13 Ways Cryptocurrencies Are Different From Fiat Currencies

February 17, 2014

A fiat currency is basically any form of money where the value of the money is not backed by a commodity but declared by the government instead. The current US Dollar is a fiat currency. A cryptocurrency is a digital form of currency that is not controlled by a bank or a government but instead generated by a computer algorithm.

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Is one better than the other?

1. Government Involvement: Is it a thing of the past?

Fiat currencies are the creation of governments whereas cryptocurrencies do not need government involvement at all. Fiat money is not backed while some cryptocurrencies are backed by precious metals.

2. Increased Fees: Everyone Wants A Piece Of The Pie

Banks love fiat currencies because they impose fees for money services. Cryptocurrencies do not require a bank. They are seamless methods of doing business that do not add third party fees. Fiat money requires a lot of handling.

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3. Counterfeiting: The Art Of Fraud

Paper money, like fiat currencies, can be recreated and passed off as real currency. Counterfeiting has long been an art form that has plagued paper money. Cryptocurrencies can’t be counterfeited, for the time being, making them a pure payment system.

4. Conversion 

If you want to buy something with a fiat currency, but you want to do so in a foreign country, you may not be able to do it with your country’s currency. For example, in order to move dollars to China, you have to convert them into Yuan, the Chinese currency. With cryptocurrency, there’s no need for conversion.

5. Sheer Volume

Currently, the power of cryptocurrencies is often seen in the limited number of coins available. Compared to fiat currency, cryptocurrencies are very tiny in volume. The total number of Bitcoin, for example, will never go beyond 21 million. There are just not that many coins available and that makes them more valuable.

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6. Value: The Important Commodity

Fiat currencies are often devalued as time passes. Cryptocurrencies seem to hold their value. The example here is the US Dollar, which has been so overproduced that its value is questionable at best. To be clear, cryptocurrencies are moving forward, their market is generally volatile, and the value can plummet at any given moment.

7. Politics: Doom & Gloom

Politics affect the value of a government-based currency in a multitude of ways. If there is strife between the parties in the government, the value of that government’s currency may fall. Cryptocurrencies, on the other hand, are free from politics and political drama.

8. The World Economy

Fiat money is risky because the value is based on what a particular government declares it to be. The overall value of a specific cryptocurrency, however, is based on supply and demand. That means that cryptocurrencies may build e-commerce between nations without adding additional costs.

9. The Market Effect

Fiat currencies are regulated by a central bank. In the United States, for example, the picture of the marketplace is skewed due to the attempts from the Federal Reserve to correct the failing currency. Cryptocurrencies are based on supply and demand, so the impact on the market is purer than that of fiat currency.

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10. Cheap is GOOD

Cryptocurrencies are cheaper than fiat currencies because it costs little to create a virtual coin. A fiat currency needs to be replaced, reprinted, and revamped periodically.

11. Low Maintainance 

Physical money must be stored, transported, and handled. All of those actions add costs associated with fiat and other hard currencies. Cryptocurrencies are different. They do not have to be transported by an armored truck. They do not have to be stored in vaults. Therefore, cryptocurrencies offer companies and individuals a cheaper way of doing business.

12. Smaller Is Better

Cryptocurrencies can be utilized by most people of all nations. That means that, as a single unit of currency, cryptocurrencies offer a great opportunity for becoming a global currency. A single type of currency would solve a lot of problems associated with doing business on a global scale.

13. To Be Or Not To Be

All fiat currencies are valued by the government and backed by nothing. Not all cryptocurrencies are backed by commodities, but some of them, like ZenGold and OneGram, are, making them better for global transactions.