Bitcoin and FIAT Money: The Past, Present, And The Future
Swati Goyal The fact that some people, nowadays, transact through electronic money continues to affirm suggestions that cryptocurrencies could be the currencies of the future.
However, it will take some time before they find their way into the mainstream sector, given the strong opposition from regulators around the world. Even as the world moves towards a cashless society, very few people have an idea of how different cryptocurrencies are from fiat currencies.
What Is Fiat Money? Fiat Money is a kind of currency, issued by the government and regulated by a central authority such as a central bank. Such currencies act like legal tender and are not necessarily backed by a physical commodity.
Instead, it is based on the credit of the economy. Fiat currencies such as the US Dollar, Pound or Euro derive their value from the forces of supply and demand in fiat money bitcoin market.
Such currencies are always at risk of becoming worthless due to hyperinflation as they are not linked to any physical reserves such as commodities. Fiat currency first came into being at around AD in China before spreading to other parts of the world.
Initially, currencies were based on physical commodities such as gold.
It is only in the 20th century that President Richard Nixon stopped the conversion of U. S dollar into gold. Advertisement Advantages of Fiat Money Fiat Money has remained legal tender in most countries in part because they are highly stable and controlled.
Unlike other forms of money, such as cryptocurrencies and commodity-based currencies, fiat currencies are relatively stable.
The stability allows regulators and governments to navigate the economy against recession and inflation.
Bitcoin and FIAT Money: The Past, Present, And The Future | Hacker Noon
Stability also allows fiat money to act as a means of storing value and facilitating exchange. It can also be used to provide a numerical account.
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Greater control also allows central banks to manage various economic variables such as liquidity, interest rates and credit supply key to ensuring a robust, stable economy. Disadvantages of Fiat Money Though Fiat Money is considered a stable currency, yet that is not always the case.
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Economic recessions over the years have highlighted some of the deficiencies associated with Fiat money. The notion of central banks control over the economy and the constant increase in global prices create the need for cryptocurrencies. What is a cryptocurrency? A cryptocurrency is a form of digital or virtual currency that can work as a medium of exchange.
Being virtual in nature, they use cryptography technology to process, secure and verify transactions. Unlike Fiat currencies, cryptocurrencies are not controlled by any central authority such as a central bank. Instead, they are limited entries in a database such as a blockchain that no one can change or manipulate, unless certain conditions are met.
Cryptocurrencies came into being as a side product of Satoshi Nakamoto, the brainchild behind Bitcoin cryptocurrency. Nakamoto did not intend to develop a currency but a peer-to-peer electronic cash system for facilitating transactions without any central oversight.
The decentralization aspect of the network means there is no central server where transactions are hosted or controlling authority.
In a decentralized network like Bitcoin, every transaction to have ever happened is displayed for everyone to see. Each transaction file also consists of senders and recipients public keys. Cryptocurrencies Advantages Cryptocurrencies are available on a click of a button, all over the world.
Anyone that can make an online transfer can also acquire and own a digital coin of choice.
Why Do Bitcoins Have Value?
Although the process is still complicated, in the futures, it will be easier to transact and own cryptocurrencies. Fast settlement times are another attribute that continues to accelerate widespread adoption of virtual currencies.
Unlike other electronic cash settlement systems that take days to process transactions, cryptocurrencies enable instant settlements. Lower transaction fees have seen cryptocurrencies emerge as a preferred means of sending money fiat money bitcoin borders.
Cryptocurrency and Fiat Money
Transferring money using other bank gateways can be quite expensive given the number of fees charged along the way. There are altcoins which the main functions are to maintain the privacy of people behind transactions. Disadvantages of Cryptocurrencies Cryptocurrencies can be quite difficult to understand — one of the reasons why some countries and regulators continue to shun them.
A lack of knowledge on how to use them is another headwind that continues to clobber digital currencies prospects and sentiments. The fact that it is not possible to reverse a transaction once it is made is another headache that has forced fiat money bitcoin people to shun cryptocurrencies.
If a wrong a transaction is made the only thing one can do is ask for a reversal from the recipient. There is nothing one can do on recipients of a wrong transaction turning down a request for a refund Volatility is by far the biggest disadvantage that has clobbered cryptocurrencies sentiments.
Volatility goes a long way in affecting the value of a coin, which can be difficult to comprehend or contend with. Suggested Articles.