How Bitcoin Differs From Fiat Money
Wondering how Bitcoin differs from the traditional form of currency? If so, here is how Bitcoin is different from Fiat money.
Author:Stefano MclaughlinReviewer:Camilo WoodOct 12, 202253 Shares763 Views
Money is a requirement for any financial transaction and is a globally accepted representation of value. Historically, societies denominated money in livestock such as cows, goats, and camels. Then, people used everything from cowrie shells to salt as money before giving way to the more familiar form of precious metal coinage. Today, fiat money (government-issued legal tender with no intrinsic value) is the most prevalent type of money. Paper bills and coins are the only forms of money that many people have ever known. However, lots and lots of people are now recognizing bitcoin, in fact, you may join the trading trend by visiting a reliable trading website like thebitcoincode.io
As history shows, money evolves, and the next stage is upon us. The emergence of blockchain technology and cryptocurrency in the last decade represents a fundamental update to the world's monetary and value systems. Digital currencies like bitcoin (BTC) and ether (ETH), based on decentralized blockchain networks, are not controlled by a single government and provide significant opportunities for financial inclusion globally.
Are Bitcoin and Fiat Money the Same?
Cryptocurrencies are money because they allow two parties to exchange value and act as a store of value. However, they also provide benefits that the traditional money system does not currently offer: cryptocurrencies can be spent and received by anyone, anywhere, at any time around the world, without the need for a bank or a government. And this is the most ground-breaking aspect of cryptocurrencies.
Furthermore, fiat money is synonymous with debt. When a central bank issues a banknote, it also gives a portion of your government's obligation to you, the consumer. How is this possible, you might wonder? Consider how the EU and the United States, for example, create money.
The majority of the money a government creates is when people take loans. When people borrow money, banks make money. Consider the US dollar. If people don't take loans, there would most likely be no dollars in circulation. In other words, the US dollar would not exist if consumers did not borrow money from banks.
While fiat money appears to derive a significant portion of its value from debt, this is not the case with Bitcoin. Beyond the trust of its community, Bitcoin has intrinsic value. Bitcoin does not rely on a debt system. Instead, its effectiveness as an exchange medium determines its value. Bitcoin has established a new level of trust for our future global financial system. The Bitcoin system is entirely transparent and relies on math and the actual consensus of the average user. So, which is the better option for our future? Bitcoin or fiat currency?
The Value Exchange
Except for cash exchanges, all fiat currency transactions occur within the traditional banking infrastructure. Most of the time, an intermediary is required to facilitate the exchange of funds between two parties. People who buy groceries with credit cards or financial services apps use payment technology companies such as Visa or PayPal. People who want to send money to relatives in another country use wire transfer companies like Western Union.
Transactions involving cryptocurrency, on the other hand, take place via blockchain without the need for a centralized intermediary, instantly giving system users more freedom. The blockchain protocol's consensus mechanism validates and records transactions by a distributed, decentralized network of participants.
Money is changing.
As history has shown, money and the systems that support it will continue to evolve. The form and technology of shells to crypto may change, but value, exchange, accounting requirements, and usage remain the same. While fiat currency remains the most widely used form of money, cryptocurrencies and the blockchain technology that underpins them may represent the next step in the evolution of money.
Stefano Mclaughlin
Author
Camilo Wood
Reviewer
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