A cryptocurrency is a form of digital money that is very famous these days due to being more secure and anonymous as compared with fiat currency. Generally speaking, it’s money related to the internet that uses cryptography; a process that can turn any information into a set of uncrackable codes. Due to this feature; being more secure, it is becoming very popular.
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Cryptocurrency emerged when Satoshi Nakamoto invented Bitcoin. Satoshi told in his official announcement that he never intended to invent a currency but his goal was to develop a peer-to-peer electronic cash system in which he succeeded as well.
The plus point of Bitcoin is that it’s a peer to peer network due to which double spending is not at all possible. This new cash system is completely decentralized. This feature makes cryptocurrency highly secured.
In a decentralized system, you don’t have a server so, every single part of the network do the job of confirming the transaction itself and in this way, any attempt to double spending can be hindered and stopped. Making transactions through cryptocurrency is very simple once understood completely.
In simpler terms, if you make any transactions using cryptocurrency once it’s confirmed its known immediately by the whole of the system and it cannot be undone and a blockchain is created.
What is Money Why is it Important?
But here the question arises, what is money, and why do we need it? Money can be defined quite simply as money is a random medium in which values of things are stored or measured. In ancient times, people used rare objects like; precious metals, precious stones etc, to be considered and used as money.
Today, in the modern era we use coins or fiat notes issued by state banks to be used as a form of currency. The real value of any form of currency lies in it exchange rate i.e. the currency that you are offering must be readily accepted by the other person as well. If it’s not the case then your currency or money has no value.
Cryptocurrency as a Form of Money
Money is generally something that we can physically use. So, how can we use cryptocurrency as a form of money? A cryptocurrency is a form of digital money that is associated with the internet. It is designed to be highly secure by using special private keys for security purposes during the transfer and confirmation of funds between two parties. Apart from this, it keeps a complete record of previous transactions by the use of blockchain technology.
People or more clearly financial investors are looking forward to other forms of currency which are less volatile when compared with fiat money. One of the biggest concern shared by all financial experts in the printing and distribution of fiat money into the market. Due to this power in the hands of central banks for management of the value of local fiat currencies into question.
The central bank can print as much currency notes as it thinks is needed by the government for use as the value of local fiat currency is determined by its ability to serve as a tax credit. As by doing so the central banks and governments can cause inflation. This point makes the value of fiat currency suspicious in the eyes of fiscal experts. As this point is considered to be the cause of the major financial crisis in the world which has also created a doubt on the future values of leading fiat currencies of the word like Euro and U.S Dollars.
As a result of this inflation causing factors many financial investors has turned back to investing in gold as the value of gold is more stable when compared with fiat money due to the constrained supply of gold.
This is the main thing which makes cryptocurrency as a better alternate for fiat money as it cannot be made unlimited there’s a certain limit till which can be created by the software and after reaching that so-called hard limit cannot be broken down.
Characteristics of Cryptocurrency
1. Definite Supply
This the most important characteristic of cryptocurrency which makes it an ideal alternative to fiat money. The cryptocurrency is very rare and limited i.e. it cannot be printed unlimited like the fiat currency notes. All cryptocurrencies like Bitcoin, Litcoin etc have a limit which is determined by the software and no one can create the more certain type of cryptocurrency. This limit is known as the hard limit.
2. Influence
This is the only point in which Fiat currency rules over cryptocurrency; its acceptance as a form of money. You cannot buy everywhere directly through your cryptocurrency at the moment. But, the situation is changing quite fast and with the more exposure of market to cryptocurrency the greater is the rate of its acceptance as a form of payment method.
3. Endurance
The endurance or durability of cryptocurrency is much more than any form of fiat currency as it’s not physical. It’s in the form of data but that form of data which cannot be destroyed like hard drives pen drives etc. due to blockchain technology each and every data of cryptocurrency (up to eighteen decimal places) is distributed across the nodes in the system and it is not possible to destroy every node. So, the data is very durable and so is the cryptocurrency.
4. Adjustability
Cryptocurrency is highly portable as well. As it is data it is stored in the “cloud” so, all you will be needing to pay with cryptocurrency is just an application on your smartphone and a working internet connection to access the block-chain network.
5. Divisibility
Cryptocurrency is highly divisible it can be divided down to 18 decimal places. When you break any fiat currency its value goes down as well but this is not the case in cryptocurrency as its nonphysical so you can divide it as much as you want without having to face any sort of decrease in its value.
In the end, we will be seeing a lot more of cryptocurrency as compared to fiat currency as it’s a step into the future.
Comparison of Fiat vs Cryptocurrency
Fiat currencies and cryptocurrencies are primarily used for transactions. Perhaps, they differ in many ways. Here, in this section, we have compared these two types of currencies.
1. Privacy
There are many ways through which fiat transactions can be traced back to the person making the transaction. The transactions made through cryptocurrency are viewable on the public blockchain, but you can only see the wallet addresses of the senders and receivers. This works as an anonymous structure which makes it harder to trace the origins of a transaction.
2. Use in Global Transactions
Transferring fiat money from one country to another can be slow and expensive. This is because these types of transactions require intermediaries. Through cryptocurrency, you can efficiently transact with people from all around the world. Using these digital currencies will not involve any third party as they use smart contracts to automate blockchain transactions.
3. Security
Fiat currency exists in digital and physical forms. Physical fiat currency is often stored in banks and protected by law enforcement. However, large-scale physical theft is possible. In most cases, bank robbers are caught, and the money is recovered. Still, there are numerous unsolved robberies. Sometimes, large sums of stolen money are never recovered.
Every cryptocurrency is a digital currency without a physical equivalent. These currencies are secured by advanced cryptography that makes them impossible to counterfeit. The records of transactions can’t be altered, and cryptocurrency wallets are nearly impossible to access unless someone obtains your private key. Still, the decentralized and unregulated nature of the cryptocurrency ecosystem faces various lends scams.
4. Regulatory climate
Fiat currencies are heavily regulated by central authorities, safeguarding against fraud, money laundering, and other illicit activities. Central banks regulate the money supply and interest rates while partnering with other governmental agencies to implement monetary policy.
The cryptocurrency regulatory environment is far less developed. It does not offer the consumer protections of the fiat world. These technologies evolved quickly, and regulators struggled to keep up as people began to accept cryptocurrency. In the past few years, the White House, Securities Exchange Commission, and other governmental agencies in the United States have begun working toward crypto regulation.
