What is the difference between Fiat Currency and Cryptocurrency?

Difference Between Fiat Currency and Cryptocurrency

With the increase in transactions through electronic money, some people continue to believe that cryptocurrencies could be the currencies of the future. Fiat money or fiat currency is declared a legal tender by the government. The cryptocurrency is not a legal tender and not backed by the government. Here we will discuss more about both the currencies and significant Difference Between Fiat Currency and Cryptocurrency.

Fiat currency is a legal tender backed by the central government. The fiat currency is issued and regulated by the central authorities. The fiat currency can be in the form of physical dollars like – Federal Reserve notes, or it can take the electronic form, such as bank credit. The government controls the supply of the fiat currency, and citizens can pay their taxes using it.

Cryptocurrency is a digital or virtual currency that works as a medium of exchange. Cryptocurrency is not a legal tender, and it is not backed by the government or central bank. As cryptocurrency is virtual in nature, an algorithm – ‘cryptography technology’ is used to process, secure, and verify transactions. You won’t be able to pay taxes using cryptocurrencies, although you have to pay taxes on it.

Both currencies are used as a mode of payment, but there are significant differences between them. Let us move to the Difference Between Fiat Currency and Cryptocurrency.

Fiat Currency vs Cryptocurrency

• Fiat currencies are issued by the central government and regulated by the central bank, while cryptocurrencies are merely digital assets that act as a medium of exchange, and the government has no control over it.
• Fiat currencies have a physical feeling, as they exist in the form of notes and coins; on the other hand, cryptocurrencies don’t have a physical feeling, as they operate as virtual money.
• Fiat currencies have an unlimited supply, as central authorities have no cap to the extent to which they can produce money; on the other hand, cryptocurrencies have a cap, and a set amount of coins will always be in supply.

Both fiat currencies and cryptocurrencies are means of exchange, but cryptocurrencies have not developed enough to replace the fiat currencies or standard payment methods. There is quite a possibility that the crypto market will create a complementary product that might replace the current monetary system.