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Since the appearance of Bitcoin, closely followed by different other cryptocurrencies, the world has adapted and accepted this form of digital currency to make purchases and send money around the globe. Many online businesses today offer the option to pay using cryptocurrency.
Is digital money going to replace fiat currency?
Although some may think that the answer is yes, there are still some things that people must consider before deciding to exchange their money into crypto.
Fiat Currency and Cryptocurrency
Fiat currency is the money considered “legal” in trading and purchasing goods. The US Dollars and Euros belong in this category as paper money that is backed by the Federal Reserve and the European Central Bank. Bank credits are also considered fiat money.
Cryptocurrency, on the other hand, doesn’t rely on a trustworthy institution to back up the value of the digital money. The price of bitcoin changes at a rapid pace, making it challenging to be considered a stable currency.
However, the fiat currency is not entirely infallible. If a country is affected by hyperinflation, the fiat currency can lose its value in a short time. Some people consider it best to invest in stable commodities such as gold instead of USD.
Differences between Fiat and Crypto
Except for the “legality” of both fiat currency and cryptocurrency, they are used in the same way. However, some benefits differ between them.
Exchange : The main difference between these two types of currencies is how accessible is the currency for its use. Fiat currencies can be withdrawn or deposited in bank entities. It can be transferred from bank to bank and used as paper money to pay in those stores without options for credit cards and debit accounts.
The cryptocurrencies exist only online, without a tangible way to prove its value. Its harder to exchange, having to transform fiat money into cryptocurrency and vice-versa to trade it in most shops.
Still, as stores expand into the network, new options for different types of payment becomes available, allowing the customers to use cryptocurrencies to purchase all kinds of services and products without having to exchange them to fiat money.
It is possible to see in the future how cryptocurrencies will start to be accepted as a daily basis currency, but it may take some time before it happens.
Stability: As mentioned before, an essential factor in determining if an entity should back up a currency or an asset depends on how stable it is in the market. In this subject, fiat currency seems to have the upper hand over digital money.
The prices of fiat currencies are a lot more stable than cryptocurrencies, which tends to rise and decrease frequently. Still, in the long run, fiat money depends also on the economic decisions of a country’s government.
It represents a possible risk that traders and investors should consider. Commodities such as gold and silver are more stable for those who wish to invest in a real tangible asset rather than something that is only guaranteed by words.
