When cryptocurrencies were on a bull run last year, crypto enthusiasts argued that these could eventually replace fiat currencies.
When Bitcoin made its debut more than a decade ago, and other crypto coins followed closely on its heels, people began to debate whether crypto or fiat currency is better. The truth is both cryptocurrency and fiat money have their advantages and drawbacks. Using the right one depends on the situation.
An overview of crypto and fiat currency:
Fiat currencies are government-backed currencies, while cryptocurrencies use blockchain technologies. The US dollar has value because the government claims it does and because lenders and investors globally believe in it. Fiat money offers financial policymakers the tools to adjust their monetary supply in keeping with the needs of the national economy. When growth is slow, the government infuses capital to stimulate demand.
On the other hand, cryptocurrencies are not issued nor regulated by the government. They are created through cryptographic technology. This blockchain technology facilitates their circulation without any need for a centralized authority like the Federal Reserve. According to crypto advocates, this decentralization results in less corruption and more efficient financial systems.
While fiat and cryptocurrency are not the same, governments are not disbarred from using crypto in their national financial systems. For instance, in September 2021, El Salvador became the first to adopt Bitcoin as a legal tender. Today, you can use BTC to buy a cup of coffee or book rooms at a hotel.
Crypto vs. fiat currency:
- Cryptocurrencies are a good option for businesses that must engage in cross-border payments. The reason is that the blockchain provides faster and more secure transactions. It is quickly becoming the preferred solution for eCommerce platforms and online businesses. You must make international payments regularly if you own a high-risk business like online gambling. This is both time-consuming and costly if you were to use fiat currency. However, if you opt for crypto, your transactions are speedier, and you don’t have to shell out the high fees banks charge for cross-border payments.
- Some cryptocurrencies are anonymous, unlike fiat money. Every time you transact using fiat currency, it is traceable. So, your spending habits can be monitored and scrutinized by government agencies or organizations having access to such sensitive data. But, crypto transactions can private and anonymous. Once made, it’s hard to trace these back to the receiver or sender. This is why cryptocurrency appeals to businesses that favor keeping transactions away from prying eyes.
- Cryptocurrencies are secure because they use blockchain technology. Blockchain is a decentralized distributed ledger that records and verifies all transactions. This also means that verified records cannot be changed or tampered with. Transactions cannot be stalled midway or reversed. So, when you own high-risk merchant accounts, accepting cryptocurrency payments can minimize the chances of fraud and chargebacks.
- Cryptocurrency transactions are faster than regular fiat currency transactions. Fiat money takes a while to get processed because it involves many intermediaries, like banks. Crypto transfers are verified instantly, which makes them an excellent solution for businesses needing superfast payments, like eCommerce stores.
The biggest downside to using cryptocurrency is its volatility. Bitcoin prices surged during the pandemic but started to plummet soon afterward. Market speculations decide the values of cryptocurrencies, so they keep spiking and crashing. This extreme volatility and uncertainty can be a disadvantage for businesses.
Another concern with using cryptocurrency is that this industry is largely unregulated. So, governments have practically no control over the market. This proves to be a problem when your business must comply with regulations. For example, if you handle high-risk payment solutions, you must comply with AML regulations. However, compliance becomes difficult since cryptocurrencies are unregulated.
Today, businesses have started accepting crypto payments, and this trend won’t die out soon. You can find payment solution consultants like GoCrypto NYC that will help your business integrate cryptocurrency as a mode of payment. Using GoCrypto NYC guidance can go a long way in expanding your business to more customers worldwide.