A Basic Understanding for Newbies
People are calling cryptocurrency the most significant advancement in the world after the internet. It made such a major impact in the financial industry and changed how people perceive money.
It didn’t take too long for people to realize the benefits of digital currency over traditional currency. We are going to explain how cryptocurrency differs the traditional fiat currencies.
What is Cryptocurrency?
The word “Cryptocurrency” is derived from the encryption technique called cryptography. Cryptocurrency is a decentralized digital currency based on blockchain technology and is used as a method of payment for online goods and services. A blockchain network is a network of a large number of computers distributed all around the world.
Unlike fiat currencies, cryptocurrencies are completely decentralized and do not require a central authority to perform financial activities. There are more than 10,000 digital currencies available in the market, and Bitcoin was the first one to be introduced. It was launched by an anonymous figure called Satoshi Nakamoto in 2009; since then, it has become a global phenomenon.
Now that you understand what cryptocurrencies are, we will explain the difference between cryptocurrencies and traditional currencies.
Difference Between Cryptocurrencies and Other Currencies
Cryptocurrencies and other currencies might sound similar, but they are entirely different from each other. Both of them have completely different working principles. Given below are some major differences between cryptocurrency and other currencies.
The first major difference between cryptocurrencies and traditional currencies is the ability to be tracked. Fiat currency’s transactions can easily be tracked and monitored by the recipient and the issuer.
On the other hand, cryptocurrencies are almost impossible to track as they are based on a distributed blockchain network. The lack of central control allows it to be utterly resilient to track.
Traditional currencies are tangible and are exchanged physically with the other party. Whereas cryptocurrencies do not exist in a physical form and can only be exchanged through a digital medium.
Another significant difference between both currencies is the way they are produced. The government produces Fiat currencies or traditional currencies based on the need. Government can produce as much money as they want.
Cryptocurrencies, on the other hand, are produced by a process called mining. People mine coins by letting their computers solve complex computing puzzles, which is a result, reward them with cryptocurrency. Unlike other currencies, most cryptocurrencies have a fixed supply making them more valuable.
The most crucial difference between cryptocurrencies and other currencies is control. Fiat currencies are produced by the government, which means that they are also regulated and controlled. That is why you are charged with high transaction fees and taxes when making a transaction.
On the other hand, cryptocurrencies are decentralized currencies, which means that any central authority does not control them. This is why there is no tax on cryptocurrencies, and transaction fees are so low.
Since the launch of the first cryptocurrency, it has completely revolutionized the financial market. People were quick to notice its benefits over the fiat currencies and started to adopt it.