What is the Difference Between Cryptocurrency and Traditional Currency?

Cash is issued by a government, while cryptocurrencies are not controlled by any individual, institution, or authority. Federal coins are physically exchanged using coins or banknotes, while cryptocurrencies have no physical form. Both fiat money and cryptocurrencies offer the utility of a medium of exchange, a store of value, and a unit of account, but they differ in several key ways. Fiat money is legal tender whose value is linked to a currency issued by the government, while cryptocurrency is a digital asset that derives its value from its native blockchain.

The issuance and governance of fiat currency are dictated by central banks, while blockchain protocols, code, and communities govern cryptocurrencies. The distribution of fiat money requires intermediaries, while cryptocurrencies rely on distributed and decentralized networks to allow “trust-free” transactions. Bitcoin, Ethereum, Litecoin and many more are all cryptocurrencies. The main difference between them and traditional currency is that traditional currency is a centralized system and bitcoins are decentralized one-to-peer systems.

Therefore, there are no central authorities that regulate the rules and regulations surrounding a Bitcoin transaction. However, a traditional currency is strictly regulated by government authorities. Both bitcoins and fiat currency have values that can be used to buy and sell products on the market. There is a chance that you will suffer a loss equal to or greater than your total investment, regardless of the asset class you are trading in (stocks, options, futures, or cryptocurrencies); therefore, you should not invest or risk money that you cannot afford to lose.

Cryptocurrencies have no legislated or intrinsic value; they are simply worth what people are willing to pay for them in the market. And, while this initial period of evolution in the cryptocurrency and blockchain space has been characterized by significant market volatility, the emergence of stable currencies (digital assets with stable prices with underlying collateral structures) reinforces the use of digital currency as a store of value. The extraordinary interest in cryptocurrencies has also meant that an increasing amount of computing power is used to solve the complex codes that many of these systems use to help protect them from corruption. For more information on the risks related to cryptocurrencies, see ASIC's MoneySmart website.

The adoption of cryptocurrency as an alternative medium of exchange and storage of value continues to grow around the world. In a traditional banking system, it will take 2 to 3 business days to complete a domestic transaction and transaction fees will be high. There are thousands of different cryptocurrencies in circulation around the world and they are now a great investment instrument. While fiat currency remains the dominant form of money, cryptocurrencies and the blockchain technology that underpins them may well represent the next step in the evolution of money.

Except for cash exchanges, transactions that use fiat currency are performed within traditional banking infrastructure. The emergence of blockchain technology and cryptocurrencies in the last decade presents a fundamental update of the world's monetary and value systems. Federal currency and cryptocurrency differ from each other in several aspects, including issuance, its mechanisms, intermediaries, volatility, storage, form, tangibility, legality, and others. While cryptocurrencies often don't have a fiscal policy, it's important to remember that their monetary policies are subject to the governance and consensus mechanisms of the protocol itself, and not to a single central authority.

Gertrude Majera
Gertrude Majera

Freelance web aficionado. Subtly charming zombie junkie. Typical coffee maven. Wannabe travel aficionado. Hardcore music lover. Passionate pop culture aficionado.

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