Bitcoin, the first successful Cryptocurrency, was released to replace traditional currency. As such, it brings up the difference between traditional currency and Cryptocurrency. Cryptocurrency can be traded on several websites like Ethereum Code. But if you want to know more about the differences between the two currencies, you have got to read more. So, stay tuned for the ultimate kick.
Traditional or Fiat Currency
Fiat currency is a form of currency backed, centralized, and managed by a Government entity. It is also verified and recognized. An example of a fiat currency managed by a centralized recognized government entity is the U.S. Dollar governed by the U.S. Federal Reserve.
A country’s Government and its Central Bank vouch for a country’s currency’s worth. Fiat currency may be represented electronically or in physical cash, e.g. notes and coins. The Government controls the supply of this currency. They can be used as a means to pay taxes or to trade in goods and purchases.
The central bank’s role has expanded in the fiat currency as they are also responsible for printing the currency. The consumer’s demand and supply have the power to decide the monetary value of the money. Some major global fiat currencies are the Euro, the Rupees, the Yen, and the U.S. Dollar.
Cryptocurrency, unlike traditional currencies, is decentralized and digitally encrypted. It is not regulated or controlled by any central authority like the central bank or the Government. Cryptocurrency is based on a distributed ledger framework referred to as Blockchain technology.
Blockchain is the name of the public ledger, which is managed by a network of computers. This network maintains a copy of the database, and its records are only updated by consensus between all the network nodes. Some famous Cryptocurrencies are Ethereum, Ripple, Bitcoin, Solana, Polkadot, etc. Cryptocurrencies are also handled by peer-to-peer networks that are free and open-source.
Difference Between Crypto and Traditional Currency
The first main difference is that fiat currency is backed by the central Government and banks, unlike decentralized Cryptocurrencies. Fiat currencies are issued by the Government, whereas Crypto operates independently. Intermediaries are required in traditional currencies to make a transaction which is not the case in Cryptocurrencies.
Some Cryptocurrencies have a limited supply, like Bitcoin, whereas all fiat currencies have an unlimited supply. Funds can only be transferred digitally with Cryptocurrency, whereas payments can be made digitally or in physical form with fiat currency. Cryptocurrency can be stored in digital wallets, whereas fiat currency can be stored in bank accounts. Fiat currencies are legal as they are issued by the government, whereas Governments do not yet regulate Cryptocurrencies.
The Bottom Line
Compared to Cryptocurrency, Fiat currency is considered safer as they are backed and can be tracked by the Government, whereas Cryptocurrency’s anonymity makes it a little unsafe. The tangibility of fiat currencies is a significant difference between it and Cryptocurrencies, as monitoring fiat currencies is more accessible than tracking or monitoring Cryptocurrencies.
These are the significant differences between traditional currency and Cryptocurrency.