Difference Between Fiat Currency and Cryptocurrency

Difference Between Fiat Currency and Cryptocurrency

With cryptocurrencies becoming popular, people are rushing to the crypto market without even understanding how this currency work. Most people are investing in it as they see an increase in its price over the years. Not only this they don’t even know cryptocurrency is different from Fiat currency and its value cannot be measured against that of Fiat money. They are just joining the race.

We agree to the fact that there is no intrinsic difference, as both are referred to as money or currency. But still they are different just by saying both are used as medium of exchange, used to store and transfer value, used to purchase goods and services, and others they cannot be considered same.

There are certain things that make both stand apart. Before we learn about the differences we need to know what a Fiat currency and cryptocurrency is all about.

What is Fiat currency?

Fiat Money is legal tender backed by government, not by physical commodity. In simpler terms it is physical (paper money, coins.) The value of Fiat money is result of the relationship between supply and demand rather than the value of the material from which the money is made.

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What is Cryptocurrency?

On the other hand, cryptocurrency is digital form of currency that has no legal tender or government backing. It works as a medium of exchange, store value like legal ledger and is decentralized, digital medium of exchange governed by cryptography.

By now, you must have understood the biggest difference between both,  Fiat is traditional currency you have in your bank and cryptocurrency is digital currency. The most popular of all Bitcoin, that has limited supply and the with demand purchasing power increases.

With Fiat currency no one knows how much money is in circulation. It is harder to track.

Now after knowing significant differences between both let’s know notable differences between them:

Fiat CurrencyCryptocurrency
Physical currency that can be represented electronically whose supply is controlled by the government and taxes can be paid using it.Decentralized and global digital currency controlled by an algorithm and taxes cannot be paid using it, instead the holder needs to pay taxes on it.
Physical in nature this means, you can touch and see exchange when people make financial transactions.Not physical in nature means you cannot touch it, the public and private pieces of code present cryptocurrency.
Issued by government and is physical in nature. You can see the person you are transacting with and the currency in use. Sometimes Fiat money is exchanged digitally using certain applications like Mpesa.The mode of exchange is completely digital. Cryptocoins are created by computers and are only transacted online.
Unlimited supply, as produced by the government and can be reproduced when necessary.Limited supply for example only 21 million Bitcoin can be supplied.
Fiat currency bears the name of country of origin therefore, it is traded within the borders of its country. If you use the currency of a country outside some fee is charged.No need to pay cross-border charges when sending and money across countries.
Stored in bank accounts, where individuals do not own the bank.Cryptocurrency is stored in a digital wallet owned by a person.
Easy to carry Fiat currency as it is physical in form and occupies space. It can be easily stolen.Cryptocoins are easy to carry and store an app on your smartphone works as a wallet to store them.

Advantages of Cryptocurrencies Over Fiat Money

By now we have understood the difference between both the currencies, now let’s understand the advantage of cryptocurrency over Fiat money.

As people are becoming more and more interested in the digital currency we need to know what makes them fall for a currency that is not tangible and has no government backing.

To know more about it let’s look at the advantages of cryptocurrency over Fiat money.

  1. Cryptocurrency is more secure: Unlike payments made by credit card that can be reversed, trades made using cryptocurrency are irreversible. This protects users from fraud that may occur between a buyer and a seller, all thanks to distributed ledger and smart contracts. Using these individuals can exchange valuable across the globe in just one click without worrying about any risk or fraud. Only authorized individuals will have access to the transactions made on Blockchain network. This means cryptocurrencies are more secure and users can deploy various security measures on them to strengthen the security which is not the case with Fiat money.
  2. Cryptocurrency is Reachable: Unlike traditional bank account that can be frozen, cryptocurrency account cannot be frozen as it is not bounded by laws or regulations that can freeze the bank account. Also, anyone with internet connectivity can buy cryptocurrency without needing to go through rigorous scrutiny. To make cryptocurrency exchange one doesn’t need to have access to traditional means of exchange.
  3. Low Transaction fees: Banks charge a processing fee to make a transaction while cryptocurrency exchanges can be made without paying transaction fees or very low fees.

Every technology has their merits or demerits, and cryptocurrency is no exception. You need to always evaluate both merits and demerits to know if the thing is worth considering or not. Cryptocurrencies have their advantages we need to know them to decide whether they are worth it or not.

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Preeti is a technical writer with Systweak. She covers new technology and troubleshooting. She loves gadgets and is an avid reader. In her free time, she likes to travel and explore new places solo.

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