Understanding Crypto Vs Fiat

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There’s this new emerging market of cryptocurrency that’s turning heads everywhere. Now I say new even though this concept has been around for decades, because of its relatively new appearance in our world, where the physical currency has been prevalent for thousands of years.

  • Cryptocurrency is a digital asset whose value is derived from its original blockchain, whereas fiat money is legal tender whose value is related to a government-issued currency, such as the US dollar.
  • Unlike actual currency, cryptocurrency is based on Blockchain technology, which allows it to keep transaction records on an incorruptible digital ledger. The ledger works as a source of truth and eliminates the need for a trusted third party, such as a bank, due to its incorruptible nature.
  • Central banks control the issuance and governance of fiat currency, whereas blockchain protocols, code, and communities control cryptocurrency. To enable “trustless” transactions, fiat currency requires intermediaries, whereas cryptocurrency relies on dispersed and decentralised networks. What this means is that The value of fiat money is intrinsically tied to monetary and fiscal policy decisions made by central authorities, mainly governments and central banks. A central bank simply issues the order for fiat currency to be issued, while The native blockchain of bitcoin provides inherent value since monetary rules are clear and written into the protocol’s core. While cryptocurrencies frequently lack a fiscal policy, it’s vital to note that, rather than a single, central authority, their monetary policies are governed by the protocol’s governance and consensus procedures.
  • Except for cash exchanges, all fiat currency transactions take place within the traditional banking system. An intermediary is usually required to facilitate the transfer of payments between two parties, while Cryptocurrency transactions, on the other hand, take place on the blockchain without the need for a centralised intermediary, providing users more independence right away. By using the blockchain protocol’s consensus mechanism, transactions are validated and recorded by a distributed, decentralised network of participants.

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