With the advent of internet and electronic systems, payments and bank transfers for fiat currencies have gone completely digital. With cryptocurrencies like Bitcoin being advocated as simple, quick peer to peer transfer means, people have come to question how cryptocurrencies like Bitcoin and digital payments for fiat currencies are different. The difference lies in the issuance, means of validation, the speed of transfers and how the storage accounts are maintained. Let’s look into what exactly people need to understand as the differences between Electronic Fiat and cryptocurrencies:
Difference between fiat and cryptocurrency:
One major difference is the fact that cryptocurrency reserves are limited and their scarcity provides them with a deflationary outset. In cases like Bitcoin, the currency is set to produce only 21 million coins by 2040. Hence the programmed scarcity ensures that the currency’s journey is deflationary. In the case of fiat currencies, the purchasing power of the currency depends on how the country’s economy is doing. With traditional fiat reserves be it physical or digital, there is no way to tell how much money is circulating, Central Banks can print money on a whim without backing it up with stored Gold or standard reserves. Economists who are against this type of monetary practice believe that the world’s citizens are experiencing a silent robbery called inflation due to central planners unconditionally printing vast amounts of fiat reserves.
The digital payments system and push for a cashless society:
When it comes to physical currency, it becomes difficult to monitor the cash flow. The government has no way to know the amount of money in circulation. Hence there has been a constant push for cashless society amongst various countries of the world. Especially European countries have banned physical currency transfers over a thousand pounds. This has been taken as a step to proactively stop terrorism funding, to monitor the cash flow and be able to avoid transactions that might prove detrimental to the country. The electronic fiat currencies have come to existence from 1975 and now constitute 92% of world’s fiat reserves.
What advantages does Bitcoin provide:
Fiat electronic transactions where major banks or transfer companies act as a custodian or intermediary, there is a chance of censorship. A very good example is the recent Bitfinex’s lawsuit against Wells Fargo where the bank intervened in the business operations by halting the deposits. By placing the power in the hands of a central bank, we are also bidding good bye to financial freedom. Since Bitcoin transactions are decentralized, they don’t depend on any central authority making it a clear tool for financial independence.