Money is an essential component of any financial transaction and is the universally accepted representation of value. Money has taken many forms since early civilization. From assets such as cows and goats to precious metals such as silver and copper money has seen a drastic evolution. Today, fiat money — government issued legal tender (USD, JPG, CAD, etc.) represents the most dominant iteration of money. However, as history has shown us, money evolves, and its next stage is upon us. The emergence of cryptocurrency and blockchain represents a new dawn in the evolution of money.
Since the rise of cryptocurrency, there has been much debate about which is better, cryptocurrency or fiat? Some people believe that cryptocurrency is a better investment for the future, while others argue that fiat money like the US dollar is more stable and reliable. Both have pros and cons, and figuring out which is better depends on the nature of the organization/person using it.
So, grab a cup of coffee, sit down and read on to learn more about cryptocurrency vs fiat.
What is Cryptocurrency?
Cryptocurrency is a digital asset that can circulate without the need for a central monetary authority such as a government or bank. A peer-to-peer network known as a blockchain oversees and manages it. Cryptocurrency is not regulated by central authorities and it does not require intermediaries for transactions. It is more volatile than fiat money.
Benefits of Cryptocurrency
Crypto has several advantages over fiat money that make it desirable for anyone looking to build decentralized, peer-to-peer software solutions.
1. Fast and cost-effective cross-border transactions.
2. Privacy and independence.
3. Protection from fraud and scams.
4. Secure transactions.
What is Fiat currency?
In its most basic form, fiat money appears as coins or paper bills, which are widely used throughout the world. Along with being centralized, fiat has attributed value because it is declared by a government as a legal tender. The world’s most commonly used currencies, like the US Dollar, Euro, Japanese Yen, or the pound sterling are fiat currencies.
Benefits of Fiat currency
As an intrinsic part of the global economic system, fiat money comes with many conveniences.
1. Relatively stable in value since they are pegged.
2. Widely accepted and can be used for legal transactions.
3. Fiat currencies are regulated by the government adding to their safety.
Can they co-exist?
Though some wonder whether cryptocurrencies will eventually replace fiat currencies, the two do offer different advantages. One common criticism of fiat money is its susceptibility to inflation. Local governments can increase the supply of money at will, diluting its value over time.
On the other hand, Bitcoin, the world’s most popular cryptocurrency, has a fixed supply of 21 million coins. Because of its limited supply, many people prefer to hold Bitcoin in hopes that its value will go up, instead of using it as a medium of exchange.
Ultimately, cryptocurrencies are here to stay. They offer many advantages over today’s fiat currencies, but true mainstream adoption has yet to take root. As the technology continues to evolve, digital currencies may eventually prove to be the future of money.