Fiat Money vs Crypto: key differences
Electronic money is increasingly filling the life of a modern person. The buyer pays in the store using a mobile device, withdraws banknotes from ATMs and pays for various services.
The industry of cryptocurrency transactions is developing аlong with fiat money. In this article we will figure out what fiat and cryptocurrency are, what is the main difference between fiat currency and cryptocurrencies and what are the advantages and disadvantages of fiat currency versus cryptocurrency.
Fiat money: revealing the concept
Fiat money is a type of currency. The government of each state issues its own currency, but does not provide it with tangible assets. Fiat currency serves as the legal tender of this state.
The Central Bank regulates everything related to the state currency.Unlike gold or silver coins, the bill itself has no value. Its value is tied to the economic processes of the country and has its value in the world market. The state not only exchanges currency from the population of the country for goods or services, but also assumes the obligation to protect its currency from counterfeiting.
Electronic fiats are a type of traditional currency.
Financial institutions store money in digital databases for ease of use. Users can withdraw as much money in banknotes as they have on their account. Funds can also be transferred from account to account.
Cashless transfer of fiat currency is possible if there is an Internet connection through special devices, applications or through ATMs. Using the electronic version of working with fiat you can keep money or invest, pay for services, loans.
Cryptocurrency: understanding the concept
Cryptocurrency is a digital currency that works as an exchange tool. Unlike fiat currency, cryptocurrency is not controlled by the country's central bank. The state cannot influence the processes that take place in the cryptocurrency market in any way.
Cryptography technology is used to process data, protect and conduct transactions. The blockchain system does not allow interfering with the process, influencing changes in database data, if certain conditions are not met.The most popular cryptocurrency is Bitcoin.
More than 0.5 billion people around the world use cryptocurrency today. Here is the list of leading countries by number of users.
Source: Statista
Advantages of fiat currency
Fiat money is used by 100% of the country's population. This is habitually and familiar to people. The traditional financial system is relatively stable and reliable.
The advantage of fiat money is that international trade is carried out with its help. The exchange rate depends on the level of the economy in the country and on the authority of the state in the world community.
Fiat money is convenient because it can be used in cash and non-cash ways.The legality of use is protected by legislative acts.
In those countries where the economy is developed, there is low volatility of fiat. This means that the exchange rate is quite stable, there are no sharp price jumps. This is convenient for those who invest in projects. Because it is possible to calculate what the profit will be.
If a mistake is made when making a transaction or the user changes his mind about transferring money, the transaction can be canceled and the funds can be returned with fiat currency.
If you lose your password to access your accounts, it is easy to restore it. The access to a bank card can be blocked if it is lost or stolen. To do this, you need to call the bank's security service and report the problem.
Disadvantages of fiat currency
Fiats are tied to public policy. The value of money depends on how competently the government behaves in relation to other countries. If there are hostilities, revolutions and other unrest in the state, then the confidence in this country among other states decreases and, as a result, the economy deteriorates.
Fiat is centralized. This means that it is subordinate to the state and controlled by the central bank. This entails intervention in the economy. There is a risk in restricting the use of funds.
Inflation inevitably occurs in the world, when prices for goods and services rise, and the purchasing power of the population falls. Fiat money is most susceptible to inflation.
Despite the fact that the state protects fiat currency from counterfeiting, it cannot protect it from fraudsters. Electronic fiats are at high risk due to cyberattacks.
If a wallet with a salary is lost or stolen, then it is no longer possible to return the money. Paper money can burn or tear. Another disadvantage is that paper bills wear out. Then the state turns on the printing press and issues a batch of new banknotes.
The disadvantage of fiat money is the lack of anonymity. State financial services are always informed about how much money is in the account and how they are spent.
Advantages of cryptocurrency
The main advantage of cryptocurrency is its anonymity. Except for the wallet address, the system does not know anything about the user. And if the system does not have data, then no one has data.
Cryptocurrency is decentralized. The network is controlled not by the state and the central bank, but by the participants themselves. Due to the fact that there is no organization that would control cryptocurrency, it is not recognized as state-owned.
Cryptocurrency users are attracted by low fees. This is possible due to the fact that transactions between users take place without intermediaries, such as a bank or tax office.
It is safe to hold assets in cryptocurrency. The blockchain system does not allow you to steal a transfer or send it to another account. Users themselves can lose money if they tell scammers private keys.
Transactions are instant. Modern blockchain technologies can process up to 700,000 transactions per second. For comparison, the international Swift system is able to conduct up to 35,000 transactions in the same period.
Disadvantages of cryptocurrency
The main disadvantage of cryptocurrency is that the majority of the population finds this system complicated, compared to traditional fiat.
There is a risk of losing money due to the large number of blockchains and networks. This can happen if you send funds to another network. Money will not be lost in the traditional system, because if there is a problem, the transaction will simply be canceled.
High volatility is also a disadvantage. Investing money in coins or investing is a big risk. Inexperienced traders often lose money on the first jumps in the rate.
Summary table:
| Fiat currency | Сryptocurrency |
|---|---|
| Advantages | |
| + popularity | + anonymity |
| + the ability to carry out international trade | + decentralization |
| + the ability to choose cash or non-cash payments | + low commissions |
| + low volatility | + Blockchain technology |
| + ability to cancel the transaction | + instant transactions |
| + access password is easily recovered without losing money | |
| Disadvantages | |
| - dependence on public policy | - unpopularity and uncertainty for the majority of the population |
| - control by the Government and the Central Bank | - multiple networks |
| - exposure to inflation | - high volatility |
| - risk of cyberattacks and fraud | |
| - wear or loss of banknotes | |
| - lack of anonymity |
Fiat currency vs cryptocurrency: the difference
Fiat money and cryptocurrencies are two different types of currencies that have their own characteristics and principles of operation.After reviewing the advantages and disadvantages of traditional and digital money, it is important to clearly understand what the main difference between fiat currency and cryptocurrency is. This will help you choose the wallet that is most suitable for working with assets.
Fiat money is the official monetary unit established by a country's government. They are not backed by tangible assets and exist only on trust in their issuer. Cryptocurrencies, by contrast, are digital assets built on blockchain technology and have no direct connection to the government or central bank.
Fiat money is strictly controlled by the central bank and the government. Regulatory authorities influence the price and quantity in circulation. Cryptocurrencies are decentralized and not subject to interference from government agencies.
Fiat money, such as dollars, euros and other national currencies, is the official medium of exchange in most countries around the world and is widely used for everyday financial transactions. They ensure stability and reliability in the payment system and are supported by the state.
The use of fiat money usually requires identification and reporting to the tax authorities. Cryptocurrencies provide a higher level of anonymity and privacy when making financial transactions.
Cryptocurrencies are digital assets that use blockchain technology to provide security. They offer a lot of freedom and control over finances, but they also carry potential risks due to their volatility.
Fiat money transactions are usually done through banking channels, which can take time and additional fees. Cryptocurrency transfers occur almost instantly and with minimal fees, which makes them attractive for international payments.
Fiat money is usually characterized by stability and slow exchange rate changes. Cryptocurrencies, on the other hand, are known for their high volatility and the ability to change by tens of percent in short periods of time.
So, the difference between fiat money and cryptocurrencies is the way it is issued, control, anonymity, transparency, and volatility. Each type of currency has its own strengths and weaknesses. The choice between them depends on the goals and needs of the individual user.
The question of whether fiat money or cryptocurrencies is better depends on many factors, such as individual preferences, goals, and a person's situation.
As a result, the choice between fiat money and cryptocurrencies depends on individual goals and risk profile. Some people prefer to use both currencies depending on the specific situation, while others prefer to stay true to traditional financial instruments. It's important to evaluate all the possibilities and make a decision that fits your needs and goals.
