When talking about any money, we first mean its usefulness. Both fiat money and cryptocurrency are effective forms of money: they can act as a medium of exchange, a unit of account, or a means of savings.
However, they differ in many fundamental ways. In short, fiat money is legal tender, the issuance and circulation controlled by the state. The distribution of fiat also involves intermediaries.
A cryptocurrency is a form of money in a digital, decentralized (not controlled by anyone) environment. Therefore, its value does not depend on the state. Instead, cryptocurrency is managed by the community itself, and its value is formed by supply and demand.
The digital currency still has many advantages over traditional money. But it also has its weaknesses. We have collected all the main pros and cons of cryptocurrencies. And we also advise reading what is litecoin cash.
- Decentralization and lack of control over the network;
- Created based on fully transparent blockchain technology;
- They can be used in different ways: as a means of payment, as an asset for investment, as a tool to earn money (trading, mining, stacking, etc.);
- Can be spent and received by anyone, anywhere, and at any time without the need for an intermediary;
- Low transaction costs;
- High speed of payment processing;
- Immunity to inflation;
- The incentive for innovation in the traditional financial industry.
Now let’s look at the disadvantages:
- Extremely high volatility;
- Scalability problem;
- Limited use: Not accepted as payment in most stores;
- Lack of mass acceptance;
- Difficult to use for everyday transactions;
- Lack of legitimacy;
- Successful hacking and theft of funds;
- Use for criminal purposes;
- Risk of a theoretical “51% attack.”
Cryptocurrencies vs. fiat money
Cryptocurrencies have a lot in common with regular fiat money. Both can be used for payments and as a means of savings. However, in both cases, user trust is required to function as a medium of exchange.
However, digital money offers features that the traditional monetary system cannot provide now (why the cryptocurrency is called the “currency of the future”). First and foremost, it is decentralized: cryptocurrency is not controlled by the state or any centralized authority, allowing direct transactions without intermediaries, unlike fiat, which banks and governments fully control.
Fiat refers to commodity money, which derives its value from the government declaring it legal tender (it has no intrinsic value).
Thus, cryptocurrency can be received and spent by anyone. Moreover, Fiat money is under government control. And the central bank can issue as many bills and coins as it sees fit.
In this way, Bitcoin, as the first cryptocurrency, created a new form of trust in the financial system. The system behind digital money is entirely transparent, based on mathematics and the implied consent of users. Also, we advise you to go to https://alligat0r.com/blog/dogecoin-mining-pool/ and read what a mining pool is.
Fiat currency is still the dominant form of money, but cryptocurrencies represent the next step in its evolution.