Can you imagine the 21st century without digital currency? Without a doubt, cryptocurrency could be the revolutionary technology of this generation. It has really challenged the world’s understanding of what fiat money is and the financial industry as a whole. Bitcoin (BTC), the first and most successful cryptocurrency, has made headlines and is still making waves as we hurdle towards the future.
Many investors have made money from cryptocurrency while others have hit rock bottom. Be that as it may, cryptocurrency has come to stay due to its underlying blockchain technology – an encryption technique that performs transactions in a decentralized manner. Blockchain technology helps to generate or create currency units and verification of fund transfers.
Fortunately, cryptocurrencies are not actually regulated by the government or central bank. They act as a way of storing a personal value to the user. This makes it impossible to confiscate, restrict, or even stop the use of cryptocurrencies.
What about Fiat Money?
If you understand what cryptocurrencies are, then it is a fact you know what the real or fiat money means. However, cryptocurrency and fiat money are different in critical ways. So, you should understand that they are different and should be individually treated as such.
This guide will help you understand the advantages and disadvantages of cryptocurrency as it relates to fiat currency. So, come along and enjoy the ride.
Differences between Cryptocurrencies and the Fiat Money
So many differences exist between cryptocurrencies and fiat. Let’s start with the most fundamental ones:
- The government and central banks control fiat money, but nobody controls or regulates cryptocurrencies. This means that anybody can trade the currency and transact with it the way they wish. They can even decide the worth of their own when they buy it.
- The government, via the central bank, prints the fiat. Individuals or private entities mine cryptocurrencies. The number of cryptocurrencies they mine is really small. Though, central banks of individual countries can print or mint any number of real money they want.
- Cryptocurrency helps to hide an owner’s worth as no one can view the amount in your wallet as well as the location of the wallet. On the other hand, fiat money is usually kept in the bank. This gives the government and the bank access to information on your worth, which they can then take a chunk out of through taxation.
- When you make payments with cryptocurrencies and record complete transactions, the transactions can never be easily reversed. With fiat though, the government or banks can reverse your transactions whenever they deem it fit.
- Another prominent distinction between cryptocurrencies and fiat is that cryptocurrencies provide digitized and anonymous transactions. This means that the name of the person sending and receiving money remains hidden; you cannot view it. On the other hand, transactions with fiatare not hidden, but could be easily traced.
- Nobody can stop your transactions with cryptocurrencies, even the government. Banks can stop your transaction with fiat money whenever they want and you cannot question them unless you have deep sway.
Cryptocurrency vs Fiat Money: Pros
The reason why some people take cryptocurrency as a hoax is that some people have made a profit with it while many others count their losses. There’s little wonder many people have a divided opinion regarding investing in cryptocurrency or not. Enumerated below are some of the advantages of investing in cryptocurrency rather than the fiat.
Digital currencies are portable (easily transferable)
Cryptocurrencies enjoy easy and smooth transfers no matter the amount involved. You can transfer a million in an instant without blinking an eye.
Cryptocurrencies ensure transparent transactions
The biggest security feature cryptocurrencies offer this generation is to ensure that all transactions are open and recorded. The open ledger – blockchain – ensures that once a transaction is truly completed and recorded in the ledger, to reverse or change it is impossible.
They enjoy worldwide accessibility
Cryptocurrency is a digital currency and has equally become a vision for international trade. The decentralized nature of cryptocurrencies makes them accessible everywhere in the world. It has the capacity to give everybody, including ordinary people, financial autonomy and independence which fiat money cannot.
Cryptocurrencies reduce barriers to entering the banking world
It is the right of every cryptocurrency user to have a private wallet for conducting cryptocurrency transactions. More so, nobody has the capability to stop you from participating in any transaction. This will help in lowering the barrier to entering the banking sub-sector.
Cryptocurrency vs Fiat: Cons
Cryptocurrency comes with its own share of shortfalls and woes. Presented here are the downsides of investing in it.
Many people still doubt the viability of cryptocurrencies
Many people don’t know about cryptocurrencies, and as such, they tend to even doubt their existence and usage scenarios. Also, only a handful of businesses accept it as a form of payment. This is one of the obstacles to people who want to use it for their entrenched day-to-day transactions.
They are perfect tools for criminals
It provides an opportunity for criminals to commit evil and get off scot-free. This is true as transactions done with cryptocurrencies cannot really be traced easily. The transactions made with Bitcoin are untraceable if you haven’t attached your real identity to it. So, criminals and fraudsters can use it to avoid detection. This is one of the main reasons why some governments have declared cryptocurrency transactions illegal in their countries.
They are highly volatile
The price and value of cryptocurrencies can change at any point in time making it highly speculative. Although people are holding a positive view about the future of cryptocurrencies, the cryptocurrency market is still at the infant stage and the price of coins can change dramatically in a day owing to a lot of factors.
The Bottom Line
You have learned about the pros and cons of trading cryptocurrencies over fiat money. My question to you is: do the inherent benefits coming from cryptocurrencies outweigh that of ‘real’ money?
Looking at the growth of Bitcoin from 2009 to date, the value has been appreciating despite several dips and rises in the market. Investing in cryptocurrencies now looks like a sound decision that could materialize in the not too distant future.
This article should not be taken as, and is not intended to provide, investment advice. Users are ultimately responsible for the investment decisions he/she/it makes based on this information. It is your responsibility to review, analyze and verify any content/information before relying on them. Trading is a highly risky activity. Do consult your financial adviser before making any decision. Please conduct your thorough research before investing in any cryptocurrency and read our full disclaimer.
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