There is a very thin line between a Fiat Money and a Digital Currency. The fact that some people, nowadays, transact through electronic money continues to affirm suggestions digital currencies are about to replace fiat currencies completely, due to its innumerable dominance.
It will take some time before they find their way into the mainstream sector, given the strong opposition from regulators around the world. Even as the world moves towards a cashless society, very few people have an idea of how different fiat currencies are from digital currencies or cryptocurrencies.
What is Fiat Money?
Fiat money (or fiat currency) is a currency that a government has declared to be legal tender. Fiat Money is a kind of currency, issued by the government and regulated by a central authority such as a central bank.
Fiat currencies such as the US Dollar, Pound, Euro or Naira derive their value from the forces of supply and demand in the market. Such currencies are always at risk of becoming worthless due to hyperinflation as they are not linked to any physical reserves such as commodities.
Fiat money does not have any intrinsic value. What value it has depends on public confidence in the currency’s issuer. The first use of fiat money was recorded in China around 1000 AD. It was introduced as an alternative to commodity money and representative money.
Also Read: Top 10 Strongest African Currencies In 2018.
What is Digital Currency?
A digital currency is a form of currency that is available only in digital or electronic form, and not in physical form. Digital currencies are intangible and can only be owned and transacted in by using computers or electronic wallets which are connected to the Internet or the designated networks.
Since they exist in a lot of variants, digital currencies can be considered a superset of virtual currencies and cryptocurrencies. A cryptocurrency is another form of digital currency which uses cryptography to secure and verify transactions and to manage and control the creation of new currency units.
Bitcoin and Ethereum are the most popular cryptocurrencies. Since cryptocurrencies are unregulated, they are also considered to be virtual currencies. There are many benefits associated with digital currencies, such as the ability to easily make payments on time and lower transaction costs.
Also Read: How To Invest And Make Money From Bitcoin.
Fiat Money Vs. Digital Currency.
Here, below is a comparison table that shows the difference between a fiat money or currency and a digital currency.
|S.N.||FIAT MONEY.||DIGITAL CURRENCY.|
|1.||Unlimited in supply.||Limited in supply.|
|2.||Issued by the Government.||Created by the Computer.|
|3.||A physical way of money exchange.||A digital way of money exchange.|
|4.||Takes up a lot of physical space.||Easy to store and carry.|
|5.||It can be used as a legal tender.||It cannot be used as a legal tender.|
|6.||Take a long time to process.||Fast transfer within minutes.|
|7.||Can be destroyed or damaged.||Cannot be destroyed or damaged.|
|8.||Its value is determined by markets and regulations.||Its value is not determined by supply and demand.|
|9.||Centralized and controlled by the government and the banks.||Decentralized and not controlled by any entity or government.|
|10.||Examples include US Dollar, Euro, Pounds, Naira, Cedi, Rand etc.||Examples include Bitcoin, Ethereum, Litecoin, DASH, XRP etc.|