There are plenty of differences between Bitcoin and fiat money, but it may surprise you to know that there are some similarities, too. We thought it would be fun to take some time to review these similarities and differences and then discuss some interesting advantages to both that you may not have thought about yet. The blog explores some specific, but not exhaustive, similarities and differences between fiat money and Bitcoin.
Fiat money is unconvertable paper (or coin) money made legal tender by government decree. It is not backed by a physical commodity like gold. It has no intrinsic value. Rather, its value is determined based on the belief that it can be exchanged for goods, services, and other assets.
In order to conduct transactions using fiat money, you need a bank or other financial institution to act as a mediary. In addition, it is subject to inflation because central banks can print more at any time.
Because its value is not based on any commodity, fiat currency is largely (although not always) stable and controlled. The stability if offers allows governments and other regulating bodies to navigate things like inflation and recession. That means that although it is susceptible to these things, it allows for faster recovery from these things as well.
The control that central banks have over fiat currency allows them to better manage interest rates, credit supplies, and other economic variables, further contributing to stability. Unfortunately, the inverse is true. Governments could potentially create hyperinflation by printing too much fiat currency.
Some digital currencies, like Bitcoin, are a medium of exchange between two parties. The currency exists in public online databases that are used to record transactions. They foster direct transactions between individuals without the need for an intermediary, like a bank. Bitcoin has a fixed supply of 21,000,000 units, so it’s probably more scarce than gold and some believe that it’s not as susceptible to inflation, thanks to its halving practices.
This peer-to-peer electronic cash system doesn’t need an intermediary to validate its transactions. Plus, it’s not subject to a central bank or governing authority. However, that also means it can be much more volatile.
As you can see already, there are several similarities between fiat currencies and Bitcoin. Both are options as a means of exchange and enable individuals and businesses to conduct transactions to exchange value for goods and services.
Sure, there are similarities, but there are some critical differences:
So, are fiat currency and Bitcoin the same? Yes and no. Let’s break it down further.
Bitcoin is money in the sense that it allows exchanges between two parties and acts as a store of value. The difference is that Bitcoin also has other features that aren’t available through transition money systems. It can be sent or received by anyone, any time, anywhere in the world as long as both parties have access to the internet and a digital wallet. The bank doesn't have to be open to process or accept the transaction. This is perhaps the most appealing aspect of cryptocurrency.
As you can see, fiat money and Bitcoin are similar in the fact that they are both mediums of exchange. However, they also have distinct characteristics that make them different. As technology advances and societies evolve, understanding the similarities and differences between these currencies can help you navigate the ever-changing financial landscape.
If you want to start conducting transactions with Bitcoin, head to the nearest Bitcoin Depot ATM and fill your wallet with Bitcoin! You’ll experience fast, easy, and secure transactions!
The information provided above is for informational purposes only and should not be considered as an endorsement of any particular currency or guarantee of its stability or functionality. Bitcoin Depot does not offer financial or legal advice of any kind and nothing contained herein should be relied upon as advice or construed as providing advice of any kind.