Cryptocurrencies are becoming more popular and gaining global acceptance as the talk about them replacing fiat currencies keeps gaining momentum. According to several optimists, the world is finally ready to adopt a cashless society. This opinion is backed up by the fact that some people nowadays transact entirely through electronic means, giving hope that they could be the future currencies.
Understanding Fiat Money
Fiat is the currency that is issued by a state and is normally regulated by a central authority such as a central bank. They form the legal tender of the state and are not necessarily supported by any physical commodity. Instead, they are dependent upon the credit of the economy.
Benefits of Fiat Money
Fiat money is the main legal tender in almost all countries mainly because they are very stable and can be easily regulated. Unlike its counterparts, fiat money is relatively stable and this allows regulators and the state to control the economy against recession or inflation.
The stability also serves in making fiat money as a tool for storage of value and in facilitating exchange. They are also used to give numerical accounts. The control allows financial institutions to manage different economic variables such as liquidity, interest rates, and credit supply which are important in building a robust and stable economy.
Disadvantage of Fiat Money
The stability of fiat money cannot always be guaranteed. Great economic recessions have been witnessed before and all poke holes in the deficiencies related to fiat money. The central bank has been unable to prevent inflation or recession hence their ability to bring a 100% stability cannot be guaranteed. The idea of central banks’ control over the economy or the rampant inflation makes the need for cryptocurrencies wanting.
What is Cryptocurrency?
Cryptocurrency is digital or virtual money that works as a medium for exchange. They are not controlled by any central authority such as a central bank, instead, they are in limited supply in a database although no one can alter them unless certain conditions are met. The idea of cryptocurrency was born by one Satoshi Nakamoto, the brainchild behind Bitcoins.
Benefits of cryptocurrency.
They are easily available by just a click of a button. People making online transfer can also own the digital currency of their choice. They are also fast in making settlement, unlike other electronic cash settlement processes that might take days to complete. Cryptocurrency is an instant mode of settlement.
They also have a low transaction fee compared to other modes of payment and privacy is another aspect that has made cryptocurrencies popular. Users do not have to share their identity when making settlements, which has attracted lots of online gambling providers to use cryptocurrency as a payment method. Because casino gaming is still a kind of taboo for many “normal” people, Crypto Casinos became very popular in the gambling-community. You can find out more about Cryptocoin Casinos in this guide that gives you an in-depth look into the world of crypto and gambling.
They are quite difficult to understand and operate. The lack of knowledge on how to use them has been a constant challenge for many people hence making them less popular. Also, it is impossible to reverse a successful transaction and the only option in case of reversal is asking for a reversal from the recipient. Volatility is another reason why people shun cryptocurrencies.
Differences between Fiat Money and The Cryptocurrencies
Legality. Fiat money is considered legal tenders as they are the official means of transactions recognized by the governments. Cryptocurrencies on the other hand are merely virtual medium of transaction and the government have no control over. Some countries have even taken stiffer measures in banning the cryptocurrencies over concerns that they are used to fuel illegal activities and money laundering.
It is impossible to have a physical feel as they operate online. Fiat money can be felt and touched as they operate in physical notes and coins.
Exchange Aspect. Since cryptocurrencies operate online as digital codes, their means of exchange is strictly digital whereas fiat money operates both digitally and physically.
Supply. Fiat money has unlimited supply in the economy meaning the central banks have no cap as to the extent in which they circulate money but the cryptocurrencies are produced in a limited amount, currently capped at 21 million for Bitcoins.
Both currencies have unique attributes regardless of their jurisdiction. While the advantages of cryptocurrencies outweigh those for fiat money, they are however deemed immature to replace the standard payment methods at the moments. The cryptocurrency will surely evolve in the future that will definitely change the current payment system but whether they will replace fiat money or not, it’s highly unpredictable.
Regardless of how individuals may feel about the replacement from the standard cash system to cryptocurrencies, it’s highly out of people’s hands. It has been widely speculated that the cryptocurrencies are a time bomb that is destined to blow, however, the predictions could also be overrated.
The possibility of cryptocurrencies replacing the fiat money will bring some unique challenges as well. The traditional money would lose value without possibility of recourse. Also, should the virtual money out space cash entirely, there would be huge investments to be set so as to prepare the world to adopt. Additionally, many established financial institutions may crumple down during this new era.