What Is a Fiat Currency System?
Banks have always controlled the flow of money within the economy. The central bank is the controller of fiat coins, and these coins were the only currency that facilitated the financial transactions in all economies of the world. But the introduction of cryptocurrency saw the emergence of decentralized currencies that are gaining worldwide adoption.
Banks generally allow digital transactions to a certain limit in order to prevent unauthorized, illegal activities. In most cases, the central banks of the respective countries enact certain rules and regulations. In case any fraudulent activity is detected, the banks have the authority to reverse the payment.
What are Bitcoins?
Bitcoin, on the other hand, is a completely decentralized currency. The central bank of any particular nation doesn’t issue them. But anyone willing to mine Bitcoins can create them. The Bitcoin system facilitates the transfer of values between two parties. The information is encrypted in such a manner that your information will be away from the farthest reach of the hackers. Each transaction you make is verified by a group of computer nodes before being added to a digital public ledger where anyone can access. However, all transactions recorded on the ledger are irreversible.
Difference Between Bitcoins and Banks?
The main difference between fiat currency and Bitcoin lies in the convenience with which either currency provides their users. The blockchain network can accelerate the monetary transactions in less than ten minutes, and the transaction charge is negligible. No wonder Bitcoin has created a metamorphic change in the meaning of investment to the investors. Unlike fiat coins, which can be issued as and when required, there are times when Bitcoin can’t be mined. There is, at present, a fixed number in circulation in the digital market.
Many people say the emergence of Bitcoin will wipe out the fiat currency. This is mainly due to high profile people like Hikmet Ersek – CEO of Western Union – investing in these coins. Many people in the A-list, who considered as the richest, in the Silicon Valley, have started dreaming of making profits by investing in these alternative coins. In other words, these affluent people are becoming increasingly Bitcoin-friendly, and the main reason is the phenomenal increase in the value of these coins. Furthermore, these alternative coins, when compared to the regular currency, have high potential because the number of credit card transactions to the Bitcoin transaction is only 0.7% in the world’s largest economy- the USA.
Upsides and Downsides of Both TheCurrencies
The normal currency system is under constant attack by inflation. If you deposit $100 in any bank, there is a possibility it will be worth only $90 next year. On the flipside, if you invest your hard-earned money in Bitcoin, the earning capacity of your money is immense. It can increase up to 200% next year. The only risk you have to face is from the hackers who constantly try to pry into the system for wrongful personal gain. By keeping all things aside, there are attempts by many governments to make these digital coins legal by extending legal support.
The Opinion of Central Banks About Bitcoins:
JP Morgan’s CEO believes that a Bitcoin investment is a bad one because there is a possibility of a steep downfall in the value of this investment at any time. He has issued an outright warning to the employees of the bank not to involve themselves in any transactions related to these alternative coins, the failure of which would attract penalties. He also added that in an economy, a central agency should only issue and control currencies, and those who wish to issue and control an alternative currency would face severe consequences. Since this currency was used by money launderers previously, this currency is not going to work and will collapse completely within no time.
The Commonwealth Bank of Australia doesn’t also show any interest in encouraging the people of their country to deal in such virtual currencies. It is a country where Bitcoin transactions are a dime a dozen. Still, the Commonwealth Bank of Australia is of the opinion that there are not enough rules to control the working of virtual currencies, and there is a chance that the bank will reject any transactions that involve Bitcoin.
The Bank of America, which was once Bitcoin-friendly and facilitated transactions involving the buying and selling of the cryptocurrency, has now stopped dealing in these coins completely. Until recently, this bank associated with the Bitcoin exchanges to help its clients purchase and sell digital coins.
The Central Bank of China was on the verge of taking over of these digital coins when the whole idea fell through since the issuers of Bitcoin stopped any cryptocurrency transactions altogether. The governor of the Central Bank of Japan, Haruhiko Kuroda, is totally against digitalizing the central currency of his nation. He reasons it would symbolize the ready access of any layman to the currency system of Japan.
The Bundesbank says that the transactions involving Bitcoin are speculative and can be disruptive if Germany allowed its citizens to trade in alternative coins. But this bank is continuously trying to enhance the knowledge relating to the working of these digital coins.
The Bank of France has also expressed its fear of adopting virtual coins into its system. It is wary of the data security attacks if the bank allowed transactions involving Bitcoin.
To conclude, in spite of the similar working model between these virtual coins and that of fiat currency, no bank or nation has expressed its interest in accepting this virtual currency instead of traditional currency. Many were of the opinion that the introduction of virtual currency would disrupt the working of banks and would infiltrate the data stored in the banking systems. With no country favoring the adoption of digital coins for fiat coins, the future of Bitcoin is at stake. However, the investors can deal with Bitcoin as a part of their investments that would reap huge profits in the future.