Earlier, the general public was used to use regular money, or we can say fiat currencies. Over time, we have been introduced to digital currencies. Digital currencies are the digital form of money that is decentralized currencies that are not dependent on the government and banks. Like cash or regular money, bitcoin is also a currency and can be used as a medium of exchange. Do you know any points of difference between cash and bitcoin? Do you think it’s time to change the way of accepting or transferring money for your business? Why would you prefer to use bitcoin instead of cash or any other fiat currency?
To provide a clear answer to all your questions, you have deeply researched fiat currencies and digital currencies. To provide you with a wholesome understanding of both the currencies, we are here with some points of differences that will make you learn about both the currencies, so let’s move forward and gain knowledge. You can also learn about financial services by visiting the bitcoins-era.io.
Fiat currencies are the currency of government, and it is issued in the form of metal coins and paper noted by the central bank. Digital currencies like bitcoin are digital currency that is mined and not printed and is present in digital coins that can only be stored and used over the internet and have no physical appearance. Bitcoin and cash (money) have many things in common but also have some key differences.
- Both bitcoin and regular money can be used as a store of value and to make payments. Like people invest regular money in shares and make investments, bitcoin is also a store of value, and it can be invested in.
- Both bitcoin and regular money are liquid, and trading can take place following a peer-to-peer network.
- Regular money is issued by the central bank and is regulated under the control and governance of the government. The general public needs to trust on government for the value of money. Bitcoin is entirely trustless, and there are no intermediaries to regulate bitcoin in the market.
- Regular money is controlled, regulated, and issued by banks and governments, whereas bitcoins are digital tokens mined and not issued by any central authority.
- People trust regular money because they usually believe in the success of the economy by considering growth in the long-term. People trust bitcoin because the protocol of bitcoin is transparent to the general public and is tamper-proof.
Characteristics and Challenges
Both fiat currencies and cryptocurrencies have two prominent characteristics: currencies are a store of value, and both currencies enable frictionless payments. People trust fiat currencies like cash because they are issued by Central Bank and backed by the government. In contrast, people trust bitcoin because these digital tokens are based on an absolute excellent technology known as blockchain technology.
In fiat currencies, the value of money is kept relative according to economic stability. Still, at the time of the financial crisis, the central bank tends to print more money to keep up with the users’ demand. But the main issue with fiat currencies is that when money is printed more, the market will be flooded, which will drop the value of money. Sometimes, even the value of money goes down to zero.
The case of bitcoin is the opposite as it is deflationary, and it makes it obvious that even in the long-run, its value will grow over time. Bitcoin has a limited supply which means there is only 21 million bitcoin that can ever be mined. There is no risk of inflation with limited supply, and no one can control the supply of bitcoin, unlike regular money. The miners who do the work of mining bitcoins and securing the network are rewarded with a block reward set to get halved every four years.
Miners mine bitcoins by verifying the bitcoin transactions by solving highly complicated mathematical puzzles. For their efforts in solving mathematical puzzles, they are rewarded with a block reward. In 2009 the block reward was 50 bitcoins, and it has reduced to 6.25 Bitcoins. The bitcoin market is volatile, and its retail price fluctuates a lot.