Cryptocurrencies PART2

 

Comparison of cryptocurrency and fiat currency

The nature of money develops over time. In the early stages of economic development, it is usually commodity currency, which is composed of things with market value (for example, precious metals in a non-coin state can be used as a medium of exchange, and even certain commodities such as cows, tea, salt, etc.) made. 

After that, the money can be exchanged into a certain amount of gold or silver banknotes. Legal tender is legal tender, and its value is supposed by the government that issued it. The value of money is that people need to be able to rely on its value, and that value needs to be stable over time (Hall, 2017).

Today, current currency can also exist independently of physical representation. Money can exist in a bank account in the form of computer entry, or it can exist in the form of a savings account. For example, digital cash or electronic money is the monetary value stored in a prepaid car or smart phone. Direct debit, Internet payment and card transfer are all forms of payment that do not involve cash. 

The following is the inflation situation in the United States since the beginning of the 20th century:

The most important aspect of currency is the relative stability of its value and the amount of money that the government can control. 

From the perspective of distribution:

Gold is a rare metal on the earth. The total amount is limited. The distribution of gold is scattered, it is difficult to predict whether a place can dig gold. Similarly, Bitcoin is calculated by a large number of computers distributed all over the world accounting to certain rules, and the rate of production o Bitcoin is fixed. 

From the perspective of custody:

Gold usually rusts or corrodes, and can be preserved forever, so it is chosen as currency by people all over the world. Bitcoin as a digital currency can retain control forever as long as the key is remembered and the key is not leaked. This method of storage is much easier and safer than gold. 

From the perspective of use:

Gold can be easily dividend, transferred and exchanged, and the exchange process is anonymous. A bitcoin can be divided into 100 million shares, which is convenient for various transactions of small amounts. The exchange process of bitcoins is carried out point-to-point on the Internet, without geographical restrictions, and also high anonymity, without the participation of banks and other intermediaries. 

References: 

Hall, J (2017) Fiat currency: What it is and why it's better than a gold standard. 

[Online]

Available at: https://www.fool.com/investing/general/2015/12/06/fiat-currency-what-it-is-and-why-its-better-than-a.aspx

(Accessed: 16/02/2021)