With every second advertisement on television asking you, “Bitcoin lia kya”, I think it’s high time that we pay attention to the hottest buzzword of our times- Cryptocurrency. For an outsider, this universe seems to be full of jargons and noise. I would like to paint a better picture for you. When you started learning about money, it used to be a very serious topic. Something that requires years of hard work and persistence to earn, learn and safeguard. However, cryptocurrencies are a bit different. These people use our beloved memes to talk about money matters. While this leads to an increased adoption amongst younger counterparts, old school people can’t get their head around. So today, we decided to address the elephant in the room. What makes Bitcoin Vs Fiat Currency wars so intriguing. Are they even worthy of a comparison? Let’s dive deeper!
What is Fiat Currency?
First thing first. What is a fiat currency after all? Fiat currencies, like our very own INR, are the legal currencies issued by governments. These currencies are not backed by any commodity like Gold, Silver etc. The value of Fiat currencies is derived from factors like supply, demand and stability of the government.
Advantages and Disadvantages of Fiat:
(+) Fiat currency enjoys a high acceptance rate amongst it’s citizens as it is backed by the government of a country. It is often the countrywide accepted medium of exchange.
(+) There’s no scarcity of money as it is not backed against any asset. So government can actually pump in money if need be, in order to revive economy. One of the most recent examples of such a situation are stimulus packages released to boost the economy during the pandemic.
(+) Government has a much higher control over the price of fiat currency as they can control supply as and when required. So if a country is having a stable government, the currency is usually in good hands.
(-) Since the supply of money is not fixed, governments can just print too much of it and hence value of devaluing the currency. This is called inflation and in worst cases, hyperinflation.
(-) A currency tied to any commodity like gold, for example, is generally more stable than fiat money because of the limited supply of gold (commodity).
Bitcoin Vs Fiat Currency:
If you wish to understand what is bitcoin, here’s an explanation that a 7 y.o. can understand. For now, let’s jump into the differences between the two types of currency:
|S. No.||Parameter||Fiat Currency||Bitcoin|
|1.||Tangibility||While fiat exists in the form of digital and paper money both,||Bitcoin is completely digital. You cannot touch or feel a BTC|
|2.||Authority||Fiat is managed by a central authority which is RBI in India’s case, Federal bank in the case of US||Bitcoin is completely decentralized. The network is maintained by users themselves.|
|3.||Supply||It is unlimited in supply and government controls this aspect.||The supply of Bitcoin is capped at 21mn and no more than 21mn BTC can be there in the system.|
|4.||Future||Since there is no supply constraint, fiat is inflationary i.e. has a tendency to fall in value due to oversupply||Since the supply is capped at 21mn, BTC is deflationary i.e. increase in demand will boost it’s value.|
|5.||Legality||Fiat is a legal tender and recognized by the governments across the world||BTC is still under speculation. Most governments across the world (except El Salavdor) haven’t recognized it as a legal tender.|
While Bitcoin and it’s believers have taken the price at a high of a gargantuan Rs. 60L apiece earlier this year, some governments are trying there best to crack a whip at cryptos that have the potential to put their existence into question.
On one side, we have this rebellious young currency, planning to take over the global economic landscape. On the other side there is traditional fiat currency with it’s own set of flaws. Who do you think is going to win this race?
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Until next time..
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