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Fiat currency and cryptocurrencies: Differences

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Fiat currency versus cryptocurrencies
Differences Fiat and cryptocurrencies

Fiat currency and cryptocurrency show some notable differences. Fiat currency is government-issued money deemed legal tender and backed by a physical commodity. On the other hand, cryptocurrency is a digital asset that is designed to work as a medium of exchange, store of value and serve other purposes similar to legal tender. However, cryptocurrencies are not issued by a central authority like the government and as such are decentralized. Fiat and cryptocurrencies are both currencies but there are some noteworthy differences between them.

Legality

The first major difference between the two is that fiat currency is issued by the central government of states as a legal tender. It takes the form of Shillings, Dollars, Euros, Rupees Etc.

Fiat currency versus cryptocurrency
US Fiat currency used as world reserve currency

The government controls its supply and residents of the state can pay taxes with it. On the other hand, cryptocurrencies are not issued by central governments. Notably, some countries have legalized cryptocurrencies like Bitcoin and some even accept them as tax payments. Cryptocoins include Ethereum, bitcoin, Litecoin and many more.

Fiat currency versus cryptocurrency Bitcoin versus US Dollar
Bitcoin a premier cryptocurrency

Tangibility

Fiat currency is physical in nature. It is in the form of coins and paper money (notes).  You can see and touch them since they exchange hands now and then between people while carrying out financial transactions. Cryptocurrencies are not physical in nature (digital). They are presented by the public and private pieces of codes.

Mode of exchange

Fiat currency is issued by the government and physical in nature. You can see the person you are transacting with and the currency you are using. However, sometimes it is exchanged digitally like in the case of Mpesa. With cryptocurrency, the mode of exchange is purely digital. Cryptocoins are created by computers and are only transacted online/digitally.

Supply

On the issue of supply, fiat currencies have unlimited supply. Reason being they are produced by the governments and can always be reproduced when necessary. On the other hand, cryptocurrencies are limited in supply as they have a set maximum. For instance, the total number of bitcoins that can be mined is 21million.

Borders

Almost all fiat currency bears the name of the country of origin on it. Hence, it is traded within the borders of its country. If you send or receive money out of the state or country you are in, you are charged some fees. For instance, to receive $5000 dollars from United States to Kenya through Western Union one is charged 1% of the total amount according to transferwise.com. With cryptocurrencies, you can send and receive cryptocoins from anywhere in the world without incurring cross-border charges.

Mode of storage

Cryptocurrencies are stored in cryptocurrency wallet. These are digital wallets that are used to store cryptocoins once one has mined or earned them. This mode of storage is safe and secure since the wallet is owned personally by an individual and you can access it anytime. However, fiat currency is stored in financial institutions like banks. All you need is to open a bank account and anytime you earn some currency you go deposit it in your account. Unlike cryptocurrency wallets, banks are not owned by individuals.

Portability

Being in physical form, fiat currency is not easy to carry around. It requires a lot of physical space (e.g. in one’s pocket) hence its not even safe to carry around, as it may be stolen or lost. On the other hand, cryptocoins are easy to carry and store. In your cryptocurrency wallet, you carry cryptocurrencies inform of an app on your mobile phone hence lesser risks of losing them.

One question that comes in one’s mind when a currency is mentioned is does it change? Knowing the difference between fiat currency and the cryptocurrencies brought about by the revolutionary blockchain technology, one is now able to plan for economic upswings and downswings.

 

 

 

 

 

 

 

 

 

 

 

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