Crypto vs Cash: A Clash of the Currencies

The ways we conduct trade have evolved over the years, from barter trading to gold, and then from gold certificates to cash, also known as fiat. Cash is the most advanced means of exchange and fiat currencies control financial systems all over the world.

Monetary systems are strategies and structures that control how we use fiat currencies and other means of exchange. They involve the management, distribution, and examination of financial transactions. To develop an organized monetary system, every sovereign nation runs a primary banking structure known as the Central Bank, which handles monetary operations.

Since fiat currencies are controlled by national governments, their relevance depends on how they are used by the government and citizens in the country. Successful nations generally have valuable fiat currencies, but other factors like government policies and the commercial structure contribute to the currency’s reputation and value.  Inflation can lead to a decline in the value of a fiat currency, though while countries can adjust interest rates and set new financial policies, rising inflation often persists. Reasons include central banks continuing to produce new cash, uncontrolled government spending, and misguided financial policies. Other factors that can negatively affect the value of fiat money include a decrease in the rate of production in the country, war, and poor international relationships.

The US dollar is the most popular fiat currency, and several other nations also accept USD as a legal tender. The US dollar is popular because it is used in the settlement of international business transactions. Also, American monetary policies maintain the value of the US Dollar. Other popular fiat currencies used in global trades include the British Pound (GBP) and the Euro (EUR).

Bitcoin is the first globally recognized cryptocurrency, though even before it was introduced the fintech revolution had already begun. Fintech is an attempt to make fiat currencies easier to use. Bitcoin presented the most advanced form of fintech and introduced a whole new form of money – cryptographic tokens.

Bitcoin runs on the Bitcoin blockchain, which keeps a record of Bitcoin transactions, and it can be sent to any crypto wallet on the network regardless of the geographic location. Unlike fintech solutions, Bitcoin is designed as a collaborative and transparent network with no central control.

Records on the blockchain cannot be erased and transactions are confirmed within minutes. Bitcoin transactions are also cheap, compared to the cost of transferring fiat money. These features ensure Bitcoin offers a flexible, secure, private, and cheap way of spending. Many of the cryptocurrencies that have followed work similarly. Some examples include LiteCoin, Bitcoin Cash, and Stellar.

Bitcoin and other cryptocurrencies are held in crypto wallets. These can be portable physical storage solutions but can also be mobile applications that can be easily managed across devices. This makes them less bulky than fiat money.

Crypto and blockchain technology is flexible. When the Ethereum Blockchain was launched in 2015, it introduced smart contract technology which made it easier to create crypto tokens. The smart contract token technology widened the scope of cryptocurrencies and made it possible to create tokens whose primary use case is not payment.  They have been used for all different kinds of purposes such as tokenizing real-world assets like company shares, art and real estate. Stablecoins, for example, have a value that is pegged to a fiat currency, like USD, or a commodity, like gold, and provide a less volatile alternative to cryptocurrencies like Bitcoin and Ethereum.  There are governance tokens that give voting rights over the future direction of a project, and meme coins, which rely mainly on community activity and the meme culture, as well as many others. 

The value of fiat money vs. cryptocurrencies is a popular discussion. Both financial systems intersect, with the use of crypto exchanges that make it possible to change crypto for fiat money and vice versa.

As cryptocurrencies are not accepted in most merchant platforms, several fintech companies have created facilities that allow both crypto and fiat to be used as payment options. Popular fiat-based payment solutions like Paypal now feature crypto payment options while crypto-native firms like Coinbase and Binance have introduced solutions that enable users to buy and sell crypto using their traditional banking facilities.  

The blockchain is tightly secured, borderless, and interference-resistant. Cryptocurrencies benefit from these advantages as well as flexibility, transparency, and cost-effectiveness. However, the regulatory structure for cryptocurrencies and the crypto space is still unclear. Legislation has been slow to catch up, and as a result, the crypto arena is poorly regulated. In addition, crypto assets are volatile, with prices swinging both ways within short timeframes, making them unpredictable and high-risk. Another factor to consider is the rigid security of the blockchain, which also makes it harder to retrieve stolen and wrongly sent crypto. 

Cash still suffers from the weaknesses that led to the development of fintech solutions. Cash is bulky and its usage is restricted across borders. Centralized monetary systems are not transparent and the value of fiat currencies declines due to poor government policies. Even though fiat money is a legal tender and considered less volatile than cryptocurrencies, no fiat currency has grown in value since they were created. In contrast, the value of several cryptocurrencies has increased significantly in the last decade.

Currently, cryptocurrencies and fiat money are both in use. Although fiat is by far the more popular, crypto adoption continues to grow. With the success of stablecoins and the introduction of CBDCs (Central Bank Digital Currencies), crypto is growing in use, even though it is limited in most sectors. Here at Coinhint, we believe that the rate of cryptocurrency and blockchain adoption is  set to soar in the coming years, with digital assets becoming a core, mainstream means of exchange.

Many national governments are embracing cryptocurrency. This is mainly because of the advantages it has over fiat. Blockchain technology is evolving, and digital currencies are becoming more flexible, secure, and integrated with traditional fiat infrastructure. The major issues remain a lack of regulation, high volatility, and the complicated nature of the technology behind cryptocurrencies. However, crypto assets remain exceptionally transparent and versatile, and in the future, we could see positive developments, where they play a central role in the financial sector, in areas where fiat money currently dominates.