Since the advent of Bitcoin in 2009, it has now entered its 15th year. In January this year, the U.S. Securities and Exchange Commission (SEC) officially approved a Bitcoin (Bitcoin) spot ETF. This means that large investment institutions on Wall Street can invest huge sums of money in the Bitcoin market, indirectly announcing that the United States recognizes Bitcoin as a legitimate investment vehicle. This has sparked great interest among traditional retail investors who want to enter the field of cryptocurrency. But as the saying goes: if you want to invest in something, you have to understand it first. What are the differences between Bitcoin and fiat currency? This article will delve into the main differences between Bitcoin and fiat currency to help you better understand the operating principles and advantages of Bitcoin.
What is Bitcoin?
Bitcoin is a decentralized cryptocurrency proposed by Satoshi Nakamoto in 2008 and created in 2009 with the first Bitcoin block, also known as the "Genesis Block." Bitcoin is based on blockchain technology, generating a block every 10 minutes. The Bitcoin system releases a mathematical problem requiring electricity and specialized hardware (such as ASIC miners) to solve, becoming a "node" on the Bitcoin network. Those who solve the problem will receive Bitcoin block rewards, known as "mining." These mining nodes are what we commonly refer to as "miners."
Unlike fiat currency, Bitcoin does not have a central bank or single administrative entity. Instead, it is maintained and managed by miners worldwide, forming a public ledger. Everyone can see all Bitcoin transaction records on this ledger.
Bitcoin is "borderless," meaning it can be sent from different countries to one another as long as there is internet, with low transaction fees. If you want to transfer fiat currency (e.g., USD, JPY) to someone in another country, you need to go through a bank for international transfer, which has higher fees and takes several business days to complete.
Bitcoin is "borderless," meaning it can be sent from different countries to one another as long as there is internet, with low transaction fees. If you want to transfer fiat currency (e.g., USD, JPY) to someone in another country, you need to go through a bank for international transfer, which has higher fees and takes several business days to complete.
In addition, there are many differences between Bitcoin and fiat currency, such as:
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Scarcity
The production process of Bitcoin, known as "mining," generates new Bitcoins by solving complex mathematical problems. However, the total number of Bitcoins is capped at 21 million, meaning that once this limit is reached, no more new Bitcoins will be created. Moreover, the issuance of Bitcoin halves every four years, from the initial 50 to the current 3.125, making Bitcoin increasingly scarce. If demand increases, the price theoretically will rise.
In contrast, governments can adjust the issuance of fiat currency through quantitative easing (QE) or tightening (QT). For example, during the 2008 financial crisis and the 2020 COVID-19 pandemic, the U.S. Federal Reserve implemented significant quantitative easing, printing large amounts of dollars, resulting in excess market liquidity.
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Anonymity
Bitcoin is a decentralized currency with no single controlling entity. Transactions are recorded on a distributed network using blockchain technology, increasing transparency and security. Although transactions are transparent, users maintain high anonymity because each Bitcoin address is a long, complex string. In the Bitcoin world, no one knows your real identity.
In contrast, fiat currency is centralized, controlled, and managed by governments and central banks. This means banks can track every online transaction, and we cannot know the true flow of our bank funds. Bitcoin allows you to track every transaction.
In contrast, fiat currency is centralized, controlled, and managed by governments and central banks. This means banks can track every online transaction, and we cannot know the true flow of our bank funds. Bitcoin allows you to track every transaction.
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Transaction Convenience
Bitcoin transactions occur globally without intermediaries. Transactions are usually anonymous and have relatively low fees. Bitcoin transactions can be completed within minutes, without being limited by bank working days. In contrast, fiat currency transactions usually require processing through banks, which incurs higher fees and delays, especially for international transactions.
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Security
Bitcoin transactions use cryptographic technology to provide high security. Blockchain technology ensures that Bitcoin transaction records are immutable. Registering a Bitcoin wallet only requires a private key, typically composed of 12-24 words, known as a mnemonic. In the blockchain world, whoever possesses the private key controls the wallet.
Fiat currency transactions are protected by banks and financial institutions, and funds can usually be recovered in case of fraud or errors. However, in extreme situations like wars, governments and banks can freeze assets. If a Bitcoin wallet is hacked or the private key is lost, the assets cannot be recovered.
Fiat currency transactions are protected by banks and financial institutions, and funds can usually be recovered in case of fraud or errors. However, in extreme situations like wars, governments and banks can freeze assets. If a Bitcoin wallet is hacked or the private key is lost, the assets cannot be recovered.
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Price Volatility
The cryptocurrency market has no price limits and operates 24/7 without closing. Bitcoin prices are highly volatile, influenced by market demand and investor sentiment, making Bitcoin high-risk but also potentially high-reward. Long-term trends currently show an upward trajectory. Fiat currency values are relatively stable, managed by governments and central banks through monetary policy. While fiat currencies are also affected by inflation, issues are more severe in South America and third-world countries, where banking systems are generally less reliable.
Conclusion
In 2021, Bitcoin became the legal currency of El Salvador, allowing people to use Bitcoin for daily purchases, marking a significant breakthrough. The Central African Republic followed suit. Additionally, cryptocurrency payment solutions are increasing, such as crypto cards and wallets. KingCard is currently focused on developing a cryptocurrency card system, aiming to create the best product for everyone.
While Bitcoin and other cryptocurrencies offer decentralized and highly transparent transaction methods, they also come with high price volatility and security risks. In contrast, fiat currency is controlled by governments, providing relatively stable value and higher security but with slower transaction speeds and higher fees. In the future, Bitcoin and fiat currency may coexist, offering users a diverse range of choices and financial services. Understanding the differences between the two will help make more informed financial decisions