The trust vested in regular currencies is drawn from the money supply issued by a central authority but the trust vested in Crypto is based on the technology that was used to develop it - Blockchain technology. In order to explain the similarities and differences between Crypto an Fiat we must first determine what each one is.
Fiat currency is a commodity that draws it value from its own worth and has a value that is attributed to it because a government or central authority declares it as a legal tender, and it therefore has no intrinsic value.
Cryptocurrencies are digital assets that act as a medium of exchange between parties. The use of Crypto allows for direct transactions between individuals without the intervention of an intermediary such as a financial organization. Fiat money may be subject to inflation given that banks and governments can print more at anytime, however, Crypto's such as Bitcoin have a fixed supply of 21,000,000 units of which 18,000,000 have already been created. This is why some may draw similarities between Bitcoin and Gold.
What are the similarities and differences between Crypto and Fiat?
- Both can be used to pay for items given that they hold value and rely on widespread trust in order to function as a means of remuneration and exchange.
- Fiat is issued and controlled by central banks and government institutions.
- Cryptocurrencies such as Bitcoin are produced and distributed through a process called mining and it is not controlled by a central authority but by the open market.
- Bitcoin's proof of stake and proof of work principles ensure that it is tamper-proof and cannot be expended twice in the same transaction.
- Furthermore, where as fiat transactions can be reversed, cancelled and called back, Crypto transactions are irreversible and once a transaction is confirmed on the blockchain network it cannot be altered or reversed.
Cryptocurrencies like Bitcoin are a decentralized currency formulated through distributed computing and it is governed by a majority rule. The transactions using Crypto only involve two individuals and there is no intermediary required whereas with Fiat transactions, intermediaries such as payment providers like eftpos and paypal are need in order to facilitate most transactions. Furthermore, when you are dealing with systems like eftpos, transactions can take almost days to finalize, however, crypto transaction can take mere minutes to be completed and deposited to the other end, even when on the other side of the globe!
The trust in traditional fait currencies is ensured through the supplies of money issued by central authorities, which is why the printing of money devalues the amount that One fiat value is worth in comparison to another. However, Bitcoin and other associated Crypto's don't lean on a system of debts or value attributed by a central authority, BTC draws it's value from it's efficacy as a medium of exchange. Crypto currencies can be spent at anytime, anywhere without the requirement of a bank or central authority, which is why the advent of Cryptocurrency is so revolutionary for the future of finance and the development of Blockchain technology.
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