Fiat money and crypto token – what are the differences?
Ever since the launch of crypto tokens or coins, there has been an ongoing conflict with fiat money. Now, the term token generally implies “representative money”. Thus, you have fiat to token converted money for all major fiat currencies like British Pound, American Dollar, and so on. But the contemporary fiscal and fintech markets are mostly hovering around digital tokens, some of which are even posing serious competition to fiat money.
When it comes to digital tokens, there are primarily two options today- cryptocurrency and NFTs. Crypto tokens cover more use cases in comparison to NFTs. The post below offers a brief on the differences between crypto tokens and fiat money.
However, before getting into the differences, it must be mentioned that fiat money as well as crypto tokens share some similarities as well. The primary similarity is that both can be used as means of payment. Also, both assets serve as “store-of-value”
Factors that differentiate crypto tokens from fiat money
Government backing
The primary aspect that has still kept fiat money ahead of crypto tokens is backing from the government.
Fiat money is government issued currency. But, crypto tokens are not backed by the government of a country. These tokens are created by independent developers and these operate independently without the authority of the government.
The government backing offers fiat money sustainability and credibility. Crypto tokens lack this kind of sustainable future, as of now, given the lack of government backing. In fact, many countries have banned the use of crypto.
Decentralized environment
Being a government-backed currency, fiat money operates in a centralized environment. Fiat-based transactions take a good deal of time and money, especially because these are processed by middlemen or intermediaries.
But, you don’t have middlemen or intermediaries with crypto token transactions. It’s because cryptocurrency works in a completely decentralized environment. In other words, crypto transactions follow a direct and P2P approach that does not allow interference by middlemen. As a result, crypto token-based transactions are always faster and more affordable in comparison to fiat-based transactions.
Universal value
The value of a crypto token is the same in every part of the world, whether you stay in Sweden or India. Thus, if you buy something with a crypto token from an international vendor, you won’t need to convert that token into the token of the vendor’s country. It’s because no crypto token is specific to one particular country- in fact, these are universal tokens and hold the same value everywhere.
But, you don’t have that facility and flexibility with fiat money. So, if you don’t stay in the USA but want to buy something from an American shop or vendor, you would have to accept the USD amount quoted by the shop. In that case, you would first need to convert the fiat money of your country into USD and then make the payment. buy bitcoin
With crypto tokens, you won’t have to go through such hassles.
How are they developed?
With fiat money, you have paper money and fiat coins that are minted by the government.
But, with crypto tokens, the token is created by the native blockchain of the token. The token is brought to the market through mining or staking, depending on the specific consensus mechanism followed by the blockchain of the token.
As you see with fiat money, there are always paper notes and metal coins.
But, with crypto tokens, the whole bunch of tokens exist only on the digi6al plane. Whether you would have to make a purchase with your chosen crypto token or invest in something, you would have to operate online.
