Supply chain relationships in the finance and tech industry are genuinely global in reach and complexity. For example, you can visit how to buy Bitcoin, a helpful mini guide. Blockchain – one of the most promising financial technologies to vie for a spot in our future – has also helped create new monetary systems or cryptocurrencies.
Questions arise: Is cryptocurrency better than fiat currency? Of course, there are pros and cons to each type of money. The below-mentioned portion discusses both sides of the argument and shows you which one expert believes is best for your future.
How does cryptocurrency work?
Cryptocurrencies are an entirely digital form of money that use encryption techniques to regulate their generation, distribution, and trade. Unlike fiat currency, no central banks or governments control or oversee cryptocurrency generation and distribution. Instead, cryptocurrencies are created by a process called “mining”, in which individuals use computers to solve complex math problems.
Computers break down the math problems with an algorithm and the ones that can complete it first get to broadcast the new coins into existence. Unfortunately, the problem is so complicated that only highly advanced supercomputers can complete it. Miners use these supercomputers because they allow people to run them for free. However, these miners still need to purchase expensive machines to be profitable; thus, this makes cryptocurrency more of a gamble than anything else.
Differences between cryptocurrencies and fiat currencies?
Fiat currencies are the ones backed by a country’s central bank. People can use them for interstate and international trade. Fiat is translated as “real”, meaning the currency’s value is backed by an actual piece of gold or other precious metals.
The government controls the money supply, and these currencies are usually issued by fiat through printing presses at a fixed rate, rather than cutting up pieces of gold and minting them with unique markings to make them more valuable.
When you look at the differences between cryptocurrencies and fiat currencies, cryptocurrency benefits significantly in the speed of transactions and the ease at which users can trade them with other assets, such as stocks.
In most cases, Fiat money transactions take days to clear, while cryptocurrency transaction times are measured in minutes. In a world where retail e-commerce sales are expected to grow from $1.7 trillion in 2017 to $4.88 trillion by 2022, this is a critical factor for online retailers who want to stay ahead of their competitors.
Users also built the cryptocurrency with a specific purpose: To become the future currency! Fiat currency has always been a stokehold of value or an investment tool. However, for the first time in history, cryptocurrency can be used as a replacement for fiat currency. Let’s explore how.
Cryptocurrency is 100% digital
Fiat money is a physical representation of value. Therefore, it requires physical storage space in vaults and safes. Cryptocurrency has no physical manifestation – it exists purely as code and can be stored on a hard drive or any other digital device. So, cryptocurrency eliminates the need for banks to act as custodians of money. It also eliminates the security risks of physically storing large amounts of cash.
Cryptocurrency is decentralized
Cryptocurrencies have no central bodies that regulate them – they are decentralized and run on a peer-to-peer network. Nobody owns or controls cryptocurrency now, and it is difficult to give an exact answer as to who ‘decides’ what should be done with it at any given time. It means you can send cryptocurrency across borders without going through banks or paying for exchange rates because it is based on blockchain technology. The transactions are validated by the computer network that owns and uses cryptocurrency. This entire system works without having a central bank involved in the mix.
Cryptocurrencies are more valuable:
Users can use cryptocurrency to purchase other assets, from stocks and real estate to cars and artwork. It’s even possible to trade them in for goods or services. Cryptocurrencies tend to fluctuate a lot because of the market itself. Generally, the return on investment for a cryptocurrency will be higher when it is scarcer. Still, even then, there are fluctuations depending on the coins that are chosen as investments and their trading popularity.
Cryptocurrencies are deflationary:
Cryptocurrency is also deflationary. Deflation is reducing the money supply, which reduces the value of the existing currency by making it more valuable to hold. It can cause prices to go up if demand increases, but several other factors determine this. Instead of printing more money, cryptocurrency can increase in value because the supply is limited to just a certain amount. When fewer people have cryptocurrency, each coin becomes more valuable because a central bank can’t create it. Despite inflation concerns from some investors and analysts, cryptocurrencies still seem to be a better investment than fiat currency due to their ability for faster transactions and reduced fees.