A fiat currency is managed by the central bank of the respective country. It is a government-issued currency such as the U.S. dollar, Rupees are fiat currencies. Based on the trade value set by people, the central bank decides the value of a fiat currency. This currency has no value without the authorization of the central bank. Over the last few decades, this currency is being used as a medium of exchange for an alternative commodity. This currency is not redeemable in gold or silver.
A cryptocurrency is a form of payment that can be exchanged online for goods and services. It uses encryption to verify its transaction. This cryptocurrency works on blockchains. A blockchain is a decentralized technology widely spread across computers to manage and record transactions. The encryption converts the data or the information into codes to avoid any unauthorized entry. The encryption process in the cryptocurrency is secure and safe as it works under advanced coding.
What are the advantages of a cryptocurrency over fiat currency?
- While fiat currency has a stronghold from the banks of the respective country, cryptocurrency is an encryption process through blockchains that do not need any bank intervention.
- A fiat currency is controlled and regulated by central banks which are centralized. But cryptocurrency is managed by blockchain technology which is a network of computers which is known as ‘nodes’.
- To use a fiat currency, you need to have a bank account while for cryptocurrency, you don’t need any bank intervention. We can operate cryptocurrency with virtual wallets through mobile phones or other devices.
- A fiat currency can be transacted only within bank hours, but a cryptocurrency can be managed 24/7 due to its blockchain technology through a computer network.
- Fiat currency transactions can be done digitally or physically, but cryptocurrency transactions are done only in digital form. Since fiat currency has physical transactions, it needs space to be stored, such as banks and lockers.
- Since fiat currency needs banks as their intermediate medium for transactions, the time and cost will be high. Sometimes, it takes days to make huge transactions. But cryptocurrencies are virtual and need a fraction of a second to transact.
- Cryptocurrencies are global, which means the same for all countries while fiat currency is specific to each country. Since cryptocurrencies are global, you can use them easily in any of the countries. In cryptocurrency, you have every hold on your coin and its value. But in the case of fiat currency, the value and the transactions are held by the banks or the Government. The revolution cryptocurrency is making in the money market is marvelous.
- Due to inflation, the value of the fiat currency is can go down, but due to deflation, cryptocurrency value grows faster. With the demand and supply limitations, the asset value of cryptocurrency increases.
- People can misuse the fiat currency structure by duplicating the physical form of the currency whereas, cryptocurrency cannot be misused as it is a virtual currency. Fraud transactions are less likely to happen in the case of cryptocurrencies as the transaction gets recorded immediately in the blockchain system. And this record becomes permanent which can give us a clear and transparent picture of the transaction.
- One can hack bank systems easily whereas, in crypto, it is not possible due to its high-end security, that is, advanced coding and encryption system. The transactions done with crypto are recorded in a public ledger through the network of computers across the world, It makes the cryptosystem secure, which means one cannot easily hack the system.
- The value of a fiat currency is decided by the people, bank, or the government while cryptocurrency value depends purely on supply and demand.
While analyzing all those listed differences, we can say cryptocurrency is far better than fiat currency. The advantages of crypto have made it increase its demand. So, now when you know what is the difference between our bank currency (fiat currency) and the cryptocurrency, you would decide on your future investment wisely. Stay tuned!