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Fiat Money vs Cryptocurrencies

07/19/2019
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  • Currencies
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Fiat or fiduciary money is the usual means of payment, ordinary paper notes, money on our bank cards that we use daily. There is no need to go far for examples of fiat money - dollars, euros, yuan - most modern national currencies refer to this term. They are presented in different forms: paper banknotes, metal coins, non-cash funds.

Cryptocurrencies appeared in our life relatively recently - in 2009 and the first one was Bitcoin. Litecoin, Ethereum, and many others followed just in several years. In general, today there are more than fifteen hundred names of digital coins in circulation. Most of them are projects that show little sign of life.

Let's focus on the general features and differences between fiat and digital coins. Both fiat and non-fiat money are used for such purposes:

  • payment for goods and services;
  • lending;
  • investment;
  • accumulation;
  • transactions on exchanges.

Fiat money is a legal means of payment, which the state recognized as such. The digital asset is currently not legal tender. Moreover, the regulators of most countries are still thinking about which way to approach them and what to consider them: money, securities or goods.

Fiat money has a physical expression - paper banknotes. Digital tokens work on the blockchain; they exist only in the digital world and have no physical equivalent. The fiat exchange for each country is mainly its own and is issued (printed) by the state. Cryptocurrencies are global and decentralized currencies that are received mainly by mining. For them, there are no geographical or political boundaries. The first and for today the largest digital currency is bitcoin.

Fiat money is subjected to inflation and can depreciate over time since their emissions are not limited to any framework. Digital currencies most often have an issue ceiling. For example, Bitcoin will be issued only up to 21 million coins. Therefore, their value will only increase with time and inflation will not threaten these coins.

Behind fiat currencies are large financial institutions. To get or send your funds, we use banks - they are intermediaries between us and money. We cannot directly transfer funds to another user. The only option is cash from hand to hand. At the same time, we send tokens directly to the recipient - here intermediaries are not needed. This has both its advantages and disadvantages.

By sending fiat money to an unscrupulous recipient, we can always contact the bank and, if we prove that the addressee is a fraudster, it is likely that it will be returned to us. The same applies to cases when we mistakenly send funds to the wrong account. In the case of digital asset systems, this will not happen. Here, transactions are irreversible, there are no intermediaries, and we can only rely on the recipient's word of honor and on their attentiveness.

Fiat money is kept on accounts in financial institutions, which are responsible for their safety. As an option, if we do not trust third parties, it can be stored at home or under a mattress and if with all the precautions, then in a safe. For digital asset, we create wallets ourselves - on a computer, on the Internet, we use hardware devices for storage and we are responsible (in most cases) for ensuring the security of our digital coins.

You can exchange fiat for digital tokens and back with the help of digital currency exchanges, as well as specialized exchange services. Among the popular marketplaces working with fiat, it is possible to highlight the following: Bitfinex; Kraken; Bitstamp; Gemini; Livecoin.

Will Bitcoin Replace Fiat Money?

Today it is definitely difficult to answer this question. One thing is clear - this will definitely not happen in 2019. Bitcoin is still at the initial stage of its development, it has yet to solve many problems, such as transaction speed, scalability, high volatility. Although today Bitcoin is accepted by many stores and services for payment, it is still a long way from universal acceptance of BTC.

Nevertheless, such prominent figures of modern business as Jack Dorsey, head of Twitter, as well as co-founder of Apple Corporation, Steve Wozniak, express the hope that in the next decade Bitcoin will have every chance of becoming, if not the world's only means of payment, then the native currency of the Internet for sure.

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