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Key Differences Between Crypto & Fiat Currencies

Bitcoin was born out of frustration…

Ten years ago, a person or a group of persons had just about enough. That person or group was fed up to see, hear, or read how the financial industry screwed things up yet again, bringing the world on brink of economic collapse (again).

Luckily, the central banks saved the financial industry by using their printing machine to the limit. The average Satoshi though, was left poorer and more frustrated than ever. Nobody saved him (or her); the central banks licked their fingers clean and let the average Satoshi pay the debts of countless bailouts.

Bitcoin created in January 2009

Bitcoin was born out of necessity…

Ten years ago, a person or a group of persons created the first cryptocurrency, a call to arms meant to disrupt the current, ‘rigged’ fiat monetary system. Given a big enough adoption, this cryptocurrency had the potential to become money. Not Fiat though, but something different, in so many ways.

To understand these differences though, we must first analyze Fiat.

What Is Fiat?

USD Dollar – Fiat Currency

Fiat comes from Latin and means ‘let it be done.’ In other words, it refers to a decree or an order.

Fiat money refers to all currencies that are not backed by anything other than an authority’s ‘word’. There is no physical commodity behind Fiat, only a government’s decree of value. At same level and for a period of time, the Fiat’s value derives from supply and demand, from the nation’s economic power. 

In the end though, history shows us Fiat’s value drops to zero, given a long enough timeline.

For example, the purchasing power of $1 in 1910 is equal to $26.43 of today’s USD, a whopping 2,543% increase (aka inflation).

There are many other cases around the world of much steeper currency devaluations over a shorter timespan (hyperinflation). Venezuelan bolivar is just the latest case, having hit an 80,000% yearly inflation, in 2018.

So why do all nations use the Fiat system today, since it’s not sustainable, in the long run?

Controlling The Printing Machine

The answer is quite simple: for control purposes.

Without a gold standard – in which case, the money supply is in direct correlation with the gold reserves – central banks can basically print money at will, if the situation requires them to do so.

Money Printing Machine

Such situation emerged after 2007 and the subprime crisis. To bailout banks and to ‘save’ the economy, the Fed and the other major central banks started printing money to purchase some of the toxic assets nobody wanted to buy and to inject liquidity into the economy.

Since the economy hasn’t fully recovered since, the money printing – known as ‘quantitative easing’ monetary policy – continues to this day.

As a result, the world is flooded in debt. The current official US debt is over $21 trillion, with other reports signaling another $21 trillion ‘missing.’ Worldwide, the debt number is staggering: $184 trillion, according to an IMF report from December 2018.

If the debt accumulation continues, a Fiat collapse will be imminent.

Crypto: Where Supply Meets Demand

Cryptocurrencies based on supply & demand

Bitcoin & other similar cryptocurrencies could be the much-needed life jacket if such a situation occurs.

Why? Because crypto is different, compared to Fiat.

Different how?

Most importantly, cryptocurrencies are the purest form of free-market capitalism. There is no government backing Bitcoin or any other cryptocurrency, therefore, no one forces anybody to use it. There is no decree, no order. Whoever is using crypto, is doing it by his or her own free will.

Yet, how is the value established or who assigns the value of any given cryptocurrency? The value is purely based on supply and demand, no other strings attached. It is based on market participants assigning value to anonymity, privacy, security, and freedom.

This is why the overall cryptocurrency market cap has increased so much, in recent years. Because more and more people value what crypto offers. This is also why the market cap is so volatile, as of late. Because different participants value crypto in different ways and nobody has set a fixed price on these unique assets.

Decentralizing The Financial System

In fact, there is no central bank, no mint at the center of the system. No central authority is keeping track of the transactions.

In many cases, there is a public ledger – blocks and blocks of transactions or blockchain – shared among peers from all around the world. The participants keep track of the entire history of the ledger and some verify that history every minute, to keep it consistent with the rules.

Indeed, there are rules, but since there is no central power, who enforces those rules? Who set them up? In Bitcoin’s case, Satoshi Nakamoto created the rules and since 2009, the hard (machine) code enforces the rules. Think of the hard code as an AI that enforces the rules and doesn’t allow any rule violations, under no conditions.

Decentralization – Key characteristic of any cryptocurrency

No double spending – spending the same coin twice – is a rule enforced by all cryptocurrencies. In some cases, there is a limited supply of coins. Bitcoin, for example, has a limit of 21 million. Based on the code written by Nakamoto, every 10 minutes, a number of bitcoins are ‘minted’ and whoever solves the mathematical puzzle – Proof of Work – and introduces a new block of transactions into the blockchain, gets rewarded. The initial reward was 50 BTC. After four years, the reward was halved to 25 BTC.

The current block reward is now set at 12.5 BTC with a new ‘halving’ set in 2020 at 6.25 BTC. The halving will continue until all 21 million are ‘minted’ or ‘mined’ (probably around 2140).

What About Privacy?

Privacy – difference between Crypto vs Fiat currencies

Privacy is also treated differently in crypto, compared to the modern digital fiat money.

Nowadays, spending Fiat online involves sharing private and sensitive information with the vendor. Since the vendor and even the payment processor are centralized and have all their database servers in one location, hackers can steal your sensitive information (credit card number for example).

Furthermore, payment processors can sell your consumer behavior data to third parties without your consent.

Cryptocurrencies – not Bitcoin necessarily but other privacy-centered coins like Monero or ZCash – value your privacy and anonymity, therefore, you are much more protected, if you use them.

When you pay with crypto, you will only share a public address that doesn’t mean anything for a hacker. Obviously, there are other ways a hacker can steal your crypto, but if you take the necessary precautions, your funds will be safe. Whereas with fiat, no matter the precautions you take, if the vendor is careless, your data will be compromised.

With crypto, the security and privacy of your funds are in your own hands. So is your entire financial freedom.

And we at BetBTC are willing to go all-in. Are you?

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