Cryptocurrencies and fiat money are two different things. Cryptocurrencies are digital or virtual tokens that use cryptography to secure their transactions and control the creation of new units. On the other hand, Fiat money is a currency backed by governments or banks and regulated by financial institutions. In this article we will explain you the differences between cryptocurrencies and in more detail.
Crypto vs. Fiat
If you take a closer look at the two different types of currencies, you’ll notice that they don’t have much in common. Here are the 6 most important differences between cryptocurrencies and fiat money:
Fiat money is centralized, while cryptocurrencies are decentralized. This means that governments and banks control fiat money, while cryptocurrencies are not controlled by any institution.
This is a very crucial and revolutionary difference. This puts the power over money in the hands of each individual.
2. Limited Supply
Fiat money can be printed at will, while cryptocurrencies are usually limited in their supply, mostly this is already specified in the code of the respective cryptocurrency.
This means that a government can create as much FIAT money as they want, leading to inflation (reduction in purchasing power), as is clearly being felt at the moment.
Cryptocurrencies, on the other hand, tend to be deflationary, meaning that purchasing power does not decrease over time.
3. Immunity to inflation
As described above, fiat money is subject to inflation, but most cryptocurrencies are not. Inflation means that the value of a currency decreases over time because too much of it is put into circulation. This does not happen with cryptocurrencies because their supply is limited.
4. Legal Investment
Cryptocurrencies are often discredited because they are allegedly often used for criminal activities. However, in a blockchain all transactions are publicly visible, i.e. everyone has the possibility to track which payment went where and when. For illegal transactions, cash is still the best means to an end.
However, there are still many fraudsters in the crypto space as well. Most of the time, however, it is the crypto projects themselves that turn out to be scams. This is because cryptocurrencies are currently not regulated by any institution, while fiat money is regulated by banks and governments.
5. Exemption from Tax
There are fees and taxes when using or transacting fiat money, but not for cryptocurrencies. When you use fiat money, you have to pay fees to the bank and taxes to the government. Financial transaction taxes, inheritance taxes, VAT, etc….
With cryptocurrencies there are no fees or taxes except for a small transaction fee for securing the network, i. e. paying the miners.
6 Safe Investment
Fiat money can be seized by the government, but cryptocurrencies cannot. When we are in an initial economic situation, governments can seize all of their capital without hesitation. Most of the time, however, this happens more insidiously through inflation and taxes.
So these are the six key differences between paper money and cryptocurrencies. As you can see, cryptocurrencies offer a number of advantages over fiat money, such as decentralization, limited supply, and immunity to inflation. As always, don’t put all your eggs in one basket. You shouldn’t have all your assets in fiat money sitting in the bank, but you shouldn’t have all your money in cryptocurrencies either. A healthy mix is recommended.