Two essential features of conventional currencies and cryptocurrencies are that they work as a store of value and the next thing is that they enable frictionless payment options. Though the trust vested on the fiat currency is ensured through the supply of the money from the central authority; and to have the vested trust in the cryptocurrency based on the technology which is called blockchain technology. When we purchase a product or get a service and pay with the use of fiat money, we have to be dependent on the trustworthy authorities. This body or institution acts like an intermediary that looks for the worth of the currency.
Either way, the seller and the buyer have faith that the currency that you are using to pay will have its value even after the transaction is complete.
What Do You Mean By Fiat Money?
The value of the commodity money gets its worth same as the precious metals such as silver and gold. As the government is the one that declares the legal tender, this is why the fiat money gets its value. This does not have any intrinsic value.
What Do You Mean By Cryptocurrencies?
These are the digital assets that are used as a medium of exchange between two different parties. With the use of cryptocurrencies, people have performed direct transactions. These transactions work between two individuals without any restriction or interference of intermediary sources like a bank. Inflation is responsible for the change in the worth of fiat money. The central bank can even print more money at one time whereas there is a fixed supply of 21.000.000 units of Bitcoin makes it more rare. The Cryptocurrency can be traded on the platforms like 1k daily profit.
Is There any Similarity Between Fiat Money and Cryptocurrencies?
The answer to this would be both yes as well as no. It can also be stated that cryptocurrencies are money as they allow people to exchange them for products and services. The exchange happens between parties and it acts as storage of value. However, there are certain types of features associated with the crypocurrencies which can never be implemented with fiat money.
All across the world, people can receive or spend cryptocurrencies and anyone can do it without any middle institution like government or bank. This is one of the most revolutionary aspects that most cryptocurrencies have.
However, in case of the fiat money, it equates to debt. When the bank notes are issued by the bank, you will simultaneously get a percentage of the debt of the government. Now you might ask how is this happening. For example, if the United States and EU create money, there will be value attributed to fiat money. This is mainly because the government declares the legal tender and there is no intrinsic value to it.
Government creates money mostly when people take loans. When people start borrowing money, the bank starts to get more money. In the case of the US dollar, if people do not take any loan, there would not be circulation of dollars. The dollars would not be out there if consumers do not take bank loans.
Though the fiat money might seem like it contributes majorly to the debt value, this is not the case when it comes to Bitcoin. There is an intrinsic value attached to Bitcoin. The value is usually beyond the community trust. Bitcoins do not generally lean of the debt system and the value goes down below as well. It is effective as a medium of exchange.
Anyone from anywhere in the world can spend and receive cryptocurrencies at any time without any organizational body like government or bank in between. This is what makes Bitcoins revolutionary.
For the future system of money, Bitcoin has started to create a new and better form of trust. This system will be behind Bitcoin as it will become completely transparent and will be based on maths and along with it on the actual consensus of the users every day. Having all this in mind, which one would be best for future fiat money or Bitcoin?
This is the difference between the two which one cannot ignore. Now whether cryptocurrencies will rule the world or not will depend on the users. We as users will decide whether cryptocurrencies will overtake fiat money or not.
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