Everything you need to know about Fiat Vs Cryptocurrencies:
The main functions of money are distinguished as follows:
- A medium of exchange (widely accepted in exchange for goods and services)
- A store of value (retains purchasing power in the future)
- A unit of account (being a standard monetary unit of measurement for the value of goodsand services)
While both cryptocurrencies and traditional fiat currency share the same characteristics outlined above, they are different in many ways too. Cryptocurrency is a type of digital or virtual currency that also works as an exchange medium, and which depends on a P2P (Peer-to-Peer) network without an intermediary to oversee financial transactions, much unlike traditional fiat currencies. Additionally, it is much easier to store cryptocurrencies as you can keep them in different exchanges, or even digital and hardware wallets. Today, cryptocurrencies are a worldwide phenomenon, and even Central Banks are looking into the prospects of launching their own digital currencies. With their increasing importance, it is imperative that we understand the difference between cryptocurrencies and traditional currencies, also known as fiat money.
The Divisibility Drive
Divisibility is an essential factor for various money forms that makes it useful for the exchange of goods and services. When the need for different values arises, you can divide the money into various smaller units. For instance, it is possible to divide a Euro into 100 cents. In the same way, it is also possible to divide Bitcoin into smaller units that can be as small as 0.00000001 BTC, making it extremely reasonable for micropayments. 1 satoshi, or 1 sat, is named after the Bitcoin creator, and is the smallest value that you can get with Bitcoin. With the unit term of 1 sat, you can improve the Bitcoin divisibility to 100 Billion smaller parts or even more. There is a huge difference between cryptocurrencies and traditional fiat money, as the latter merely provides you with precision of up to two-decimal places.
Deflationary Vs. Inflationary
When it comes to fiat currencies, a central bank can issue new money at any time, and there is no limit on the amount they can create. Say a loaf of bread cost USO 0.09 in 1930, USO 0.36 in 1970, and USO 1.98 in 2013. The costs involved largely stay the same, but the prices undergo a drastic increase due to the presence of inflation, as central banks issue huge amount of new currency into the market. In extreme cases, such as with Venezuela and Zimbabwe, hyperinflation may even occur, whereby the purchasing power of the currency plummets due to poor governance and unrestricted currency issuance. When we talk about Bitcoin, there is no central bank that constantly issues money or implement any monetary policy. The Bitcoin protocol ensures that there will only be a maximum of 21 million Bitcoin in circulation, which means that if a single Bitcoin gets lost (perhaps due to someone losing his private keys), it then gets removed from the circulating supply permanently, translating to a deflationary trend.
Centralised Vs. Decentralised
Centralised currencies depend on third-party authorities to control the issuance, supply, and transactions of the currency, while decentralised currencies are completely operational without the need for any third-party intervention. This is another differentiator between cryptocurrencies and fiat, as cryptocurrencies can be transferred without the need for an intermediary, which lowers the processing costs and increases the speed whereby a transaction can be completed.
The digital era is upon us, and more and more users are finding it less convenient to carry around cash notes. Cryptocurrencies is an exciting new alternative that promises to transform the way that we handle money, and makes it easier for people to transact, or even send remittance to another country. While fiat currencies will still be the norm for the next few years to come, investors may wish to diversify their portfolio and retain some cryptocurrencies to hedge against the inflationary measures of fiat.
Difference Between Blockchain And Bitcoin:
For newcomers onto the cryptocurrency scene, “Blockchain” and “Bitcoin” seem to be two interchangeable terms. While these are the two most iconic terms in the cryptocurrency community, there are fundamental differences between them, and newbies would do well to learn how to differentiate Bitcoin and Blockchain apart. However, only a small fraction of the community can distinguish the differences between them. Therefore, this article will take a look at both terms, and explore the similarities and differences between them.
What is Blockchain?
Blockchain is largely compared to the ‘engine room’ of the cryptocurrency industry. It is a distributed database or ledger technology that can store data or records between multiple parties. Blockchain is fundamentally a form of database, though most users would use it to store transaction records due to its secure and immutable nature. The transactions entered into the ledger are visible to all the computers or nodes that make up the blockchain network.
With Blockchain, people can pool resources together to form a network and share valuable data, all without compromising the integrity and security of the shared data or resources. Due to its immutable characteristic, information stored on the blockchain cannot be altered by any individual. Thus, the stored pieces of information are protected, and their security is all but guaranteed.
Blockchain technology is the cornerstone on which several technologies, including cryptocurrencies, are built. Distributed ledgers and smart contracts are two of the most versatile and multi-purpose blockchain-based technologies. The two technologies have had a huge positive impact in nearly all sectors, from insurance to healthcare, real estate to banking, and a multitude of others.
What is Bitcoin?
Bitcoin is the first digital currency built on Blockchain technology. It was invented by a group of anonymous people, or perhaps just a single person, commonly referred to as Satoshi Nakamoto.
The digital currency was created to circumvent conventional payment systems, and to spare users of the numerous challenges they have to contend with when transacting through the regular banking system. For instance, while banks and its intermediaries may take days to perform overseas remittance, Bitcoin can do so in ten minutes. The ease and efficiency that the digital currency has bestowed promises to change how we conduct business and transactions on a global scale.
As the first, and perhaps the most popular cryptocurrency, Bitcoin has a wide range of applications. Aside from its everyday use as a mode of payment, it is also one of the most liquid cryptocurrencies, with the largest market capitalization that runs upwards of billions of dollars. Currently, a Bitcoin {BTC) sells for over $52,000 in the cryptocurrency market. It is commonly seen as a good store of value that people have named the “digital gold”.
Unlike fiat currencies issued by the government and hence, are controlled by the government too, Bitcoin is a decentralised cryptocurrency and is not under the control of any central authorities. This is aside from the lower transaction fees it attracts, unlike transactions through fiat currencies that attract huge fees.
The connection between the two is probably one of the reasons why people who are new to the cryptocurrency community mix these terms up and use them interchangeably, albeit erroneously. Notably, they are two distinct terms with different meanings and areas of application.
The differences between Bitcoin and Blockchain:
- Blockchain is a technology on which Bitcoin and other digital currencies are built.
- Bitcoin is a cryptocurrency that is usable as a means of exchange or store of value, whileBlockchain is not a digital currency but a technology on which digital currencies are built.
- While Bitcoin is restricted to serving as a means of exchange and trading, Blockchain hasmultiple uses. Through smart contracts, the Blockchain technology can be adopted inpractically all global market sectors to alter their conventional mode of operation.
- Bitcoin is a public domain, while there are public and private blockchains that operateunder different rules.
- An interesting fact is that the underlying principle behind Bitcoin is anonymity while onthe other hand, blockchain promotes transparency. Bitcoin transfers currency between users, while blockchain can be used for many different purposes, including the storage of information or property ownership rights.
We hope that this article sheds more light on the differences between Blockchain and Bitcoin, and that it aids you in your journey into the cryptocurrency industry.
Disclaimer: The content in this report is from the open source and for educational purposes only, therefore should not be considered as financial advice. We all know that the cryptocurrency market is highly volatile. Therefore, all the financial decisions should be made after doing your wide spectrum research.
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