Difference Between Fiat Money and Cryptocurrencies Fiat Money?
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Difference Between Fiat Money and Cryptocurrencies Fiat Money?
Fiat money is a type of currency, issued by the governmentand regulated by a central authority such as a central bank. Such currenciesact like legal tender and are not necessarily backed by a physical commodity. Instead,it is based on the credit of the economy. Fiat currencies such as the USdollar, pound or euro derive their value from the forces of supply and demandin the market.
Such currencies always run the risk of becoming worthless dueto hyperinflation as they are not tied to any physical reserves likecommodities. Fiat currency first came into existence in China around 1000AD before spreading to other parts of the world. Initially, currencies werebased on physical goods such as gold. It was in the 20th century that PresidentRichard Nixon banned the conversion of the US dollar into gold.
Advantages of fiat money
Fiat money remains legal tender in most countries becausethey are highly stable and regulated. Unlike other forms of currency, such ascryptocurrencies and commodity-based currencies, fiat currencies are relativelystable. Stability allows regulators and governments to navigate the economyagainst recession and inflation.
Disadvantages of Fiat Money
Although fiat money is considered a stable currency, it isnot always the case.The economic slowdown in the past few years has exposedsome of the shortcomings associated with fiat money. The fact that sometimesmuch central bank control does little to prevent inflation or recession has ledmost to believe that gold can be a very stable currency given its unlimitedsupply. The assumption that central banks control the economy and the steadyrise in global prices creates the need for cryptocurrencies.
What is a cryptocurrency?
Cryptocurrency is a form of digital or virtual currency thatcan serve as a medium of exchange. Being virtual in nature, they usecryptography technology to process, secure and verify transactions. Thecryptocurrency came into existence as a side product of Satoshi Nakamoto,the brainchildbehind the bitcoin cryptocurrency.Nakamoto did not intend to develop acurrency, but a peer-to-peer electronic cash system to facilitate transactionswithout any central oversight.
Advantages of Cryptocurrencies
Cryptocurrencies are available all over the world at theclick of a button. Anyone who can transfer online can also receive and own adigital coin of their choice. Although the process is still complicated, in thefuture,It will be easier to transact and own cryptocurrencies.
Disadvantages of Cryptocurrencies
Understanding cryptocurrencies can be quite difficult - thereis a reason why some countries and regulators continue to stay away from them.The lack of knowledge about how to use them is another headwind that continuesto stifle the prospects and sentiments of digital currencies