As the world is rapidly transitioning into a cashless society, digital modes of currency, including cryptocurrency are being adopted on a larger scale. As crypto continues to gain popularity among circles that include consumers, entrepreneurs as well as merchants, it is evident that it is more than a mere passing phenomenon.
The main aim of most cryptocurrencies is to address the challenges posed by the use of traditional currency. While some crypto tokens are being used by people on a global scale, there is still a lingering question about the differences between the two currency forms. So, let’s see the main differences between crypto and traditional currency.
What is Traditional Currency?
Fiat or traditional currency refers to any government-issued currency like euros, dollars, or rupees, that is managed and supported by the government that issued it. Its value is largely determined by aspects like supply and demand, as well as the stability and policies of the government that issues the fiat currency.
What is Cryptocurrency?
Cryptocurrency is essentially a digital asset that is built on and functions via a blockchain. While it can function as a place to store your assets, namely crypto tokens, or exchange them it is completely decentralized. This means that it is not regulated or controlled by any government entity or bank.
The value of cryptocurrencies is derived from their native blockchain. Examples of cryptocurrency include Bitcoin, Ethereum, Ripple, and Dash.
Differences Between Cryptocurrency and Traditional Currency
1. Network Structure
Cryptocurrencies operate on decentralized systems, that is, no central authority or government entity manages and controls its operations. Fiat currency is centralized and so, its distribution and regulation are controlled by a reputed government entity, like a central bank.
In certain countries, government entities offer asset protection to protect consumers from fraud and assure them their money is safe. Many countries have also enacted laws that protect consumers from digital fraud and theft, making it easier to recover funds.
To verify all transactions that take place on its network, most cryptocurrencies use nodes. All verified transactions are then kept in a public ledger, where confidential details are kept private to prevent fraud and identity breaches. Since it is decentralized, asset protection depends completely on the crypto platform.
2. Flexibility and Accessibility
Fiat currency and banking systems typically work only for fixed hours, five to six days a week. All transactions here are subject to conditions and rules set out by the bank. In addition, international transactions can take several days or even weeks, depending on the countries involved.
Cryptocurrencies, on the other hand, utilize digital wallets, you can store, recharge, monitor, or use your crypto tokens. These wallets can be installed on both smartphones and PCs, which means that you can use the tokens on the go, anytime, and in most places.
With crypto, the need to go to banks or financial institutions for making transactions is eliminated. With a few clicks and no pending doom of bank holidays or weekends, you can quickly and efficiently complete any transaction.
3. Market Opportunities
While the majority of traditional currencies are reliable, all of them are subject to inflation, value erosion, or ineffective monetary policies. Traders can utilize the benefits offered by the usual stability of this currency to trade in stocks, mutual funds, or fixed deposits to reap profits.
As opposed to this, the cryptocurrency market is highly volatile. However, it is this volatility that makes it an attractive opportunity for traders and investors. Even those with basic knowledge about crypto can trade profitably with the help of platforms like cryptotrader which offer automated trading and other helpful tools.
4. Transaction Charges
Traditional currency utilizes third parties and other intermediaries, which is why they charge an additional fee, to process your transfer. These wire transfers calculate the amount to be charged based on factors like currency rates, amount, purpose, and remittance source.
Digital crypto wallets cut off the use of such third parties or intermediaries. With the help of these wallets, you can directly transfer amounts to banks, financial institutions, and other wallets. So, while some crypto platforms charge significantly reduced transaction fees, most of them don’t charge one at all.
5. Transaction Speed
Traditional currency transfers depend on many variables, including amount, location, and the mode of transmission. These factors determine how long a transfer would take. In some cases, it may even take weeks.
With cryptocurrency, all you have to do is access your digital wallet and fill out whatever details are prompted for the transfer. Since crypto is available all day long, in most parts of the world, payments take place almost instantaneously, even internationally. The only variable, in this case, will be the internet speed.
6. Security and Privacy
When you perform transactions with traditional currency, you’ll have to give personal details like your name, address, and phone number, among others. In the unfortunate event of a data breach, cybercriminals may misuse your personal information.
On crypto blockchains, all transactions are kept anonymous, since it is a decentralized network. While verified transactions are stored in a ledger visible to everyone in the blockchain, confidential information is kept private.
The system is so secure that even the person you are paying or who is paying you, will not be aware of your personal information. It’s because of this identity protection feature that crypto is gaining immense popularity.
Another notable feature is that unique wallet addresses can be used to trace and identify transactions, in the event of a data breach. Hence, cryptocurrency is quite secure and transparent in terms of personal information.
In a world that’s becoming highly reliant on the digital medium, cryptocurrency is surging in popularity. There are several differences between traditional currency and cryptocurrency. The most notable difference is the network structure, where the former is centralized, whereas, the latter is decentralized.
Cryptocurrency offers several benefits over its counterpart, including faster transaction speeds, lower transaction fees, market opportunities, flexibility, and privacy. Although it’s a new mode of currency exchange, it’s an exciting opportunity, nonetheless!