The emergence of Bitcoin and other cryptocurrencies in the last decade has triggered a huge wave of interest in the relevance and usage of cryptocurrency. Cryptocurrency is now regularly compared to fiat currency such as Dollars and Euros, although there are fundamental differences in both “forms of currencies.”
The total market capitalization of cryptocurrencies in July 2020 reached a staggering $1.56 Trillion! Bitcoin is also now declared a form of “money” under the newly created Washington D.C.’s Money Transmitters Act. Several companies have now started accepting Bitcoin as a form of payment, including retail giants like AT&T and Whole Foods, and Subway along with Uber-rich Fortune 500 and Fortune 1000 companies like PayPal and Microsoft. Dogecoin, one of the relatively new cryptocurrencies in the market, is now one of the top altcoins and offers double-digit gains to short-term retail traders.
What’s more, several altcoins have become a usable currency for regular monetary transactions. The acceptance across the board raises several questions – Can cryptocurrency work widely as an efficient medium of exchange? Can cryptocurrency co-exist with fiat currency as a medium of change? What conditions could propel their coexistence?
Differences between Fiat and Cryptocurrency
Fiat money is used in the form of coins or paper bills and issued by governments. They are never backed by any commodity like Gold or Silver (except in some cases, like the United States Dollar in the past) and have no inherent value but derive value from the respective nation’s governments. Any token or item widely accepted as payment means or exchange could be labeled as money in basic terms.
Cryptocurrencies have become mainstream since people can send and receive crypto and use them as payment or exchange for goods and services. Thousands of different cryptocurrencies now make their presence felt every single day, across cryptocurrency exchanges.
- Unlike any fiat currency, cryptocurrencies do not have a central regulatory bank and are not governed by any authority. No regulatory authority can dilute its value or change its inherent rules. Decentralized cryptocurrencies are known for their resilience, with no need for third-party validation from banks or other institutions. This puts the power in the hands of the people, making it accessible and people-friendly.
- Computer algorithms completely and transparently predetermine crypto-supply rules and execute the smart contracts involved in transactions, automating it and making it further lucrative for traders. Coins are produced by computer servers that solve complicated computational problems, involving gigantic processing effort and upfront capital investment too.
- The decentralized nature of cryptocurrencies helps ensure their robust value in time, completely dependent on “mined” coins and their calculated availability.
- Every transaction is verified using blockchain technology and recorded permanently with no reversibility possible. Crypto transactions thus ensure a secure and safe medium to exchange value and makes sense for new traders to invest in top cryptocurrency in 2021.
Similarities in Fiat and cryptocurrencies
Fiat currencies and cryptocurrencies do not possess any intrinsic value since they are not based on value-based commodities like Gold. Their value is connected to their acceptability from people around the world. They can be used as payment or can be gifted to others and saved in “wallets.” They acquire value with regards to other currencies too.
Can both Fiat and cryptocurrencies co-exist?
Some experts believe that cryptocurrencies could replace fiat currencies completely due to their security and the increasing validation from institutions. However, Fiat currency is susceptible to inflation as its supply can be manipulated, diluting the “perceived” value of the currency over time. Economic instability in any country hence leads to the danger of hyperinflation, quickly reducing the currency value and its perception of trust compared to other fiat currencies. On the other hand, Bitcoin’s popularity has risen tremendously owing to its fixed supply of 21 Million coins. Its limited supply has propelled its trade, leading people to bank on its rise in value and exchange in varied sectors.
Cryptocurrencies are quickly gaining acceptance, but they do have a long way before they could be adopted as widely as fiat currency is currently. The trading of these coins is still in the early stages when compared to the world’s assets and fiat currencies. Additionally, its relative complexity compared to fiat currency limits its appeal among the wide audience but increases its interest among traders and investors who can leverage their tech-savvy nature to earn on the subsequent rise in its value. Cryptocurrencies offer many advantages over fiat currencies, but they lack widespread adoption. Probably, with the evolution of technology, digital currencies could dictate the future. Until then, both forms of currencies will continue to hold importance in routine transactions.
We advise budding traders and investors to start trading today and make the most of the current value of cryptocurrencies to book higher returns. Register with eBankX and start making money today!
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