Fiat currency implies the money issued by the government of a country. It is a traditional medium of exchange, which is in the form of tangible currency, i.e. dollars, pounds or rupees, or it can be expressed electronically as bank credit.
On the contrary, Cryptocurrency is a substitute for the traditional payment methods like cash, credit/debit card and cheques. It is based on cryptography technique which translates the basic text into unintelligible text. As the name itself signifies, cryptocurrency is a means of exchange, which is present digitally and is completely secure, as it uses encryption technique.
One of the major difference between these two types of currency is that transactions with fiat currency are traceable in nature, i.e. one can easily identify the sender and recipient of the money. On the other hand, with cryptocurrency, transactions are digitized, encrypted and incognito, i.e. the name of the sender and recipient of money remains undisclosed.
Content: Fiat Currency Vs Cryptocurrency
|Basis for Comparison||Fiat Currency||Cryptocurrency|
|Meaning||Fiat currency is the currency that does not have intrinsic value but it is regarded as legal tender by law.||Cryptocurrency is a virtual currency, that uses encryption technique for securely facilitating transaction.|
|Central bank||Issued and managed by central bank.||Operates independently of central bank.|
|Unit||Dollar, Indian Rupee, Yen, Ruble, Euro, Pond.||Bitcoin, Ripple, Ethereum, Litecoin|
|Represented by||Coins, Notes and Bills||Private and Public pieces of code|
|Transaction Cost||Low||Comparatively high|
|Storage||Stored in a person's bank accounts.||Stored in a person's digital wallet.|
Definition of Fiat Currency
Fiat currency is a currency which is accepted as a legal tender by government regulation and does not hold intrinsic value. It is issued by the government, but not backed by any physical commodity, i.e. gold or silver, rather it is based on the credit of the economy issuing it. So, in the event of inflation, it may lose its value or may become valueless, in case of hyperinflation.
Fiat currency includes paper money, coins, bills etc. that has a store of value and is used as a medium of exchange to buy products and services. Its value is decided by the market forces, i.e. the relationship between demand and supply and the stability of the issuing or declaring government, i.e. the performance of the country’s economy and the way in which the country is administered.
It emerged as a substitute to commodity money and representative money. With the introduction of fiat money, the role played by central banks in the economy has increased, as it controls the printing of the currency, i.e. the money supply in the economy. One of the major shortcomings of fiat currency is that if the currency is printed on a large scale, then it may lead to hyperinflation.
Definition of Cryptocurrency
Cryptocurrency refers to digital currency, launched to act as an exchange medium which uses solid cryptography for securely generating and controlling currency units and verifying the transfer of funds. It uses a number of encryption algorithms and cryptographic techniques like public-private key pairs, hashing functions, elliptical curve encryption, etc. Thus, reducing the chances of forgery and fraud, during the transaction.
Cryptocurrencies are decentralized in nature, and so there is no government intervention. It relies on blockchain technology – a distributed ledger technology. Blockchain has a network of computers containing an exact copy of the database and updating its records by consensus on the basis of pure mathematics.
Cryptocurrency is a system that lets secure payments of online transactions, denominated as virtual “token”, indicating ledger entries internal to the system itself. The token is nothing but a kind of cryptocurrency that is privately issued. It is a standard of value created by an organization for the purpose of managing its business model and entitling the users to deal with the products while assisting in the process of distribution and sharing the profits with its stakeholders.
Bitcoin was the first-ever decentralised cryptocurrency, that tracks public imagination, introduced in the year 2009, by Satoshi Nakamoto – an unknown inventor. Apart from bitcoin, there are other cryptocurrencies also like Litecoin, Ripple, Ethereum.
Key Differences Between Fiat Currency and Cryptocurrency
The difference between fiat currency and cryptocurrency are discussed as under:
- Fiat currency is the money that the government of a country has established as a legal tender. On the contrary, Cryptocurrency refers to a decentralized and digital exchange medium, which uses encryption technique, to facilitate the transaction.
- While the issue and control of fiat currency are regulated by the central bank of the country, cryptocurrency works independently of the central bank.
- One of the main features of cryptocurrency is that the transactions between the parties are direct, as it removes intermediaries like banks, which is a must in case of fiat currency.
- The most common examples of fiat currency units are Dollar, Pound, Euro, Yen, Ruble, Indian Rupee, etc. As against, Bitcoin, Ripple, Ethereum, and Litecoin are the popular cryptocurrency units.
- When it comes to supply, fiat currency has an unlimited supply, as it can be printed as per the need. Conversely, cryptocurrency has a limited supply.
- Fiat currency is a physical, i.e. conventional medium of exchange, whereas cryptocurrency lets you perform exchange digitally.
- Fiat currency is often represented by coins, paper notes and bills. On the other hand, public and private pieces of code represent a cryptocurrency.
- The transaction cost of cryptocurrency is higher in comparison to fiat currency.
- If we talk about storage, fiat currency earned by the individuals is stored by them in their bank accounts. In contrast, cryptocurrency is stored by the individuals in their digital wallet.
Cryptocurrency is non-traceable in nature, in the sense that it neither discloses your worth, nor anyone has any idea of the amount in your wallet and location of your wallet. However, fiat currency is traceable as it is usually maintained in the banks and thus the government authorities and banks can have complete information about your receipts and payments.
Further, as the transactions with cryptocurrencies are free from government and bank intervention, nothing can stop the transaction.