The difference between Fiat Money and cryptocurrency is one of the confusing concepts for beginners in the world of crypto.
You have probably used the US dollar, the Euro, or the Pound in making transactions, either physically or via an online platform.
Is there any difference between the regular money issued by governments and cryptocurrencies like Bitcoin, Ethereum, etc? That is exactly what we are going to consider in this article.
we will look at what fiat currencies and cryptocurrencies are, and the differences between them.
What is Fiat Money?
You may not know what Fiat Money is, but you know our paper money, right? Well, then you have a
a fair idea of what Fiat Money is because most contemporary paper currencies are Fiat.
Fiat is the money that the government declares to be legal tender in a nation. It is generally not backed
by any physical commodity like gold or silver, rather it is backed by the government that issues it – that
is what gives the purchasing power such that it is used as a means of exchange and storage of
worth.
Fiat money is largely stable and controlled. The relative stability allows the governments to
navigate against inflation and recession.
The fact that Central banks have control over the supply of Fiat currencies supports a fairly stable economy.
Despite fiat regulation, inflation and recession can still occur.
An additional concern is that should the government increase the quantity of fiat money in circulation, inflation may ensue. But how about cryptocurrencies?
Read Also: How to buy cryptocurrency And What Cryptocurrency To Buy.
What are Cryptocurrencies?
A cryptocurrency is a form of digital currency where digital assets can be exchanged between two
parties without the intervention of an intermediary such as banks.
Cryptocurrency is decentralized, meaning there is the transfer of control and decision-making from a centralized entity (an individual, an organization, or a group) to a distributed network.
Cryptocurrency and fiat money share many similarities, like the fact that both can be used as means of
making payments and as a store of value and both rely on widespread trust in order to function as a
means of exchange.
But does that mean fiat money and cryptocurrency are the same? of course not.
Here are some essential differences between fiat money and cryptocurrencies.
Read Also: Elon Musk Authenticates Dogecoin Has Potential as Currency
What are the differences between Fiat money and Cryptocurrencies?
- Fiat money is centrally controlled by the government or the regulatory body. Cryptocurrencies
are decentralized in nature as explained earlier. - The value placed on fiat money is derived from the government’s verdict on it as legal
tender, the acceptance by a vast majority of people, and the willingness of merchants to give
their goods or render services in exchange for that currency. Whereas the value of a cryptocurrency depends largely on demand and supply. - Unlike fiat currencies, cryptocurrencies are limited in supply. Most cryptocurrencies create a set
amount of coins that can ever exist. The fiat currencies are theoretically not limited in supply as the issuing government can decide to produce more units of their currency. - While fiat money may be in physical notes or in digital form, cryptocurrencies are generally
digital and as such require a digital medium for exchange. - Cryptocurrencies are created using a cryptographic computer networking called blockchain
while the government issues fiat money. - It is generally challenging to steal cryptocurrencies as against the sad reality around our fiat
currencies. This is because cryptocurrency transactions are recorded in a shared digital ledger
called a blockchain. The concept behind blockchain makes it almost impossible to hack into a
blockchain. - While fiat currencies are generally stored in banks, cryptocurrencies are stored in a
cryptocurrency wallet, Similar to bank accounts, crypto wallets have a public key which is like
the account number in regular banking that can be shared with others for
purposes of transaction.
Then there is a private key which is to be owned by the crypto holder exclusively as it represents the pins or secret codes we have in regular banking, it is used to
authorize transactions.
Some Examples of common cryptocurrencies include; bitcoin, Ethereum, Litecoin, Dogecoin, SHIB, etc.
while fiat money includes the US dollar (USD), Euro (EUR), Japanese yen (JPY), Pound sterling
(GBP), Swiss franc(CHF), the Chinese renminbi (CNH) etc.
As you must have noticed each fiat currency is named together with the country whose government issued the currency as legal tender.
Final Note
The two currencies are considered major means of transaction today. Although it started with the fiat currency as the most dependent currency. the emergence of digital development has brought more participation in the use of digital currency.
However, if you are involved in a physical transaction Fiat is what you will use, but if you are involved in a digital transaction in Blockchain Cryptocurrency is the token to use.