, anonymity, and independence from government regulatory bodies.
What is the difference between fiat currency and cryptocurrency?
The choice between fiat money and cryptocurrencies depends on specific goals and the level of acceptable risk. Fiat currencies are backed by government institutions and are more stable, while cryptocurrencies offer independence from government control and high transaction speeds. The main difference between these two types of currency lies in the methods of issuance, degree of control, level of anonymity and exchange rate stability. Fiat money is issued by central banks and controlled by governments, which raises some concerns about the freedom to dispose of capital. In contrast, cryptocurrencies operate on a distributed ledger, ensuring decentralisation and transparency of all transactions.
At the same time, fiat currencies remain the primary instrument of everyday trade and international commerce, while cryptocurrencies are gradually gaining recognition due to the convenience of fast and cheap international transfers. It is important to note that modern payment solutions allow you to use both methods. For example, 0xProcessing provides a payment gateway for your business. You can connect payment acceptance in more than 50 cryptocurrencies and receive money in fiat or stablecoins, which are pegged to the US dollar. Each option has its advantages and disadvantages. Therefore, the optimal approach is often to combine the use of fiat and digital currencies depending on the current tasks and priorities of the owner. Before choosing which tool to use, it is important to weigh all the arguments and determine a strategy that suits your personal preferences and comfort level with risk.
