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    Bitcoin Vs Traditional currencies

    Simar Marwaha
    Simar Marwaha
    Published on December 14, 2022 1:31 AM

    Updated on January 16, 2023 11:20 AM

    Like any other digital currency, Bitcoin is only a virtual currency or a means of carrying out digital transactions. What makes it superior to our existing money then?
    Bitcoin Vs Traditional currencies
    Source: Pexels

    Bitcoin is a type of digital money that promises to eliminate the need for central authorities such as banks or governments. Bitcoin, on the other hand, makes use of blockchain technology to enable user-to-user transactions on a decentralized network. A recognized government body, such as the U.S. Federal Reserve, controls, backs, and centralizes traditional or fiat currency. Bitcoin and conventional currencies have a complicated relationship. Bitcoin vs. traditional money is a natural rivalry since Bitcoin aims to challenge the conventional approach to handle money. The key distinctions between the two are highlighted in this post.

    Bitcoin and Traditional Currencies

    We will briefly touch on each of the following key aspects that distinguish Bitcoin from traditional currencies.

    Controlling House

    Since Bitcoin is decentralized, it has no central authority, which is the key distinction between it and conventional currencies. It enables Bitcoin to operate independently from anyone's preferences as a peer-to-peer payment system. It depends on the network's participants' aggregate computational power. Nobody can control the transactions you send or receive with your money. Fiat currencies, on the other hand, rely on centralized organizations like governments, commercial banks, central banks, payment processors like VISA or Mastercard, and other middlemen. Any of those entities have the power to determine if your transaction is allowed, whether you may transfer money to certain persons or entities, and whether the money you are using is lawful or not. These procedures also involve close monitoring and data exchange of all financial transactions.

    Cost-cutting approaches

    A nationwide transaction would take two to three working days to complete in a regular banking system, and there would be significant transaction costs. It will take 15 days to process an overseas transaction, and the transaction charge will be significantly greater. A national transaction on a cryptocurrency network like bitcoins is free of transaction fees. Due to the 24-hour operation of the bitcoin system, the transaction will likewise happen instantly or within 24 hours. There will be a small transaction charge when making an overseas transaction.

    Adaptability

    There is a possibility of currency freezing because conventional money is only operational five days a week and is subject to transaction restrictions. There is no cap on the quantity of money that may be created, therefore when there is insufficient money, it will harm buyers and sellers and lead to inflation. However, there is a maximum limit of 21 million bitcoins that may be mined. There will thus be no inflation in a bitcoin cryptocurrency system since both buyers and sellers will mine in accordance with this.

    Sovereignty

    The fact that Bitcoin is not a sovereign currency is another notable distinction from fiat. Bitcoin has nothing supporting it, therefore its value is independent of political or economic conditions and it may exist freely outside of the established system.

    Technical Method

    In terms of programmability, Bitcoin adds a new level. Future Bitcoin transactions will be able to be linked to smart contracts or other programs that run only when specific requirements are satisfied. A feature like this would make it possible to develop new solutions on top of bitcoin, like reputation management programs, insurance contracts, and other things. Such transactions would be executed without the involvement of any third party. In essence, it gives the idea of conventional currency a new dimension.

    The advantages of utilizing Bitcoins over traditional currencies are listed below:

    1. Bitcoin is virtual and decentralized: With Bitcoin, users may trade value without the use of intermediaries, resulting in more control over funds and reduced costs. It is also more secure, immutable, and speedier. Banks control cash, whereas owners own bitcoin.
    2. Ease of internet shopping: As previously said, Bitcoin may assist us with online buying. Similar to an e-wallet, it uses blockchain technology to store, track, and spend virtual currency.
    3. Less volatile than cash: Bitcoin has worldwide acceptance and is less volatile than cash / local currency. This functionality makes it simpler to carry out cross-border and internet transactions.
    4. Excellent investing tool: Without the need for conversion, Bitcoin can be used everywhere in the globe. The benefits of cash and gold are combined, and it offers an open market with no limits put in place by banks or governments. It is seen as being on par with gold.
    5. Peer-to-peer and open, but secure and almost frictionless: Bitcoin enables direct value exchange over the internet and provides users with access to their balance via a password known as a private key. Thus, it is both private and secure while yet being open.
    6. Duplication is impossible: Unlike the monetary system, it is impossible to duplicate a bitcoin.
    7. An excellent method for tax purposes: when a bitcoin is transferred, its ownership is likewise transferred. This prevents two parties from transacting on the same value, which will assist maintain accurate and straightforward records, especially for tax-related purposes.

    Final words

    Future integration of cryptocurrencies with the financial system is a possibility, and this might result in laws and regulations. However, when such a merger occurs, the conventional banking sector will be pressured to incorporate blockchain technology. Due to the speed of transactions and lower prices, many individuals still want to invest in bitcoins despite the system's regular changes.

    Bitcoins may be traded for any currency, which saves both time and money. Many developing nations are moving toward implementing blockchain in their commercial operations.

    In conclusion, unlike conventional currencies, Bitcoin:

    • lacks a single authority that makes financial backing claims.
    • is vulnerable to deflation because of manufactured scarcity, whereas central banks can generate more money whenever they choose.
    • transaction is permanently recorded on a public ledger that cannot be altered.
    • requires transaction fees to be given to miners, which serves the same purpose as paying taxes to the government, except that taxes may be avoided but a transfer
    • cannot be completed on the blockchain without paying fees.
    • transactions are discreet and leave no paper trace, but online purchases include public addresses.

    Bitcoin Vs Traditional Currencies FAQs

    How Bitcoin is different from the traditional currency?

    Bitcoin differs significantly from typical fiat currencies in that it is a "distributed" global currency that is not under the authority of a single centralized organization. Traditional fiat currencies are legal tender and are backed by governments and central banks.

    Is Bitcoin better than a currency?

    The advantages of utilizing bitcoins over traditional currencies are listed below: With Bitcoin, users have the freedom to trade value without the use of middlemen, which translates to more control over their money and reduced costs. Bitcoin is digital and decentralized. It is also more secure, immutable, and speedier.

    Does Bitcoin displace traditional currencies?

    According to an article on Bloomberg, the chief US bank regulator believes that banks should be careful when experimenting with the asset class and that cryptocurrency tokens are unlikely to supplant traditional cash.

    Why Bitcoin will never become a currency?

    The inherent weaknesses in the Bitcoin paradigm render it unsuitable as a substitute for the USD and other fiat currencies. The coin's deflationary characteristics would drastically alter the economy in a number of unfavorable ways. Instead of being a currency, bitcoin works better as an asset.

    What could destroy Bitcoin?

    There are only a few unlikely events that might lead to the demise of bitcoin as we know it. For instance, a severe worldwide power outage that would disrupt all communications including the internet globally might stop network nodes from communicating with one another, leading to system failure.