Cryptocurrencies, which have become very popular in recent years by surpassing traditional currencies, continue to attract attention rapidly. Let’s examine together what are cryptocurrencies that change the dynamics of the financial market and what are the differences between them and traditional currencies.
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What is cryptocurrency?
Created by Satoshi Nakamoto in 2009, the cryptocurrencies that entered our lives with Bitcoin are completely digital and encrypted virtual currencies that can be used in exchange transactions. These digital assets, whose security is under control with the science of cryptology and blockchain technology, do not have any physical counterpart. They are completely decentralized and not dependent on any authority. Therefore, they are not affected by the economic ups and downs in the countries.
What is traditional (Fiat) money?
Backed by a government, not a physical commodity like gold or silver, traditional currencies are used around the world to buy goods and services, invest and save. The value of traditional money derives from the relationship between supply and demand and the stability of the issuing state, rather than the value of a commodity that supports it. There is full government control of fiat currencies enacted by law.
Differences between traditional money and cryptocurrency
- Traditional currencies are controlled and administered by states and authorities. Cryptocurrencies, on the other hand, are completely decentralized currencies that are not tied to any government or authority.
- While traditional currencies can be controlled by states, cryptocurrencies are located on the blockchain, which is a distributed digital ledger. That’s why they’re impossible to track down.
- Many cryptocurrencies have a limited supply, just like Bitcoin. Traditional currencies, on the other hand, can be created under the control of the state according to the economic situation of the country and the rate of need.
- Transactions with cryptocurrencies are anonymous, while transactions with traditional currencies are made openly with the real identities of the users.