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This lesson will teach you about the similarities and differences between cryptocurrencies and fiat money.

It's difficult to deny that the growing importance of cryptocurrencies has caused people to question the current financial systems. While cryptocurrencies and traditional fiat currencies have some similarities, they also have significant differences.


What exactly is cryptocurrency?

What exactly is fiat money?

Cryptocurrencies and fiat money have similarities.

The distinctions between cryptocurrencies and fiat money

What exactly is cryptocurrency?

In the previous lesson, we went over the fundamentals and key features of digital currencies. Let us summarize the concept.

A cryptocurrency is a type of virtual currency. It is a digital asset used as a medium of exchange between two people.

Cryptocurrencies can be used to purchase goods and services. You can even buy it and hold it as an asset, similar to gold. They are not governed by the government and do not rely on banks to process transactions between two entities. On a peer-to-peer network, digital currencies are exchanged directly between two parties.

What exactly is fiat money?

Fiat money is money issued by governments around the world. They have physical existence. You can hold it in your hand and pass it to the person next to you.

Fiat money includes the banknotes and coins we use on a daily basis. Governments control the value of fiat currency. The phrase "Fiat" means "let it be done" and is used as a command or order.

Fiat money has intrinsic value because the government declares it to be "legal tender." Its supply is not limited, and central banks can print it as needed.

Are cryptocurrencies and fiat money interchangeable? Both yes and no. The similarities and differences are detailed below.

Cryptocurrencies and fiat money have similarities.

• Cryptocurrencies and fiat money can both be used to buy goods and services.

• We can divide fiat money into 100 cents, for example. Cryptocurrencies can also be divided into small fractions, for example, 1 Bitcoin can be divided into 0.000001 BTC.

• Unlike gold and silver, cryptocurrencies and fiat money are not based on any commodity.

• You can store both of these currencies in various ways and even gift them.

• There are various types of digital assets, such as Bitcoin, Ethereum, Litecoin, and so on. Fiat money is also available in various currencies such as the US dollar, Pounds, Euros, and so on.


Cryptocurrency and fiat money distinctions

• Governments back fiat money, whereas cryptocurrencies are not regulated by any government.

• A cryptocurrency is a digital form of money, whereas fiat currency also exists in physical form.

• A transaction involving fiat money necessitates the use of an intermediary, such as a bank or a brokerage firm. Cryptocurrency transactions are carried out on a peer-to-peer network, which eliminates the need for third parties.

• Fiat money is legal tender, whereas cryptocurrencies are not in many countries.

• Cryptocurrencies, but not fiat money, can act as a hedge against inflation. This is due to the limited supply of digital currencies, whereas the supply of fiat money is infinite.

• Unlike fiat money, all transactions made with cryptocurrencies are recorded and irreversible.

By now, we hope you have a better understanding of cryptocurrencies and fiat money. While both are used as a medium of exchange, they differ significantly in their fundamentals. Which model do you believe will gain widespread acceptance in the future?

as always:

before you invest in crypto – invest in yourself