Fiat Money v/s Cryptocurrency
We all know that the cryptocurrencies in the digital world are generally decentralized and not issued by any single authority. However, there are a few cryptocurrencies that work on government-issued legal tenders. Such currencies are called “Fiat-Currencies”. It means Fiat currencies are centralized cryptocurrencies that are owned and controlled by the Government. Now, why do we actually require such Fiat currencies? What is the role of Fiat currencies in the DeFi business? Are there any limitations of decentralized cryptocurrencies? To get the answers to these questions let us explore something more about these two terms.
Comparison of Cryptocurrencies and Fiat-currencies
- While cryptocurrencies work on independent blockchains, the value of fiat money is tied to government-issued tenders.
- Blockchains are end-to-end encrypted so transactions occur directly among the traders. Whereas in the case of Fiat money the government firms act as intermediaries.
- Fiat money can be printed by the government firms anytime and in large quantities, hence subjected to inflation but cryptocurrencies like bitcoin have a fixed supply of units.
- Unlike cryptocurrencies, fiat money has a stable value which allows the firms to tackle the problems happening due to recession and inflation.
- Cryptocurrencies cannot be touched physically, but Fiat currencies can be touched and felt in the form of coins and notes.
- Cryptocurrencies are exchanged completely online through virtual access, whereas Fiat currencies can be exchanged both physically as well as virtually.
The Utility of Money
From the economic point of view, utility is the sense of satisfaction, the usefulness or happiness gained by various goods and services. These goods and services are gained in exchange for “money” or in other words, “any commodity which has some attributed value”.
Nowadays money is present online in digital form as well as in traditional physical form. Online money in the form of crypto-exchange tokens enables the buyer to obtain the services through online trade, and Fiat money in the form of a tangible coin or a note is exchanged traditionally in return for goods and services. In both cases, the motto of the utility of money remains the same.
The Exchange of Value
The value of a Crypto-Exchange token or Crypto-money varies according to the DeFi market status and the native blockchain that Fiat currencies are controlled by regulating central authorities, this is because fiat currencies can be created or destroyed anytime by the central authorities. This enables the central authorities/governing bodies to maintain stability in the market even during a recession or inflation. However, while exchanging Fiat currencies the trader is assigned a debt or the tax paid by the government/or any other central authority. But, on the brighter side, most Fiat-currency users prefer to pay this tax or debt because these are owned and backed by trusted authorities, which are bound to answer the queries of the user.
Money Is Evolving
The access to digital platforms is growing day by day, which leads to the increase in demand for digitized money. However, people who are not so aware of utilizing digital money or lack knowledge about DeFi platforms and the currencies associated with them, are still sticking to the traditional centralized trading systems. Looking at all kinds of aspects of Cryptocurrencies and Fiat-currencies, right now we can say that both of them have advantages as well as disadvantages. It all depends upon the revolution of trade and marketing. According to the needs depending upon the era in which we live our living standards also evolve which ultimately leads to the evolution of money too.
Final Thoughts
So, be it Crypto-Exchange tokens or Fiat currencies, we have learned how, when, where, and in which quantity, and what kind of currency is required. Ultimately it all depends upon circumstances that make either of them or both of them indispensable or more valuable than the other.
