Money that is not backed by a physical good is a fiat currency. For example the US dollar. Fiat currencies came about in the 20th century when countries stopped trading or using gold as payment. A fiat currency can change in value due to the economy of where it is traded. For example, if the US government crashed, the value of the dollar would decrease substantially. This is why when you travel to other parts of the world, the exchange rate for currencies is not always 1 to 1.
Fiat currencies are physical and managed by a single authority or government. Cryptocurrencies, on the other hand, are digital and decentralized. Decentralized means the funds or transactions don’t go through a third party like a bank. Another large difference between fiat and crypto is how the information is stored.
Cryptocurrency transactions are stored on the blockchain and are a public record that is date and time-stamped and cannot be altered. These transactions are free of any identifying information about the user but include the amount and transaction details.
Fiat currency has been around much longer than cryptocurrency. With the growing interest in investing in crypto, will there be a pivot from fiat to crypto as the primary medium of exchange? The reason crypto could take over is the instantaneous transaction capabilities and the no need for third parties. So far the largest scale of cryptocurrency is Bitcoin which is paving the way for others to emerge and be implemented into everyday use.
To learn more about how crypto is being used today, check out more Equa blogs.