Cryptocurrency and Fiat Money- Metal vs. Pixels

Featured article by Maria Rodriguez, Global Financial Market Reviewer

The paths people take towards success might be different, but those paths intersect at some point. These crossed paths take the world as a unified whole in the same direction, with a universal driving force within them- money. There is no denying that the world runs on money and that it is essential for survival. Neither black nor white, the hue of wealth has always had a gray shade to it with its wide-ranging possibilities, making it equally a Gabriel and a Lucifer. Currency is the physical format of money, and wallets are those foldable leather cases that hold money. But no concept remains completely cemented with the technology taking long leaps; here in the case of cash, tangibility has reduced to the size of a spot which in no time would vanish. Tangibility has taken a backseat in the financial sector, but was that the only significant change that was brought in by the introduction of digital money?

Fiat Money

Issued by the governing power of each country and regulated by a central authority, fiat money is that currency which has been the most widely used one. Being handled by central banks, all features of centralization are practiced on this form of currency and has its value linked to the credit that the economy earns. All such currencies attain its value by extracting the credit that is produced through the market trade. Time has proven that the value keeps varying with all these market conditions that the currency is subject to. Since fiat money is dependent on the supply and demand within the market, it is likely to experience untimely inflations and deflations.

The advantage that fiat currency has over the other forms of currency is the stability that it offers. Unless the economy experiences massive recessions or crises, the value of the currency remains quite stable with calculated moves towards substantial surges.

Cryptocurrency

Operated by the cryptography technology, cryptocurrency is the groundbreaking creation that aims at taking the economy higher at a faster rate with the decentralized mode of transaction that it offers, thereby making it more easily accessible for the users to handle their accounts prudently. Bitcoin was the very first cryptocurrency to have been developed, inspired by which many others started materializing. Get the latest updates of cryptocurrency at Forex Academy.

It works based on the blockchain technology which ensures the security of the transactions by verifying it and allocating it to blocks by leaving no margin for double-spending.

Cryptocurrency vs Fiat Money

– As discussed above, in the case of fiat money, the process of issuing and regulation is performed by the government/central authority which makes the currency a legal tender and their control over it determines the value that it attains. Whereas in the case of cryptocurrencies, since it has no central power governing the flow of money, its amount solely depends on the market conditions and not on any external forces. Issues like terrorism and money laundering involved in cryptocurrency made some countries label it as illegal.

– Transfer of fiat money could be done both physically and digitally (through the electronic payment system), whereas the cryptocurrencies can only be transferred in the digital form.

– The supply constraint imposed on cryptocurrency is not applicable for fiat money since the central authority controls it.
Both these forms differ in the storage aspect also; cryptocurrency offers only digital storage through wallets, and sometimes it could pose risks of hacking. In fiat money, money could be stored in physical or digital form, which would be quite challenging to hack since it has a central power regulating the processes.

Conclusion

Both fiat money and cryptocurrency have its fair share of advantages and disadvantages and this for sure has raised a battle between the two. The world is gradually walking into the lane of digitalism, while some still prefer to stick on to their skepticism and tangibility.