Bitcoin Vs Fiat Currencies
There has always been a lot of contradictory information about the instability of fiat currencies, and the emergence of virtual currencies like Bitcoin has only intensified such inquiries.
What is Fiat money?
Fiat money refers to any currency declared by the government as legal tender but has no intrinsic value as a commodity. The word fiat originates from Latin and means “it will become”.
Before the introduction of paper money or currency, all money was in metal coins, initially valued relative to gold. Paper notes were introduced to combat the growing challenges of hauling bags of metal around for transactions. In the beginning, these currencies were as good as gold. That means, governments printed only as many paper notes as they had enough gold to back up. Furthermore, everyone who held paper could go to a bank or financial institution and convert their currency into physical gold. Eventually, governments realised the limits that gold backing was having on currencies. They then put a stop to the redeeming of gold certificates or paper money for gold. They began to print more notes giving birth to fiat currency.
Fiat currency has simplified day to day business transactions and given governments better control of their economic activity. However, by centralising the system, the currency also has several drawbacks. The Voltaire famously wrote: “Paper money eventually returns to its intrinsic value—zero.” Fiat currencies issued by governments or central banks merely represent vague, subjective concepts of value. It means that fiat currencies have a natural tendency to decline in their purchasing power as time passes and other cryptocurrencies produced. As this happens, the people gradually turn to other currencies or alternative forms of exchange. Due to this search for alternative ways, the rise of Bitcoin occurred.
Advantages of Bitcoin
Bitcoin is a digitally mined virtual currency that can be converted into its equivalent in any physical currency. The amount of Bitcoin released into circulation is controlled by a vast, decentralised network of active users. As such, it is not directly subject to the rules of national government or central banking authorities.
Bitcoin has become a very popular alternative to fiat currency (Euros, Pounds, etc.). At the time of publishing Bitcoin has a market capitalization of NZD$25,324,344,710 and is by far the most popular cryptocurrency. A few of the advantages of using Bitcoin over Fiat currency highlighted below:
1. Bitcoin is a Decentralized Currency
It means a central body does not regulate it. Unlike in the case of Fiat currency where the government and central banks make the rules concerning the use and modulate the currency's supply and value. It also implies that Bitcoins have no single point of failure, making the network far more secure.
2. Finite Supply of Bitcoin Units
The highly complex algorithms of Bitcoin’s source code place a strict limit on the number of Bitcoin units that can ever exist (21 million) while preventing unauthorized duplication or creation of Bitcoin units. This enforced scarcity is a vital distinction between Bitcoin and traditional fiat currencies.
3. Lower Transaction Fees
Buying, selling, and sending bitcoin is usually inexpensive. Bitcoin transaction fees are relatively small in comparison to other digital payment methods, such as credit cards, international money transfers, and PayPal. While such fees may vary per transaction, it’s very rare for a Bitcoin transaction to cost more than 1% of its value, while others charge between to 2% to 3%.
4. Easy to Use
Bitcoin addresses cost nothing to setup and can be done easily and quickly when compared to the hassle of filling out application forms for accounts and credit cards, or waiting days for international money transfers.
5. Bitcoin is Free to Hold and Transfer
Since Bitcoin is an open source code and not an organization offering service in exchange for payment like other financial institutions do. It does not charge account holders for holding and transferring bitcoin units, asides the from miner’s fees which are optional.
Bitcoin units can neither be destroyed nor damaged. While other currencies like paper notes, or physical exchange commodities like gold, may be manipulated, damaged, or counterfeited, Bitcoin units have no such demerits since it is a virtual currency.
7. Freedom to Transact
Bitcoin offers a lot more freedom to transact compared to transacting with fiat currencies because it does not have a controlling intermediary. Intermediaries in transactions with traditional currencies, such as PayPal, a credit card company, or banks and the government, are known to freeze or seize funds of account holders for any reason they deem fit. They could also prohibit transactions if they please. In 2015 Paypal staring refusing to process payments for Mega, a cloud storage service, after receiving significant pressure from the US government via Visa and Mastercard.
8. Increased Security and Reduced Fraud
Transactions via Bitcoin don't allow a receiver to see any information that may expose the sender to fraud such as personal detail theft.
Bitcoin units are virtual and electronically stored online or in a portable credit card sized device. It can be conveniently carried around. It makes it possible to carry large sums of Bitcoin units without exposing the carrier to security risks.
10. Online Shopping
The list of merchants currently accepting Bitcoin is steadily increasing. Account holders can now book flights, pay for gaming, and much more. When buying with Bitcoin, you do not have to worry about additional surcharges or foreign exchange fees either.
While Bitcoin currency may still have a long way to go before it is on par with on-demand fiat currencies like the US dollar. There are many advantages of Bitcoin over fiat currencies make it an excellent long-term investment.
With BitPrime you can buy bitcoin quickly and safely, usually within minutes. If you would like to sell bitcoin, we can have cash in your account in as fast as 5 minutes or an hour at the longest.
Want to know which wallet to use?
Check out our Top 10 Bitcoin Wallets 2018 guide!
Last updated 19/03/2018