What is the difference between fiat money and cryptocurrency?

Asked 2 years ago

There seems to be some talk or debate around cryptocurrency and fiat. I have been seeing some decline, or rather a fall in confidence in crypto. I had assumed that crypto and fiat were not that different since they serve the same purpose as mediums of exchange. In what ways is cryptocurrency different from a fiat currency? Can someone clarify what all the fuss is about?

Milo Barron

Wednesday, March 23, 2022

Fiat currency, like USD, is backed by the government and can be physically or electronically represented. On the other hand, cryptocurrency, like Ethereum, is an encrypted and decentralized currency that exists electronically.

Fiat currencies are issued by central banks, while cryptocurrencies operate independently.

Fiat money requires third parties to verify transactions, while cryptocurrencies are decentralized; hence, they don’t need third parties to verify transactions.

Fiat currencies have unlimited supply while most cryptocurrencies have a limited supply, acting as an edge against inflation.

Fiat money is stored in bank accounts or physical wallets, while crypto is stored in digital wallets.

Josiah Makori

Josiah Makori

Tuesday, October 04, 2022

Fiat money is government-issued and regarded as legal tender for financial transactions, like the US dollar. On the other hand, crypto is decentralized money, so no central authority is regulating it. Besides, it’s not legal tender in most countries. Crypto transactions are verified through blockchain technology, where all network activities are recorded on an immutable public ledger, solidifying their security.

Cryptocurrencies are also more highly volatile than fiat. Their volatility is mainly due to the speculative nature of crypto trades, where investors focus more on wealth creation by taking profits more often. Additionally, fiat money has no supply limit, as central banks can print more money as they want. Contrary, most cryptocurrencies, including Bitcoin and BNB, have a limited supply; hence can be used to hedge against inflation.

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