Let us understand how cryptocurrencies are slowly cementing their position as a go-to
currency and what separates them from the more typical
payment method involving fiat money.
What is fiat currency?
Fiat currency is the method of payment that has acquired the status of a legal tender
by the government.
The core value of fiat money lies in the fact that it is approved by the government and
is, in fact, a trustworthy currency.
However, fiat currency may not have much value on the face of it.
For instance, paper money is essentially a piece of paper that the government backs.
A piece of paper has no intrinsic value but only becomes worthwhile after the public instils
their trust in the government’s ability to back such currency.
Thus, the formation of trust in an organisation or simply, in the value of a bill lies at
the heart of building an acceptance, something cryptocurrencies are yet to fully develop.
Those fully familiar with the workings of cryptocurrency often argue that they are no
different from the existing fiat currencies.
They can also be used as a form of payment, hold no intrinsic value, and have powerful
underlying software that offers some credibility.
Then, why are financial systems across the globe hesitant to make cryptocurrencies legal
tender?
How are cryptocurrencies valuable?
Many similarities exist between cryptocurrency and fiat currency, despite both being the
opposite ends of a spectrum.
Cryptocurrencies represent a shift in power from towards a self-regulating digital ledger
with no place for authoritative oversight.
Crypto enthusiasts have time and again pointed out that fiat money differs from cryptocurrencies
only in terms of tangibility.
It can be seamlessly applied to daily life as a form of payment, as seen in El Salvador.
Meanwhile, crypto supporters consider the existing volatility in the crypto space as
a source of apprehension about money.
However, one should not forget that even the US dollar is not free of instability.
Interestingly, the case against cryptocurrencies became stronger last year after large dips
in the currency’s value were observed.
A decline of as large as 40% was seen in multiple cryptos within a single month last year, urging
many to rethink their interest in cryptos.
Despite existing volatility, cryptocurrencies have a few essential factors providing them
with some value.
Firstly, the underlying blockchain technology is a marvel for modern-day businesses as it
provides a secure financial system to help them keep track of transactions, with zero
possibility of an error.
The exceptionally powerful blockchain software relies on the Proof of Work or Proof of Stake
mechanism to mint new coins, offering a restricted supply.
Moreover, cryptocurrencies are believed to have the edge over fiat currencies in terms
of their universal trading feature.
Cryptos can be traded from anywhere by anyone at any time without any need for users to
convert their value across nations.