Cryptocurrency’s popularity didn’t just happen overnight; there has been an industry buzz for years now. Although the hype hasn’t vanished, cryptos are becoming even more relevant to the financial world in recent days. Cryptocurrencies are believed to become a primary mode of payment. In this guide, we will assess the differences between crypto and fiat currency. Can cryptocurrency become the #1 payment method?
Fiat Money vs. Cryptocurrency: Definition
Fiat currencies are domestic currencies- take, for instance, the Russian ruble, Indian rupee, the Canadian Dollar, and so on. Fiat money is a means of payment in global trading and for businesses worldwide. It’s issued by a country’s central bank. The currencies can be in the form of physical and digital currencies (for electronic payments). The supply of fiat money is controlled by the government.
Cryptocurrencies aren’t regulated by any authority. They are based on the blockchain protocol. Upon processing transactions, crypto securities apply cryptography technology. The most popular examples are Bitcoin, Ripple, Litecoin, etc. Although cryptocurrencies are gaining popularity and are being adopted by different companies, their acceptance as a payment method is limited.
Advantages of Cryptocurrency Over Fiat Currency
Why are cryptoassets expected to replace fiat money? Why is cryptocurrency better than fiat money? Do cryptos really have benefits?
Everyone knows that cryptocurrencies are decentralized. In other words, no central authority has control over their supply. Thus their value isn’t determined by said authorities.
This point causes disputes. On the one hand, you don’t have to identify yourself to carry out crypto transactions. This advantage protects you from being controlled by authorities. On the other hand, limited control makes cryptocurrency an easier target for crimes, including money laundering, terrorism, etc.
Low Transfer Cost and Storage
Low fees are a significant benefit of crypto securities. Bank transactions can be expensive, especially if you want to send money to a resident of another country. At the same time, cryptocurrencies compete to provide the lowest fees that attract investors and raise their value.
Crypto vs. Fiat: Rapid Transactions
It might take several days for a recipient will receive your fiat funds. Cryptos enable instant transactions.
You can trade both fiat money and cryptocurrencies. However, cryptos provide a higher degree of profit due to increased volatility.
Cryptocurrency vs. Cash: Immediate Access
To access your crypto funds, you just need an Internet connection. Although fiat money is saved in a bank account and can be accessed online as well, if you need to have physical money (paper money or coins), you have to go to a bank or take them from home.
Imagine you go abroad, and you need some cash in a foreign currency. In such a case, you will have to go to a bank to exchange money. On the other hand, if you want to buy some cryptos, you can do that with one click, having Internet access. The process of crypto purchase is becoming easier.
Although regular currencies have a high level of stability, recessions and rising inflation are still a case. Many fiat currencies lose their value, and a rising exchange rate is a problem when a country’s economic conditions weaken.
Limitations of Cryptocurrency vs. Fiat Money
As with anything on earth, cryptoassets have cons that should be considered.
If you are a newbie in the cryptocurrency world, it can be challenging to understand what cryptoassets are, where to buy, store, invest or trade them, and what is the aim of cryptocurrencies.
It’s impossible to correct a wrong transaction. Funds can be received back if only the recipient agrees to return them.
Large Price Fluctuations
Cryptocurrencies are highly volatile. Look at their price charts, and you will see that the price can shoot up and plummet within the course of a day.
Cryptocurrencies are unstable. Regulation is a key trigger of price movements. Cryptos and cryptocurrency payments are constantly banned across various countries. Meanwhile, fiat money is stable. It’s used as a means of storing value. Although fiat currencies can also be volatile (it mainly relates to exotic currencies), the price of major currencies experience limited fluctuations.
Fiat Currency vs. Cryptocurrency: Key Differences
In the table below, you can find the most crucial differences between fiat currency and cryptocurrency. This information may help you make a decision when choosing between two types of assets.
|Form||Coins and paper money||Digital assets that can’t be touched|
|Legality||Legal worldwide||Legal but not in all jurisdictions|
|Exchange||Used to make physical and electronic payments or transactions||Only digital transactions|
|Storage||Stored on a bank account||Stored in digital wallets|
Fiat vs. Crypto: Control
Domestic central banks issue regular currencies. They set particular monetary policy to control the value of fiat money. At the same time, cryptocurrencies are decentralized.
Crypto vs. Cash: Form
Fiat currencies are physical money presented by coins and banknotes. They can also be stored in a digital form. Cryptoassets are a digital means of payment that exists online.
Fiat vs. Crypto: Security
Fiat money is safe, as the government regulates it. All transactions are tracked, the sender and recipient are known, and monitoring takes place. Cryptocurrency security is questionable, as transactions can be done anonymously.
Crypto vs. Fiat: Supply
Fiat currencies can be printed in a limitless amount. The supply depends only on a central bank’s decision. The supply of most cryptocurrencies is limited. However, it can be an advantage, as they are deflationary by nature.
Fiat vs. Crypto: Legality
All governments accept fiat currencies and regulate their supply. At the same time, cryptocurrencies are illegal in some countries, as central authorities don’t regulate them.
Cryptocurrency vs. Cash: Exchange
Fiat money can be applied both for online and physical transactions, while digital currencies are used for online transactions only.
Fiat vs. Crypto: Storage
Fiat money can be stored in different forms. Banks and other payment providers allow clients to keep it in digital form. Also, you can have cash at home or in a wallet.
Cryptoassets are stored in digital or so-called cryptocurrency wallets. Although it’s a common occurrence that wallets are hacked and users lose their money, there is also a risk a bank will cease to exist. We agree that the risk is lower, but it still exists.
Fiat Currency vs. Cryptocurrency: Which Is Better?
We can’t answer this question. Currently, fiat money and cryptocurrencies are in different stages of acceptance. Thus, it’s wrong to compare them and try to replace one with another. Fiat money won’t disappear in the near future; it will still be the major means of payment in the global economy. Still, cryptocurrencies can be used for trading as they are subject to high volatility. It’s possible to invest in cryptos while they are cheap (some of them have already skyrocketed) to profit in the long term. Also, crypto transactions and crypto payments can be a way to prevent yourself from additional central control.