Cryptocurrency Versus Fiat:
Before delving into this discourse, it seems appropriate to start by talking about money in general because whether cryptocurrency or fiat, they all fall under that general umbrella.
Money is anything that is generally accepted as a medium of exchange and can be used to make purchases or in the settlement of debts. But what if I told you money is a means of communication?
Money is a means of communication because it is used to COMMUNICATE VALUE.
Now, let’s follow the basic definition of communication as “the exchange of information” for a second.
How does money meet the condition of information exchange?
“Money is how you express your opinion on the value or worth of a certain item.”
“Why do we say this thing is expensive or this thing is cheap? For instance, why is a Bugatti expensive? Why is water cheap?” It’s because of the price tag that has been placed on these items.
What the price tag does is to inform us of the worth of that item. So we use money to express the values of commodities and services.
The higher the value of that object, the more money you’d have to pay to get it or you’d want to receive to give it out.
Drawing from this, we can see that money is in fact a language or form of linguistic construct used in communicating the value of a certain item. That is, the price you put on a good or service is an expression of the value it holds to you.
Fiat is basically legal tenders like naira, dollars, yen, cedis, euros etc. They are usually issued by the government through a central bank and seen as the legal and accepted tender in a particular geographic location or region.
Fiat, today, is generally paper money and some countries have coins too. But it hasn’t always been that way. Money has evolved over time and this lets us know that money could be anything.
It could be a shell, a metal coin or a piece of paper with a historic image on it. The value that people place on it most times has nothing to do with the physical value of the money.
Money primarily derives its value by being a medium of exchange, a unit of measurement and a storehouse for wealth.
Money allows people to trade goods and services. Money is valuable majorly because everyone knows everyone else will accept it as a form of payment.
The knowledge of this fact is key in understanding the first feature of fiat as a type of money. This being that fiat has no INTRINSIC VALUE.
Intrinsic value is a measure of what an asset is worth. It is the fundamental value, “true, inherent, and essential value” of an asset independent of its market value, that is outside the currently trading market price of that asset. That means beyond its purchasing power, is it useful?
Fiat has no intrinsic value because it’s value is based solely on it’s purchasing power. This type of value is known as instrumental value as opposed to intrinsic value (which is the use value of an item).
Take a look at the naira note in your hand, does the paper itself have any use? It has value only because the government maintains and enforce its value and parties engaging in exchange agree on its value.
An example of money seen to have intrinsic value is gold. We accept gold to be money with intrinsic value because of certain qualities it has. It is rare. It can’t be arbitrarily created.
It is nice to look at. Gold can be used to create items for dressing, aesthetics etc or to beautify
Fiat/paper money, on the other hand, is only useful because it is generally accepted. It is just paper printed with design on it.
Paper, on its own, is almost worthless. So, what makes fiat valuable is the acceptance of it’s value. The 1,000 naira note is not truly worth 1000 naira.
I’m sure the cost of its production per unit isn’t up to that. But we accept it to be worth 1000 naira. Then we accept that 1000 naira is capable of purchasing certain things. This is what makes fiat valuable.
Cryptocurrency is from two words “cryptography” and “currency”. Cryptography is a whole world of its own and a broad field of study but for the purpose of simplicity let’s just say it basically has to do with a system of “communication security”.
Now, remember we already established money as a means of communication? So cryptocurrency is money (a means of communication) through a secured means (cryptography).
Basically, we can describe cryptocurrency as a digital asset which functions as a medium of exchange, using strong cryptography to secure financial transactions, verify the transfer of assets etc. so one of the major reasons for cryptocurrency is security.
The first step in understanding the differences between cryptocurrency and fiat is fully grasping what a cryptocurrency is. While you would be very right to describe crypto as “digital money”, this is a very narrow definition and doesn’t fully encapsulate what crypto is or what it aims to achieve.
Cryptocurrency is much more than just digital currency. In fact, the term “digital money” is grossly insufficient in fully conceptualising cryptocurrency.
This is simply because the motive behind the inception of cryptocurrency is an improvement on the already existent global money/financial system.
Technically, digital money already existed even before the creation of cryptocurrency.
A common example exists in the form of the money which you have in your bank account (which usually has a digital ledger) and enables you to make transactions electronically i.e you can transfer (through USSD, an ATM machine, banking app) and receive money without actually seeing or coming into physical contact with this money.
In fact, most of the money we spend these days is not the printed notes. When you make a transfer, there’s no literal money being carried from one bank to another.
No, it’s all digital. This shows that there’s an already existent digitalisation of money which preceded the advent of cryptocurrency.
Thus, logically, if cryptocurrency is just another form of digital money, it would be mostly pointless, right? So, if crypto is more than digital money, what is Crypto and why was it developed?
Cryptocurrency is a new invention of money and a “fundamental transformation of the technology of money.” But how?
- You can’t duplicate it
- It’s more secured
- It can’t be altered/manipulated
Now, let’s take a look at the differences between crypto and regular fiat.
CRYPTOCURRENCY VS FIAT
Cryptocurrency is intrinsic. Although we have a lot of shitcoins these days and it’s hard to keep up, cryptocurrency is generally supposed to represent a moment of intrinsic utility.
This is because it is useful and is more than just software/digital money. It is programmable and can be used to do various amazing things. It can be used to tokenize anything.
Examples of blockchain and cryptocurrency applications exist all around us; in borderless payments, the social media space (steemit, uptrennd, Voice).
Cryptocurrency = intrinsic value.
Fiat= instrumental value
Also, cryptocurrency works through a DECENTRALISED system. What this means is there is no central control or authority unlike regular fiat which is controlled by a central authority (aka The central bank). So that’s the first difference:
Crypto = decentralised.
Fiat = centralised
Further, a close look at regular fiat exposes the fact that it operates a manipulative debt system where a person more or less loans money to a bank whenever you make a deposit with that bank.
The bank then turns around and uses this money (your money) for investments and other profitable ventures and after making profit off your money, they give you (the clients) a very minute percentage as interest.
Meanwhile, when you borrow from them, they charge ridiculous interest. In sharp contrast, cryptocurrency is based on ownership not debt. Once you control the private keys to any cryptocurrency asset, it is totally yours. You’re not loaning it to anybody and nobody makes money off you.
So: Crypto = ownership.
Fiat = debt
Also, fiat is not scarce and is prone to Inflation. Huge increases in the supply of paper money have taken place in a number of countries over the years which has produced hyperinflations. But crypto has a fixed supply rate and final quantity right from inception and the processes that are used to regulate the supply include miining and burning.
So: crypto = scarce
Fiat = not scarce
Ultimately, cryptocurrency boasts of a number of advantages over fiat and it’s high time you bought yours. Head to Binance where you can not only purchase cryptocurrency but also trade and do a host of things such as lending and staking. Sign up on Binance in the link below and begin your crypto journey.
All rights reserved. This material and any other digital content on this platform may not be reproduced, published, broadcast, written or distributed in full or in part, without written permission from DiutoCoinNews.