Fiat Money vs. Cryptocurrency: Is One Better Than the Other?
In 2009, the launch of Bitcoin befuddled many financial experts and newbies alike. The concept of a fully digital currency, owned by the people and unregulated, seemed like the premise of a sci-fi novel. Dissenters scoffed that Bitcoin would disappear — and yet, here we are, over a decade later! 1 Bitcoin is currently worth upwards of $40,000, and there are over 5,000 altcoins (Bitcoin alternatives) in existence. So, is cryptocurrency worth investing in? Is it really that different from fiat money? Read on for answers!
Fiat and Crypto: Key Differences
Before we tackle the differences between these forms of currency, we wanted to break down their definitions:
- Fiat Currency: The word “fiat” has Latin roots, meaning “decree” or “mandate.” It currently dominates our financial system and encompasses forms of money declared as legal tender by world governments. Examples include USD, Euro, CAD, AUD, and so on.
- Cryptocurrency: For the most part, these innovative digital currencies are based on blockchain technology — a distributed online ledger with strong cryptography. One main draw of cryptocurrencies is that they are decentralized, meaning that no central bank or government authority has power over them.
Nobody controls or regulates crypto — meaning that you, as a crypto owner, can trade it or make transactions with it however you seem fit. Fiat money, on the other hand, is highly regulated. What’s more, countries’ central banks can print up as much fiat money as they want, whereas cryptocurrency is typically mined in small amounts at a time.
Another way that fiat and crypto differ is their volatility. While fiat currency is certainly subject to fluctuations in price, it is much more stable than Bitcoin and other forms of cryptocurrency. Although many traders have a positive view on the future of crypto, the market is still relatively new, and the price of coins can swing dramatically in just a matter of hours — to the tune of hundreds or even thousands of dollars.
Comparing Pros and Cons
Here’s the true question: does cryptocurrency still have the potential for growth? Or will it putter out and fall behind fiat money? Which is better to invest in — crypto or fiat currency? There are various pros and cons to help you make an informed choice.
- Central banks manage the supply, meaning that they can limit interest and credit rates.
- Currency can be held or printed to manage economic crises.
- Fiat is relatively stable.
- Printed money has an issue with inflation.
- Fiat money is subject to high taxation.
- If a country is poorly managed, its currency suffers.
- Cryptocurrencies have a predetermined amount that can ever be mined, thus preventing inflation.
- Decentralization allows cryptocurrencies to be accessible anywhere in the world.
- Transactions are transparent and irreversible.
- A cryptocurrency’s worth can’t be controlled; it’s entirely dependent on demand.
- Crypto is subject to criminal activity due to the highly anonymous nature of transactions. To increase your safety, we recommend using a secure messenger with P2P crypto capabilities, such as Grapherex.
- The purchasing power of cryptocurrency is very limited, as many businesses do not accept it as payment.
As cryptocurrency is still so new, it’s difficult to definitively say how various coins will perform 5–10 years from now. However, the explosive growth of Bitcoin and altcoins points to a promising future.