The difference between cryptocurrencies and FIAT simply explained

The difference between cryptocurrencies and FIAT simply explained

So you tried to buy something online or register on a financial website and then it asks for the payment method where it says “pay in crypto or fiat”?

Many people don’t KNOW what these terms mean or what the difference is between the two. So today we will talk about the difference between cryptocurrencies and fiat currencies.

What is cryptocurrency?
Cryptocurrencies are also known as crypto or coins. It is an online digital currency that can be used to buy things online or invest in. This is done through a decentralized network known as the blockchain. It is decentralized because it is not controlled by any government nor is it dependent on economic and political decisions. This makes it even better because it allows direct transactions between two people without the need for intermediaries like banks. Cryptocurrencies cannot be created without restrictions because there is a market cap, which means they are not subject to inflation. This is one of the many reasons why they are trusted by investors, especially since they are based on blockchain technology.

What is a fiat currency?
Have you ever tried to buy something in a store and then had to pay with cash or perhaps a credit card? That’s the simplest explanation there is for fiat currency. Fiat currencies that are based on a blockchain are called (in the future) CBDC. It is simply real money. It is your dollar, your euro, and your pound. Fiat currency is simply what is called legal tender, the value of which is attributed to the government. It has no intrinsic value or property, but is only valuable because the government wants it to be.
It can take any form, paper or electronic, but it is controlled by the government and we process our transactions with it.

Transactions like purchases and tax payments. The people trust it because it is backed by the government and is not subject to high fluctuations.

Similarities between fiat currency and cryptocurrency
Despite the differences between these two currencies, there are a lot of similarities. Some of these similarities are:

  • They can both be used for payments, depending on what you pay for, as long as the other party is willing to accept the chosen means of transaction.
  • They both have a high value, but their value depends on the currency.
  • Both were created or issued: While cryptocurrencies are created through a process known as mining, fiat currencies can be issued and printed by banks and the government.
  • Both are divisible, meaning they can be broken down into smaller currencies, and both derive their value from their acceptance by others.

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