Cryptocurrency vs. Fiat Currency: Understanding the Differences

Currency is a medium of exchange that determines value.

What is currency?

Currency is a medium of exchange that determines value through reference to the geographic location of the authorities responsible for maintaining it. In a basic sense, currency is money in any form that is currently in circulation or used as a medium of exchange. This applies to banknotes as well as coins. According to another definition, currency is a system of money that is commonly used by people in a given country.

Essentially, currency is paper and coin money that is used in a country to conduct business. Examples include the United States, where dollars, quarters, nickels, dimes, and pennies are used. In addition to being used as a country’s monetary system, currency can also mean that something is accepted or used as a medium of exchange.

As for the world of cryptocurrencies, we can see that cryptocurrencies are viewed in two ways:

  • Cryptocurrencies are digital or virtual types of currencies secured by cryptography. This makes them virtually impossible to counterfeit or double-spend. Remember that many cryptocurrencies are based on decentralized blockchain technology, acting as a distributed ledger provided by a network of computers around the world.
  • Fiat currencies – Fiat currencies, otherwise known as fiat money, are government-issued currency not backed by any commodity. Fiat money gives central banks much more control over the economy by allowing them to decide how much will actually be printed. Most modern paper currencies, including the U.S. dollar, the euro, or the Australian dollar, are fiat currencies.
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