Cryptocurrency vs Traditional Currency: What’s the Difference?
Multiple cryptocurrencies increasing in popularity each day. But just because something is popular doesn’t mean it’ll be a good fit for you. First, you must know exactly what you’re getting into.
To help you start with your research, it helps to understand the main differences between cryptocurrency and traditional money:
Traditional or fiat money is a legal tender assigned by a government decree that regulates banknotes and coins to have a specific value. Examples include Philippine Peso and the US Dollar.
A central authority (typically a bank) also controls how many notes and coins are produced and circulated at any given time. This central authority is who you transact with to transfer funds from your account and add it to another account since they are the only ones allowed to see and update the ledger of everyone’s balance in the system.
Fiat money is more stable than cryptocurrencies and other commodity-based currencies. Its stability allows governments to work with the economy against inflation and recession, as well as allow the currency itself to act as a medium to store value and facilitate exchange.
However, fiat money’s stability doesn’t make it completely immune to dips and deficiencies. Even with a regulated currency, economic recessions over the years have happened in multiple countries where fiat money is the medium of exchange.
Both fiat currency and cryptocurrency may be used to purchase goods and services and transfer and store value. However, almost all cryptocurrencies (with a few exceptions) are decentralized and not owned or controlled by a single authority.
Cryptocurrency has a more democratic way of controlling the currency’s ledger. This is done through a protocol (blockchain), made up of several networks of computers, that allows anyone to participate in updating the ledger of transactions. What this system does is eliminate the middleman (central authority) in peer-to-peer transactions, theoretically making transactions faster and cheaper since you’re not relying on a third (regulating) party to validate each transaction. Transaction fees can also be lower as bank-to-bank fees are eliminated when transferring funds from country-to-country.
Both fiat and crypto have their value governed by supply, demand, work, scarcity, and other economic factors. However, the value of most cryptocurrencies, such as Bitcoin, fluctuates due to scarcity, supply, and demand. Fiat currency more commonly fluctuates mostly due to the country’s GDP and national debt.
While there are arguably many advantages to cryptocurrencies, they also come with big hurdles. The first being cryptocurrency as a concept that can be quite difficult to understand at first, and it’s never a good idea to place your money in things you don’t fully understand. You also can’t reverse any transactions once they’re made. If you make a wrong transaction, there’s a very real possibility of the recipient refusing to return your money.
Related: What is Cryptocurrency?
Buy and Sell Cryptocurrency in the Philippines
Take note that cryptocurrencies are extremely volatile in nature and do carry a high level of risk. If you’ve studied it and are set on buying crypto, be sure to avoid scams and only trade in legitimate platforms.
Did you know? Coins.ph is the first company in the Philippines to have a Virtual Currency Exchange license from the BSP.
Buy, sell, and store your Bitcoin, Bitcoin Cash, and Ether safely through your Coins Wallet!
Disclaimer: Buying bitcoin and other cryptocurrencies carries a high level of risk, and may not be suitable for everyone. Cryptocurrency prices are highly volatile and can go up and down in real-time. Make sure to only buy as much as you can afford to lose.
Coins.ph is regulated by Bangko Sentral ng Pilipinas (BSP). BSP Financial Consumer Protection Department: (02) 708-7087 or firstname.lastname@example.org