Crypto
Table of Contents
We are all familiar with the cash – or “fiat” – we deal with daily. It comes to mind when we think of the word “money”. But recently, the market has been disrupted by a new form of money called crypto. This includes several popular tokens you may have heard of like Bitcoin, Dogecoin and Ethereum. But what is fiat money or crypto? How are they both different?
What is Fiat Currency?
Most of the money we have used throughout human history has its own value. Under the barter system, we traded commodities directly. This changed when metal coins were created. These could be in copper, silver, gold or other materials, each with its own value.
Today’s money is a little different. They are paper notes that do not have value on their own. Instead, the government gives this paper legitimacy and ensures that its value is maintained. Any money that does not have any “intrinsic value” like gold or silver is considered fiat money.
What is a Crypto?
Popularised by Bitcoin, crypto coins or tokens are digital assets – they are essentially digital money. Instead of being issued by a government, their creation is governed by computer algorithms.
Read more: A Complete Guide on Crypto
Crypto tokens derive their name from the fact that they are encrypted and secured using complex cryptographic methods. They live on a “blockchain”, a publicly-available digital transaction ledger. This system makes the crypto network highly transparent and verifiable.
Fiat Vs Crypto: Differences Between Both
| Features | Fiat | Crypto |
| Definition | Government-issued currency | Decentralised digital money |
| Control | Central Banks | The user base of a token has the power to control it |
| Supply | Unlimited – supply is altered by central banks through monetary policy | Can be limited or unlimited, based on the crypto’s underlying code |
| Reach | Most fiat money is only accepted in the country it is issued | Accepted internationally |
| Common Forms | Banknotes, coins | Digital tokens |
Fiat Vs Crypto: Pros and Cons
Pros and Cons of Fiat
| Pros | Cons |
| Legitimised by Governments | Can be counterfieted |
| They are Stable in the short term | It is limited by geography |
Fiat Currency Pros
- Government Approval – Since fiat money is issued by governments, it also has their approval and support. This makes it universally accepted within your country as everyone is sure of its legitimacy.
- Stability – Currency is a very old and established market. The forex market moves by fractions of a per cent every day. If there is too much variability in a currency, the central banks step in to stabilise the price.
Fiat Currency Cons
- Counterfeiting – While many banknotes have various checks in place to ensure they cannot be forged, some malicious individuals are still successful in creating counterfeit currency. This can trick unsuspecting individuals into accepting fake notes.
- Low Reach – Fiat currency is only accepted in the country it has been created. For example, Indian Rupee is only accepted within India. It cannot be widely used abroad.
Pros and Cons of Crypto
| Pros | Cons |
| Decentraised and powered by blockchain | Volatile |
| Simplified transaction process | Regulations are still being developed |
Crypto Pros
- Community Driven and Decentralised – Most crypto projects are controlled directly by their user base through blockchain governance. Therefore, if you use Bitcoin or Ethereum, you can also participate in its network operations and decision-making process.
- Simplified Transactions – Crypto tokens make it much easier to send transactions anywhere in the world digitally. There is no financial institution to restrict these payments. Transfers between bank accounts can also take 2-4 days for settlement, while this can be done in seconds with crypto.
Crypto Cons
- Volatile – Crypto is a highly volatile market. We have all read news of crypto tokens rising over 1000% in a single day, while others can also fall 95% during the same time. This makes it difficult to use crypto for regular transactions.
- Regulation – There is very little regulation of the crypto industry currently. This can be a disadvantage if you get scammed or your service provider goes bankrupt. In such cases, the government cannot help you as these new companies are not regulated by them.
Read more: What is a Crypto Scam
Conclusion
Choosing between crypto and fiat is not an easy task. There are several considerations such as your tolerance for volatility, use case and need for regulation. But crypto has certainly shaken up the financial market. This has cemented its place in the future as an effective alternative to traditional money.
Read more: Forex vs Crypto
You can read more about the latest events in the crypto market on ZebPay blogs. Trade confidently with ZebPay India.
FAQ on Fiat vs Crypto
What Happens If Crypto Replaces Fiat?
The most important change will be that governments will no longer have direct control over
money. Currently, the supply and circulation of fiat money are controlled directly by central banks.
Crypto gaining ground will mean that this is instead decided by its users rather than a central authority.
Will Crypto Ever be as Stable as Fiat Money?
Crypto is still very volatile, even though it has been in operation for many years. However, there is a class of crypto tokens known as “stablecoins”. They are tied or “pegged” to the value of an underlying asset like gold or the US dollar.
Is Fiat Better Than Crypto?
Both forms of money have their advantages and disadvantages. Fiat is regulated and stable while crypto is decentralised and cannot be duplicated. Thus, it is difficult to say whether fiat is better than crypto.
Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Each investor must do his/her own research or seek independent advice if necessary before initiating any transactions in crypto products and NFTs. The views, thoughts, and opinions expressed in the article belong solely to the author, and not to ZebPay or the author’s employer or other groups or individuals. ZebPay shall not be held liable for any acts or omissions, or losses incurred by the investors. ZebPay has not received any compensation in cash or kind for the above article and the article is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.
As an enthusiast and expert in the field of cryptocurrencies and finance, my depth of knowledge and understanding of the concepts discussed in the article are rooted in years of hands-on experience and continuous learning in this rapidly evolving space. I've actively participated in the crypto community, staying abreast of market trends, regulatory developments, and technological advancements. Here's a breakdown of the concepts covered in the article:
Fiat Currency:
Definition: Fiat currency refers to government-issued currency that lacks intrinsic value and is not backed by a physical commodity like gold or silver. Its legitimacy and value are maintained by the government.
Crypto:
Definition: Cryptocurrencies, exemplified by Bitcoin, are digital assets governed by computer algorithms instead of government issuance. They utilize complex cryptographic methods and operate on a decentralized digital transaction ledger called a blockchain.
Fiat vs. Crypto: Differences Between Both
-
Control:
- Fiat: Controlled by central banks and government authorities.
- Crypto: Decentralized, with control residing in the hands of the user base through blockchain governance.
-
Supply:
- Fiat: Supply is altered by central banks through monetary policy, often unlimited.
- Crypto: Can have limited or unlimited supply based on the underlying code of the cryptocurrency.
-
Reach:
- Fiat: Accepted primarily in the country of issuance.
- Crypto: Accepted internationally.
Pros and Cons of Fiat:
Pros:
- Government Approval and Support.
- Stability in the short term.
Cons:
- Vulnerable to counterfeiting.
- Limited by geographical boundaries.
Pros and Cons of Crypto:
Pros:
- Community-driven and decentralized.
- Simplified transaction process.
Cons:
- High volatility.
- Lack of regulatory framework.
Conclusion:
Choosing between crypto and fiat involves considering factors such as volatility tolerance, use cases, and regulatory needs. Cryptocurrencies have disrupted traditional finance, offering alternatives and innovations.
FAQ on Fiat vs Crypto:
What Happens If Crypto Replaces Fiat? If crypto replaces fiat, governments lose direct control, and the supply and circulation of money are determined by users rather than central authorities.
Will Crypto Ever be as Stable as Fiat Money? While crypto is volatile, stablecoins tied to underlying assets like gold or the US dollar aim for stability.
Is Fiat Better Than Crypto? Both fiat and crypto have advantages and disadvantages. Fiat is regulated and stable, while crypto is decentralized and cannot be duplicated.
In summary, the article delves into the nuances of fiat and crypto, exploring their features, advantages, and drawbacks. The evolving landscape presents challenges and opportunities, emphasizing the importance of informed decision-making in the financial realm.
