Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency. How Does Cryptocurrency Work?Ī cryptocurrency is a digital, encrypted, and decentralized medium of exchange. You may be familiar with the most popular versions, Bitcoin and Ethereum, but there are more than 19,000 different cryptocurrencies in circulation. The system behind Bitcoin is completely transparent and based on maths and the actual consensus of the everyday user.Cryptocurrency is decentralized digital money that’s based on blockchain technology. This is what makes them so revolutionary.īitcoin has created a new form of trust for our future global monetary system. Bitcoin doesn’t lean on a system of debts, its value boils down to how effective it is as a medium of exchange.Ĭryptocurrencies can be spent and received by anyone, anywhere, and at any time without the need for a bank or a government. Bitcoin has intrinsic value beyond the trust of its community. While fiat money seems to get a major part of its value from debt, this is not the case with Bitcoin. In other words, without consumers taking out debt to banks, the US dollar wouldn’t be out there in the world. Take the case of the US dollar: if no loans were taken out, there likely wouldn’t be any dollars in circulation either. Banks create money when people borrow money. Most of the money a government creates is when loans are taken out. How is this the case, you might logically ask? Think about how, for example, the EU and the United States create money.įiat money has attributed value because a government declares it legal tender - it has no intrinsic value. When a central bank issues banknotes, it is simultaneously issuing you, the consumer, a percentage of your government’s debt. This is the most revolutionary aspect of cryptocurrencies.įurthermore, fiat money basically equates to debt. However, they also offer features which the traditional money system is unable to offer right now: cryptocurrencies can be spent and received by anyone, anywhere, at any time throughout the world and without the need for a bank or a government. Are cryptocurrencies and fiat money the same?Ĭryptocurrencies are money insofar as they allow exchanges between two parties and act as a store of value. While fiat money is subject to inflation and central banks can print more at any time, the leading cryptocurrency Bitcoin has a fixed supply of 21.000.000 units, making it even scarcer than gold. They allow direct transactions between individuals without the intervention of an intermediary, such as a bank.
What are cryptocurrencies?Ĭryptocurrencies are digital assets that are a medium of exchange between two parties. Fiat money has attributed value because a government declares it legal tender - it has no intrinsic value. W hat is fiat money?Ĭommodity money gets its value from its own worth, like with precious metals (e.g. When you buy something with fiat currency, you need to rely on a trustworthy authority such as the European Central Bank (ECB) or governmental institution to serve as an intermediary that vouches for the currency’s worth.Įither way, buyer and seller trust that the currency will still sustain its value after a transaction.
While trust vested in fiat currencies is ensured through the money supply issued by a central authority, the trust vested in cryptocurrencies is founded on the underlying technology - blockchain technology. Cryptocurrencies and conventional currencies have two essential features: they enable frictionless payments between two parties and act as a store of value.
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