What would happen if Cryptocurrency replaces Fiat? This is a question that many people may wonder when currently, cryptocurrency is becoming an emerging trend. Let’s find out how these two coins are related to each other to have an objective assessment of their circulation!
What is Fiat?
Simply, fiat money is fiat money that has a value established by a government rather than a commodity with physical properties. The power of government to help establish the value of fiat money is key to it. Most countries around the world use a fiat money system to buy goods and services, invest and save. Fiat money has replaced the gold standard and other commodity-based systems in establishing the value of fiat money.
Pros and cons of using fiat money
- Scarcity: Fiat money is unaffected and limited by the scarcity of a physical commodity such as gold.
- Cost: The creation of fiat money is more affordable than commodity-based money.
- Flexible response: Fiat money gives governments and central banks the flexibility to deal with economic crises.
- International Trade: Fiat money is used in countries around the world, making it an accepted currency for international trade.
- Convenience: Fiat money does not depend on gold reserves. Storing gold requires expensive storage, protection, monitoring, and other requirements.
- No Intrinsic Value: Fiat money has no intrinsic value. This allows the government to create money from nothing, which can lead to inflation and the collapse of the economic system.
- Risks in History: History has seen financial collapse due to the implementation of the fiat money system. That suggests that it does have some risks.
What is Cryptocurrency?
This is a form of electronic money issued by Blockchain projects and used as a means of transactions taking place on Blockchain platforms. By using the encryption algorithm system of Blockchain technology, information about the transactions takes place on Blockchain platforms. Crypto transactions will be guaranteed not to be altered or stolen in any way.
The most outstanding feature of Crypto in particular and cryptocurrencies in general is that anyone can be able to create this currency. However, the value of a Crypto coin will be assessed through whether it is widely accepted and used by the community. This is different from fiat money that is issued, priced and controlled by governments.
Fiat Money and Cryptocurrencies
One thing that fiat money and cryptocurrencies have in common is that the two are not backed by a physical commodity – and that’s all the same. While fiat money is controlled by governments and central banks, cryptocurrencies are essentially decentralized, mainly due to a distributed digital ledger known as the Blockchain.
One notable difference between these two money systems is the way they are created. Bitcoin, like most cryptocurrencies, has a controlled and limited supply. In contrast, fiat money can be created by banks from nothing, based on their judgment of the economic needs of the country.
As a form of digital currency, cryptocurrencies have no physical characteristics and are borderless, making them less restrictive for transactions around the world. Furthermore, transactions are immutable, and the nature of cryptocurrencies makes it more difficult to trace than the fiat money system.
The future of both of these currencies is uncertain. While cryptocurrencies still have a long way to go and will certainly face many challenges, the history of fiat money shows its potential for vulnerability. It is a big reason that many people are exploring the prospects of moving towards a cryptocurrency system for their financial transactions – at least within a few percentage points.
