What’s the Difference Between Cryptocurrency and Traditional Money?

What’s the Difference Between Cryptocurrency and Traditional Money?

In the last decade, the rise of cryptocurrency and the increasing popularity of Bitcoin and its alternatives have resulted in many alternative opinions, questions, doubts, hopes, and anticipations regarding the new form of money. The main reason why there are so many different positions about cryptocurrency is that it still is a novelty even for those who have some understanding of it and for the majority of the population the concept of cryptocurrency is something vague and trivial. On the surface, cryptocurrency does not resemble any other kind of exchange we have been used to throughout the centuries. However, innovation has always been a part of progress and adaptation to the demands of the time. Even the most conventional and common form of currency for today – fiat money has been once introduced as an alternative of gold and its value has been established with a common belief in the currency rather than in its intrinsic value.

What makes money valuable

Essentially, national currencies such as USD, Euro, or any other one has value because of the shared belief in society. Because of this belief in certain countries and national banks that issue those currencies, a piece of paper is widely accepted as a form of exchange around the world. Naturally, the value of fiat currencies is also derived from economic movements, money circulation, and other global factors. The belief in a certain currency, which subsequently turns it into a valuable asset and form of exchange, is based on factors such as its reliability, utility, scarcity, portability, and non-counterfeit ability. Cryptocurrency can effectively be considered as a realistic alternative of fiat money and also as a possible asset for investment. Some people refrain from trusting and accepting cryptocurrency as a form of money as it is not physically tangible and exists only in a digital form. However, considering that currently, only 8% of the world’s money is in a printed form, much of fiat currencies in circulation or in deposits are also in a digital form. Cryptocurrencies are decentralized and therefore free from government censorship. Besides, in the case of Bitcoin, they are scarce because of the finite amount of supply, and because of the amount of effort required for mining new coins. One of the main advantages of Bitcoin over government-issued currencies such as USD or Euro is that it cannot be manipulated by the government, central bank, or any such authority. Its decentralized structure, as well as the fact that there are a finite number of Bitcoins available and no additional units, can ever be created after it reaches the maximum number, (21 million) ensure its stability against manipulation and inflation. The easily portable and durable nature of digital currency together with almost no chance of counterfeiting thanks to blockchain technology, cryptocurrencies, and especially Bitcoin which has accumulated substantial trust and popularity since its inception, have all needed qualities for a good currency which serves the needs of the market. Just like regular money, the value of cryptocurrency is largely dependent on anticipations and beliefs regarding it. Considering that Bitcoin, the most popular cryptocurrency has some qualities that make it convenient, reliable, and secure for the users, it has the potential of becoming as natural part of daily transactions and purchases as is traditional currencies today.