Speaking of economics is always interesting for people who make investments or manage their money in order to obtain profits in a certain business. Nowadays technology plays a preponderant role in the management of finances, allowing any person to manage money, which is no longer exclusive of banks or financial entities.
Now we also see that the emergence of cryptocurrencies is “moving” to the world of finance, providing new opportunities to the market and allowing any transaction to be made more accessible, simple, transparent and secure, which may cause that in a few years the cryptocurrencies and digital money, replace paper money or Fiat money in its entirety.
What is Fiat or fiduciary money?
Fiat comes from the Latin, meaning “so be it” and for many years is known in this way money of legal tender, which is created, regulated, always issued by a financial institution, almost always in the hands of the central banks of each country, which are those that control the issuance of the money and charge a tax for its use. It exists physically (bills or coins) and electronic (credit or debit cards).
The cryptocurrencies and their operation
Unlike with paper money, cryptocurrencies are virtual or digital money, whose functioning is through a decentralized system with support in the chain of blocks or blockchain, called peer to peer, in which each user regulates their value and use of each cryptocurrency, as it is not subject to any commercial entity, banking or financial system. To be used and commercialized, they use digital platforms and wallets in which cryptocurrencies are stored until they are sold or used for commercial purposes. Each person can have the type of cryptocurrency to their liking, you can even create it if you wish.
The differences between these two financial systems
Cryptocurrencies are limited by previously established amounts in which you can mine or buy. In the case of Fiat money, it is printed according to the economic policies of each government in terms of quantity and frequency. Fiat or physical money can be easily falsified. On the other hand, cryptocurrencies do not allow duplication by any means since they are elaborated by a cryptographic principle using special software.
Cryptocurrencies can not be destroyed because they have protection through a wallet and a series of passwords. Checkbooks, credit or debit cards and paper money if it can be destroyed very easily. Making transactions with fiduciary money may take hours, or days, while the conversion is made and is expected by the authorization of the regulator. Now a transaction made with cryptocurrency is done in a smaller amount of time (on the same platform between one person and another).
Mobilize Fiat money in its original form from one place to another is complicated, since it must go through mechanisms before being converted to another currency, which generates some loss of its value during the process. On the other hand, cryptocurrencies do not have this problem, since by being decentralized they can be managed from anywhere in the world, without the investment of the bank.
What do you think about this topic? Is there any other difference between the fiat money and the cryptocurrencies that you would like to mention?
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