How Bitcoin differs from physical currency - THE GUARDIAN
Bitcoin is one of the oldest cryptocurrencies that paved the way for the birth of a whole crypto market. This digital money has experienced immense growth in the thirteen years it has been around. Therefore, many virtual asset enthusiasts believe this digital money will replace fiat currencies shortly. The world is slowly progressing to a cashless society as more people transact through digital money. However, it may take some time before this virtual currency finds its way into the mainstream sector. If you are looking for a trading platform that is easy to use, you can visit the Qumas AI trading platform.
On the other hand, Satoshi Nakamoto created this electronic currency to replace conventional money, but some people cannot differentiate traditional currency from physical cash. Here is a guide on how this electronic currency differs from physical currency.
What is Physical Currency?
Physical currency is what people call traditional money or fiat currency. This kind of currency is issued by the government and regulated by the Central Bank. Moreover, this physical currency often acts as legal tender and is no asset that backs the money. Instead, fiat cash relies on the credit of the economy.
Traditional currencies derive their value from supply and demand in the market. However, some physical coins are always at risk of becoming worthless due to hyperinflation.
What Is Bitcoin?
As a virtual currency, Bitcoin acts as a medium of exchange and a store of value. This digital electronic currency uses cryptography technology to process, secure, and verify transactions.
However, unlike conventional money, this virtual asset is decentralized, meaning that the government or any other financial institution cannot manipulate or regulate the currency. This virtual currency has a peer-to-peer system whereby no middlemen are involved when transacting this virtual asset. Instead, you can use exchange platforms to buy, sell, or trade Bitcoin. Moreover, Bitcoin has an underlying technology called blockchain that helps record transactions publicly and verify.
Differences between Bitcoin and Physical Cash
This digital currency differs from physical cash in several ways, including:
The main difference between this virtual currency and physical money is supply. Bitcoin has a limited supply whereby people can only mine 21 million Bitcoins. Due to this limited supply, the demand for this virtual currency increases. And this leads to a rise in the value of Bitcoin. The public has already mined 19 million Bitcoins leaving 2 million Bitcoins in the market.
On the other hand, fiat currency does not have a limited supply. Also, with traditional currency, it is pretty hard to tell the amount of money in circulation at any given time.
Because of the limited supply of this electronic currency, people use it as a store of value as it does not suffer inflation. On the other hand, fiat currency has an unlimited supply and hence is affected by inflation.
Bitcoin only exists online due to its digital aspect and is only stored in digital wallets. Digital wallets are more secure, but there are unfortunate moments when hackers have hacked the wallets. Therefore, people have lost their Bitcoin holdings to hackers.
On the other hand, conventional currency can be stored differently and has a physical presence. For instance, payment providers like PayPal and WorldRemit enable the public to send money digitally. Banks are also custodians of physical currency.
Governments usually issue physical money, and in turn, Central Banks regulate the currency. Fiat currency is also a legal tender that people use to finalize transactions. Moreover, governments control the supply of traditional currencies and issue policies that affect the value of physical money.
On the other hand, this virtual asset is decentralized and acts as a medium of exchange; hence, the government has zero control over the investment. Therefore, the government cannot influence the value of this digital currency.
Bitcoin differs from the physical currency in one way or another. Therefore, consider the cons and pros of both currencies when looking for money with which to transact.