Obviously, both Bitcoin and fiat currencies have their comparative advantages, but by doing a side by side comparison, we can hopefully identify a winner. Clearly, fiat currency is a more widely accepted and proven way to transact. Bitcoin, however, has many advantages which are appealing to modern living. This article will outline the major advantages and disadvantages of fiat currency and Bitcoin.
Advantages of Fiat Currency
- They are easy to exchange, hold and claim. Even though there is not enough paper money in the world to cover the total amount that is owned, if you need to have physical dollars, you can get them at your local ATM and exchange them for goods and services.
- It can be inflated or deflated to attenuate the impact of economic changes or problems. Although this is theoretically true, in the real world, it doesn’t always work that way.
- It is digitally usable via the verification of a centralized organisation (Banks)
Disadvantages of Fiat Currency
- The process of creating currency is controlled by a small number of people. Most of them probably do it with good intentions and in a ethical manner, but some of them have been known to manipulate the process.
- Any currency is only backed by the word of the government printing it.
- Treasuries have often failed to keep a stable value and supply of money through inflation and deflation.
Advantages of Bitcoin
- Bitcoin has a scarcity that fiat currency will never have. This makes it deflationary, which means it will increase in value as the demand increases.
- It can not be manipulated. Since it is controlled by the consensus of every node on the network, a handful of individuals can not be able to use the creation of currency to their advantage.
- Transaction will be near instant. When the Lightning Network is fully implemented, Bitcoin transactions will be almost instant. This is much better than the average 2-3 days required to send fiat currency from one country to another.
- It is transparent. The whole code on which Bitcoin is built is open-source, which means it is accessible to anyone interested at taking a look at it. It is this code which governs every function of the cryptocurrency. Every transaction is also recorded to the ledger forever.
- Infinitely divisible. Quite similarly to how cents are a divided dollar, Satoshis are one 100 000 000th of a bitcoin. Satoshis can also be divided to give even more divisibility to Bitcoin.
Disadvantages of Bitcoin
- It is volatile. This is a normal attribute of a new market. Since the market cap of Bitcoin is still small compared to other vehicles of investment, money entering or exiting the market can cause dramatic spikes in the price.
- It is difficult to understand. There is a big learning curve for people who start learning about Bitcoin. Even when they understand the value behind it, purchasing them can give technology novices a hard time.
- Frauds are common in the cryptocurrency ecosystem. Every week, we hear of the latest ICO or cryptocurrency fraud in mainstream media. This will probably be common in the sector until governments step up and initiate constructive regulations.
For many years, people around the world have been flawed by their governments and central banks creating hyperinflation and participating in corruption. Bitcoin, although there is work to be done concerning the way it is regulated, corrects most of the manipulation which can be made by humans.
The decentralization of currency can eradicate many of the problems of the modern economy and make it more efficient. Although the future can’t be predicted, it is safe to say that the next few years will be a turning point in the way humans transact with each other.