Fiat VS crypto: strengths and weaknessesBarry Copeland 09 / March / 20 Visitors: 212
In the wake of the popularity of the crypto industry, including the rapidly growing bitcoin, many began to compare fiat money and cryptocurrencies. No matter how much the crypt is called the ideal payment instrument, it has its own nuances. BUYBank experts talked about the strengths and weaknesses of crypto and fiat.
What is fiat money?
Fiat money is a legal tender. Examples include hryvnias, dollars, euros, or other national currencies. There are several forms of fiat: paper and plastic banknotes, metal coins. Recently, fiat in non-cash form has been especially popular.
The government is issuing fiat money. If earlier such means of payment were provided with gold, now the value of fiat is determined by the authority of the government and the trust of the people.
Advantages of fiat money:
Stability. Fiat money is used on currency exchanges and in everyday life, exchange rate fluctuations are more predictable.
Preservation of savings. Fiat persists even if you lose a plastic card or pin. The funds are in a banking institution where you can restore a plastic card after confirming your identity.
Return payment. If a technical error occurred while transferring fiat money from card to card or the data is incorrect, then the funds can be returned. The same goes for transaction cancellation in case of fraud.
The main advantage of fiat is its wide distribution. It is taken in shops, pharmacies, cafes, cinemas, public transport, taxis. If a person managed to earn BTC on mining or through special services with tasks, then first he will need to use the Bitcoin exchanger to receive fiat money. Only then can he buy real goods or pay for services.
Centralization. Most projects have a central server that hackers can crack by stealing citizens' money.
Inflation. The release of funds is completely under state control. It is forced to regularly print new money, which leads to their depreciation.
Lack of anonymity. To open an account or get your own card, you need to provide the bank with personal data, including place of residence and work.
Governments and central banks have too much control over currency systems. That is why fiat is often criticized.
What are cryptocurrencies?
Cryptocurrency is a virtual alternative to classic fiat currencies. They are similar only in the absence of reinforcement with physical goods.
Unlike fiat, cryptocurrencies are decentralized, that is, the government, central banks or anyone else can not control their emission. The offer of bitcoin and most other digital currencies is limited, and the release of new coins is carried out according to a certain algorithm.
The advantages of cryptocurrencies:
Decentralization. Cryptocurrencies do not have a central server. Copies of blockchain technology are stored on users' computers around the world, and majority consent is required to make changes.
Limited offer. The emission of bitcoin and most other cryptocurrencies is limited, which protects them from inflation. In addition, the more coins mined, the higher their value in the market.
Transparency. Payment information is stored on the blockchain. Anyone can study the data.
Anonymity. The blockchain stores exclusively wallet addresses and payment amounts; it is impossible to find out the owner of a crypto wallet. To create a cryptocurrency wallet and use a cryptocurrency, you do not need to provide personal data, unlike fiat money.
the exchange rate of digital currencies is characterized by high volatility, the complexity of forecasting;
the loss of a password or private key will lead to a complete loss of access to the cryptocurrency wallet;
can not cancel the sent payment.
The main problem is on the small scale of the cryptocurrency market: there is a dependence on news, political issues, and major players. The process of mining and maintaining the same bitcoin requires too much expenditure on equipment and electricity.
Will cryptocurrencies be able to replace fiat money?
Crypto has many advantages, including a fast, secure and inexpensive transaction processing process. It saves ordinary citizens from the influence of the government and central banks. But it’s too early to talk about the complete replacement of fiat money, since the cryptocurrency market is only emerging.
New cryptocurrencies are rapidly developing, which can make transactions much cheaper. Digital currencies are emerging, backed by real goods. In the future, bitcoin may become an alternative economic network that will improve the existing financial system.