Cryptocurrency was first introduced in 2009. Back then, it was described as “magic internet money”. While it may sound fascinating, it’s equivalent to fiat currency but eliminates most of the flaws of traditional money.
Gartner predicts, 20 percent of large enterprises will use digital currencies for payments, stored value, or collateral by 2024. For business owners, it’s important they understand what is cryptocurrency and how it contrasts with traditional money.
Unlike fiat currencies, cryptocurrencies are intangible. They only exist online in the form of irreversible transactions on the blockchain. It is a peer-to-peer electronic cash system that allows users to transact without any intermediaries, like a bank or any other third parties. All transactions are secured and facilitated through cryptography.
“The root problem with conventional currency is all the trust that’s required to make it work. The central banks must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
— Satoshi Nakamoto
(anonymous inventor of Bitcoin — one of the oldest cryptocurrency projects)
Recent bank collapses have made it evident that our financial systems are not robust enough to be trusted with our hard-earned money. And because fiat currencies are controlled by the government, they are vulnerable to dictatorship.
“Nowadays, the political power uses its power of coercion to impose a monopoly on the production and circulation of money, which in particular implies the existence of a ‘legal tender’, that is, a prohibition on currencies other than the ‘national’ currency”
— Pascal Salin
The International Monetary System and the Theory of Monetary Systems
On the contrary, cryptocurrencies are decentralized, and no one entity can control its flow or volume. Only a limited number of coins can exist for a particular cryptocurrency. For example, the total cap of Bitcoins is 21 million. As of today, over 19 million Bitcoins have already been mined and are in circulation. Having a limited supply of Bitcoin safeguards it from inflation and depreciation — which is a major issue with fiat currency as the government can print as much money as they need at their will.
Both cryptocurrency and fiat currency have the properties of money (i.e., durability, portability, divisibility, uniformity, limited supply, and wide acceptability). However, they are fundamentally different. Here are a few key differences that set them apart.
|Portability (ease of transport)||High||Very High|
|Highly divisible (smaller units)||Moderate||Very High|
|Secure (cannot be counterfeited/stolen)||Moderate||High|
|Easily transactable (medium of exchange)||High||High|
|Scarce (limited supply)||Low||High|
|Decentralized (not controlled by a single entity)||Low||Very High|
|Global trade||Low||Very High|
|Smart (programmable)||Low||Very High|
Unlike fiat money, cryptocurrency can be easily traded globally, is relatively secure, and highly divisible. And because cryptocurrency is a virtual currency, the cost of printing physical money can be completely eliminated.
Having said that, fiat currencies are stable and one of the most preferred means of payment across the globe. Let’s look at the pros and cons of fiat and cryptocurrency.
Cryptocurrency promises a future where payments are borderless, decentralized, and hassle-free. Let’s look at a few pros of cryptocurrency:
Cryptocurrency has the potential to revolutionize our day-to-day transactions. It’s fast, efficient, and reliable. Governments can save billions of dollars that are spent on printing money. Moreover, cryptocurrency can also enhance transparency as all the transactions on the blockchain are traceable to their origin.
The gap between virtual currencies and fiat money is diminishing every passing day. Now you can exchange any cryptocurrency for fiat money and vice versa through leading cryptocurrency exchange platforms and wallets. As more and more users adopt cryptocurrency, its popularity, use cases, and acceptance will continue to grow. The day isn’t far when cryptocurrency will be widely used alongside fiat money.
Several countries are already harnessing cryptocurrency to their advantage. For instance, in September 2021, El Salvador became the first country to adopt Bitcoin as a legal tender. The trend was followed by the Central African Republic, which started accepting Bitcoin nationally in April 2022.
With the increase in the adoption of cryptocurrency, several countries have started taking virtual currencies seriously. Check out our list of the top 12 crypto-friendly countries in 2023.
Over one in three businesses accept cryptocurrency payments across the US. Not just that, leading NGOs, and billion-dollar enterprises have also started accepting cryptocurrency payments. Some of the most popular companies accepting cryptocurrency directly include:
While cryptocurrency shares a lot of traits with fiat money, it is more reliable and gives full control to the users. Anyone across the globe can access cryptocurrency with an internet connection, and it can neither be destroyed nor deflated. As it looks, cryptocurrency holds a promising future for the world of finance. To learn more about cryptocurrency and how it works, read our full guide on cryptocurrency.
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