Crypto vs FIAT
Are crypto-currencies truly the game changers that they have been claimed to be since their creation? Since its creation and use as a medium of trade, money, or fiat currency, has undergone numerous modifications, with the most recent iterations frequently allowing for considerably better simplicity and efficiency.
While arguments remain ongoing regarding if cryptocurrencies pass as the most recent iteration of money, there is no doubt that crypto comes with many improvements over the currency system currently in use globally. But do these improvements make cryptocurrencies a better alternative to fiat (crypto vs fiat)?
Well, let’s get about finding out. Fiat currency has been the primary mode of exchange across all nations of the world for centuries now, with the exchange value of these currencies being independently determined and regulated by the governments of respective countries globally.
You might recall that when the first crypto currency (Bitcoin) was launched as a digital currency, the idea was to eliminate the centralized control of money by government agencies and ensure speedy processing of transactions.
While the idea of an alternate currency, outside the purview of governments and federal agencies remain powerful, observers and experts alike have begun to question whether crypto-currency would still live up to its earliest promise more than a decade later.
This probe is not far-fetched and became pretty necessary following the very scanty numbers that have typically characterized daily transactions conducted using crypto as a medium of exchange over the last decade.
Recent advancements in crypto and blockchain technology have again brought the crypto versus fiat currency debate to the fore once more. These developments have shown great potential to return crypto to its original promise, remarkably increasing the number of places and brands that accept and recognize crypto as a means of exchange.
Now, you can buy a surprisingly large number of things using cryptocurrencies. So how exactly are cryptocurrencies better than fiat money and how exactly can they influence the future of fiat money? To understand how crypto is better than fiat money, we first need to thoroughly look at the primary qualities of fiat money and how cryptocurrencies have made improvements on these characteristics overtime.
The main characteristics of fiat money since they were invented are:
1. Durability– This means that fiat currencies can be used repeatedly over a long period of time.
2. Portability– Fiat currencies are physically light and easy to hold and use Divisibility- Fiat currencies exist in denominations and large sums are easily divisible into smaller denominations.
3. Acceptability– Fiat currencies are generally acceptable in countries where they exist as the legal tender.
4. Counterfeitability– Fiat money are designed to be difficult to counterfeit or remake via unauthorized means.
5. Uniformity– Fiat currencies are uniform and the same all over the country(s) where they are in use.
6. Limited Supply– Fiat money is customarily scarce and limited in supply. Their supply is typically regulated by the central authorities of the different nations of the world.
Despite all these qualities and the several iterations that fiat currencies have continuously undergone for centuries, no iteration of money up until this point has been able to perfectly satisfy public need for a currency with great characteristics across board.
To put it bluntly, cryptocurrency beats fiat currency on every money characteristic and offers even more. A quick comparison of crypto against the unique qualities of fiat currency would give you a clearer picture.
Firstly, digital money is more durable and doesn’t rip or tear. Second, digital currency is outrageously portable. Any quantity of money you have can fit on a cheap phone or a USB. Digital currency is more divisible. For context, bitcoin is divisible into 8 decimal places.
While the quality of acceptability might still seem to be in favor of fiat currency, what is evident is crypto is growing in acceptability on a daily basis and is better designed technically for acceptability as it’s a permissionless and universal currency.
With fiat currency, spending nationally is generally smooth and easy but trading in an increasingly global economy becomes really challenging. Crypto-currencies on the other hand are exactly the same regardless of the country they are being used.
On the topics of counterfeitability and uniformity, crypto wins easily. Cryptocurrency algorithm ensures that duplication of a coin is impossible and the value of a coin is uniform universally. Crypto further reintroduces limited supply in a rather unique fashion, as well as other currency characteristics that were unthinkable in the past.
One such characteristic is the programmability of crypto as a digital currency. Crypto-currencies can be linked to smart contracts and do things that could never have been done before. And now there’s an ongoing transition of crypto into next generation blockchain, taking the whole conversation beyond the scope of crypto just being a currency.
Now, it’s about creating entirely new financial eco-systems around crypto-currencies. Decentralized finance (DeFi) and decentralized exchanges (DEX) are new terminologies and systems that are actively evolving and reward users with exchangeable cryptographic tokens for the value that they add to such systems and platforms.
Asides crypto being the better currency based off the core qualities of traditional fiat money, crypto-currencies also offer other broad benefits as a medium of exchange. Let’s take a look at a few:
In the world today, crypto-currencies have become the fastest means of moving assets or money from one account to another. Most transactions at U.S. financial institutions settle in three to five days. A wire transfer usually takes at least 24 hours.
Stock trades settle in three days. Cryptocurrency transactions can be completed in a matter of minutes. Once the block with your transaction in it is confirmed by the network, it’s fully settled and the funds are available to use.
The cost of transacting in crypto-currency is relatively low compared to other financial services. While common for domestic wire transfers to cost around $25 to $30, and with international transfers being even more expensive, crypto-currency transactions are usually far less expensive. And while demand on the blockchain can increase transaction costs, even so, the median transaction fees remain lower than wire transfer fees even on the most congested blockchains.
Cryptocurrencies are practically open to access and use by anyone who is interested in them. All you need is a computer or smartphone and an internet connection. The process of setting up a cryptocurrency wallet is likewise extremely fast and easy compared to opening an account at a traditional financial institution. There’s no ID verification, background check or credit check.
Cryptocurrency offers a way for the unbanked to access financial services without having to go through a centralized authority. Using cryptocurrency can allow people who don’t use traditional banking services to easily make online transactions or send money to loved ones.
Transactions and exchanges carried out using Cryptocurrencies are very secured. Unless someone gains access to the private key for your crypto wallet, they cannot sign transactions or access your funds. Transactions are secured by the nature of the blockchain system and the distributed network of computers verifying transactions.
As more computing power is added to the network, it becomes even more secure. However, if you lose your private key, there’s also no way to recover your funds. Instances of hacked cryptocurrency accounts are usually tied to poor security at a centralized exchange. If you keep your crypto assets in your own wallet, it’s far more secure.
Transacting using crypto-currencies do not require you do submit any personal information about yourself, not even your name. Since you don’t have to register for an account at a financial institution to transact with cryptocurrency, you can maintain a level of privacy.
Transactions are pseudonymous, which means you have an identifier on the blockchain (which is your wallet address), but it doesn’t include any specific information about you.
All crypto-currency transactions take place on the publicly distributed blockchain ledger. There are tools that allow anyone to look up transaction data, including where, when, and how much of a crypto-currency someone sent from a wallet address.
Anyone can also see how much crypto is stored in a wallet. This level of transparency can reduce fraudulent transactions. Someone can prove they sent money and that it was received or they can prove they have the funds available for a transaction.
Cryptocurrencies constitute a good way for you as an investor to diversify from traditional financial assets such as stocks and bonds. By combining assets with minimal price correlation, you can generate more steady returns.
If your stock portfolio goes down, your crypto asset may go up and vice versa. Still, crypto is generally very volatile and could end up increasing the volatility of your overall portfolio if your asset allocation is too heavy on crypto.
Protection from Inflation
Cryptocurrencies are used by many of those who invest in them to shield their wealth against inflation. Bitcoin for example has a hard cap on the total number of coins that will ever be minted. So, as the growth of the money supply outpaces the growth in the Bitcoin supply, the price of Bitcoin ought to increase.
There are numerous other crypto-currencies that use mechanisms to cap supply and can act as a hedge against inflation. With all the benefits crypto-currency has over fiat currency and other asset classes, it’s hard to argue there’s no value in using or investing in crypto. The utility provided by many crypto-currencies is of great value to many people who value fast and secure transactions.
It’s only a matter of time before crypto overtakes fiat money as the more acceptable currency and medium of exchange. It might still take a while, but the world would get there eventually.
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