Fiat currencies have ruled the financial landscape for millennia since the first government-backed banknotes were introduced in 13th-century China. Even though most financial transactions take place digitally today, whether through bank accounts or via bank cards and transfers, these are still backed by fiat currency.
However, cryptocurrency, which was introduced in 2009 and saw its popularity increase during the 2010s and since, offers an alternative. Cryptocurrency is not backed by governments, and most are decentralized, which means there is no central group that manages or maintains payments or stores of the currency itself.
While it is still in its infancy compared to fiat currencies, cryptocurrency is changing the way some of us complete financial transactions.
Crypto Vs Fiat
Although fiat and cryptocurrencies can be used as a transfer of value, they are intrinsically different.
From a consumer’s point of view, cryptocurrency can seem more complicated. You need wallet addresses, which are long, complex alphanumeric strings. The time and cost of sending money are often determined by factors like network availability, too. But crypto does offer benefits like anonymity, privacy, and security, which have contributed to its growing popularity and adoption.
Crypto and fiat also vary in how they can be used. Because crypto is known to offer quick transactions, low fees, and enhanced anonymity, it has gained popularity and is commonly used for online gaming and gambling at BTC casino sites, online shopping, or private transfers and remittances. On the other hand, fiat currency can purchase nearly any type of goods or service from daily shopping to paying a mortgage or buying a house.
How Is Fiat Currency Made?
Central banks are responsible for the creation and distribution of fiat currencies. They determine when more money needs to be made, or when old money should be taken out of circulation. This creation of currency plays a part in determining its value. If more money is created, its value drops as its supply rises.
How Is Crypto Produced?
Bitcoin and most other cryptocurrencies are created by blockchain users. Bitcoin transactions must be processed and confirmed by multiple users in a process known as mining. And for every transaction processed, miners receive a determined amount of Bitcoin.
There are believed to be over a million individuals mining Bitcoins, and this disparate group effectively replaces the centralized banks. There is no individual or group of individuals that manage Bitcoin or other coins.
Where Is Crypto Stored?
Storing crypto is different from storing fiat currency, too. A digital coin is effectively an entry in a digital ledger or a database. There is no physical currency whatsoever.
A cryptocurrency wallet has both private and public cryptographic keys, which are used to track the cryptocurrency and the wallet has a unique address that is used to transfer digital ownership of crypto coins.
Sending Crypto
The difference in storage also means that the sending of cryptocurrencies is different from the sending of fiat currency. There is no central bank to oversee the transaction.
Users need a wallet address to send crypto to. They enter the amount, choose the fee or speed of the transaction, and then submit the payment. Mining computers then verify the transaction, producing more digital coins in the process, and when there are enough verifications to confirm the transaction, it is transferred to the new wallet.
Whether you’re sending crypto to a friend or using it to deposit money for crypto betting, payments are processed in this same way. While it does require additional steps, it means banks and even governments never need to know how you spend your money.
Using Crypto
Although cryptocurrency has gained popularity, its real-world applications are still severely limited. You can use it at some online casinos, and certain companies, including the likes of Microsoft, accept some cryptocurrencies. However, it is virtually impossible to pay utility bills or mortgage payments using even the most popular cryptocurrencies.
Storing Crypto
It is possible for users to keep hold of cryptocurrency in their crypto wallets, but one of the main criticisms of this type of currency is its volatility. Prices can swing violently in the space of a few hours.
Tethered cryptos are tied to the value of commodities or, more typically, fiat currencies like the dollar. These offer the same decentralized benefits of the likes of Bitcoin, in that they are private and anonymous. But they don’t suffer the same volatility. They can also be used to buy certain goods and services in the same way Bitcoin can.
Conclusion
Cryptocurrency is still in its infancy, having been conceived less than 20 years ago. It has come a long way in that time, but its uses are still somewhat limited as consumers learn to use the technology and discover its benefits.
It is decentralized, which means there is no bank or group that determines its value. It is completely anonymous, with users able to send and receive money without any verification or ID details.
And, its utility is growing with some major companies now accepting this innovative store of value.
