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Comparing Cryptocurrency to Fiat Currency

A common question about cryptocurrencies is if they are really money since they don’t seem to have any intrinsic value. Central banks control most of the fiat currencies in the world today, but central banking also has problems that many people would like to avoid. 

While cryptocurrencies do not have a physical representation like some forms of fiat currency, there are quite a few advantages over fiat currency. The value of cryptocurrencies is not tied to the policies of any nation or corporation, and it has less volatility than some nations’ currencies.

Photo by David McBee from Pexels

Photo by David McBee from Pexels

Fiat Currency Problems

The history of fiat currencies is filled with problems where there was either hyperinflation or a complete loss in all value due to mismanagement by central banks. In the early 1990s, there was a hyperinflation event in Yugoslavia that caused prices to go up by five 12 percent per day. 

Zimbabwe is another nation that has had problems with central banking and fiat currency due to political issues and government corruption. The issue for many people with fiat currency is not necessarily a problem with money as a whole; it’s a problem with how that money is managed and controlled by powerful institutions.

Cryptocurrencies Are Not Tied to Any Nation or Bank

The first thing that many people like about cryptocurrencies, on Bitcoin prime is that they are not tied to any nation or bank. They avoid issues of fiat currency, where the value of each unit becomes less valuable due to mismanagement.

Since cryptocurrencies are distributed across a decentralized network, there is no one person who can change the rules or create more of it for their own benefit. Cryptocurrencies are not subject to interest rates that other forms of a fiat currency might be subject to either.

This is what makes cryptocurrencies like Bitcoin and other altcoins far different than any form of fiat currency, including gold. Gold is subject to market forces and can fluctuate greatly in price due to a number of factors that have nothing to do with the central bank or any other type of authority.

Fiat currencies are created by governments or banks, which makes them more corruptible than cryptocurrencies. This is another important difference between fiat currency and most cryptocurrencies.

Cryptocurrencies Are Not Created by Any Government or Bank

Cryptocurrencies are not created by any government or bank; therefore, they cannot be influenced by rules that might create inflation or deflation of the currency itself. Since most cryptocurrencies are decentralized, there is no single entity that can make decisions about how many units of currency are created.

Cryptocurrencies, like Litecoin, are created by a process called “mining,” which is used to add transactions to the decentralized ledger of all transactions that have been created by each cryptocurrency. Since there is no central authority, there is no one person or group that can control when new units are activated in a specific cryptocurrency’s blockchain.

This is what makes cryptocurrencies like Bitcoin, Litecoin, Ether, and other altcoins far different than any form of fiat currency because there is no central bank that can create more units or change the rules to benefit themselves. Now you might be thinking about how much your government or central bank can influence the value but that’s where we will discuss in another article.

Conclusion

While currencies like the U.S. dollar are subject to inflation or deflation due to changes in economic policy, cryptocurrencies are much more immune to that type of change due to their decentralized nature.

This is what makes cryptocurrencies like Bitcoin and other altcoins far different than any form of fiat currency, including gold. Gold is subject to market forces and can fluctuate greatly in price due to a number of factors that have nothing to do with the central bank or any other type of authority.

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