What is Fiat Currency? Difference Between Cryptocurrency and Fiat

Vaibhav Agrawal

December 12, 2022

What is Fiat Currency

The Bitcoin revolution has been underway for over a decade now, and more people than ever are considering crypto as a substitute for fiat currency. With about 300 million people using the ecosystem, skeptics and critics are softening their stance. 

Recent reports suggest around 36% of the population would consider getting paid in crypto, with 85% of merchants believing that crypto payments will be the norm by 2026! So is this all just a fad, or is the future of digital payments truly upon us?

What is Fiat Currency?

A fiat currency is a form of money issued by a government or monetary authority which has full control over its supply. The word ‘fiat’ is Latin for ‘let it be done’, and was often used as an authoritative order or decree. The currency itself only has value because the issuing authority says it does, and if all participating economic actors agree.

Though many people still think their local currency is backed by reserves of precious metals like gold, as of 2022, all countries have abandoned the gold standard. Cryptocurrencies are often criticized for having no intrinsic value, but since 1976, the U.S. dollar hasn’t been backed by much more than faith.

What is Cryptocurrency? 

Encryption, a software technology once monopolized by the state, is now available to us in just a few clicks. Pretty Good Privacy or PGP was a system designed during the crypto wars of the last millennium, enabling people to send and receive encrypted data across public channels without revealing any information to unauthorized observers.

PGP uses what’s known as Public Key Infrastructure, and cryptocurrencies use a similar system. Payments are made out to a public address which is freely distributed by the recipient. However, transferred tokens can only be accessed using the receiver’s secret private key, and no bank, institution, or nation state can meddle with your money unless they have this key.

Fiat is legal tender that is backed by a promise, transferred using payment rails established by private companies and governments, while cryptocurrencies are priced based on market value, and are transferred across decentralized networks called blockchains.

Difference Between Fiat and Cryptocurrency

While fiat has been used for years, it is centrally issued by the government. Cryptocurrency is developed from algorithms and computing and the issuance is decentralized.

AutonomyA digital asset on a decentralized network cannot be blocked, frozen or seized without the private key.Fiat (except cash) lives on systems designed by centralized organizations. Even the most transparent banks will not hesitate to block, freeze, or seize funds if the law or other circumstances demand it.
Supply The Bitcoin network will only ever produce 21 million tokens, making the asset scarcer with time. This behavior, which makes the currency deflationary, is hard coded into the network which can be audited by anyone.The supply mechanics of fiat currencies are altered often. Central banks alter its supply to fund the government’s expenses or control monetary policy, inducing inflationary pressures. When this gets out of hand, your savings can quickly lose significant value.
TransparencyAll blockchain transactions are recorded publicly, made available for anyone to audit. While it’s not optimal for tracking an individual’s spending habits, governments and companies can be held accountable for imprudent transactions.While institutions are obligated by law to share information proactively and transparently, a lot flies under the radar. Methods to subvert laws exist, with money laundering, consumer and employee exploitation, and false reporting all being commonplace.
OperabilitySmart contracts expand the utility of crypto beyond just payments. They can be used for governance, finance, physical asset tokenization and many other rapidly evolving use cases.Fiat does one thing, but it does it well! Fiat can be used to purchase goods and services, but not much else.

Before you decide that cryptocurrencies are the way to go, there are disadvantages and risks you should be aware of.

Did you know: Not all cryptocurrencies are volatile. Stablecoins are cryptocurrencies pegged to a fiat currency (Eg. the US Dollar) offering all the benefits of a cryptocurrency with a stable value for payments. You can even pay employees, or get paid by your employer in stablecoins like USDC on Binamite! Read on to learn more.

The Crypto ConundrumWhy Fiat Works
VolatilityAt the time of writing Bitcoin, the first and most stable cryptocurrency (besides stablecoins) is down by 71%. In a bad market like this, your money can lose significant value.Fiat is subject to erosion of value over time on account of inflation. However, unlike cryptocurrencies, these changes are far more predictable, and losses can be prevented if the market factors inflation into their expectations. 
Not IntuitiveCrypto is new to the world and if you want to dive into it, an understanding of blockchain, wallets, and private key security are essential prerequisites. If you lose funds, either through a transaction error, a hacker, or a scam, there is no one to blame, and no one can help you because the blockchain is immutable.In most cases, using fiat is as simple as basic math. Since all transactions are managed by a centralized entity, funds lost to transaction errors, hacks, and scams can mostly be reversed by contacting the bank.
AcceptanceThis may not stay true for long, but over the last decade, crypto has struggled to become a mainstream asset class. People are skeptical of accepting and holding cryptocurrencies, which directly reduces their utility. Fiat thrives on acceptance. Any and every person will accept payment in the form of authentic fiat currency. In some cases, not accepting legal tender can also be a punishable offense.
RegulationsCrypto tends to be viewed with suspicion, with countries like China completely cracking down the asset class. Most countries don’t have any regulations in place, making it harder to integrate with existing financial systems.Fiat has been with us for a while, and legislation is not a concern since regulators generally prioritize and protect the interests of the issuing authority.

Binamite: The Best of Both Worlds

Binamite was conceptualized when our team began running into problems sending and receiving pay in crypto + fiat. We realized the problem is far from one-dimensional, with employees and contractors wanting flexibility with how much of their pay is sent in crypto, and businesses being uneager to deviate from their preferred payment method. 

Binamite leverages the benefits of both fiat and crypto, drastically reducing the aforementioned disadvantages. How? By letting them both do what they do best. 

Bitcoin and other cryptocurrencies are usually viewed as speculative investments or stores of value. However, with inflation touching record highs, goods and services are becoming more expensive, and people need more fiat currency than before to go about their business. In all likelihood, cryptocurrencies will never truly replace fiat currencies, but that doesn’t mean they’re going anywhere.

With Binamite, choosing between crypto and fiat is not an either-or conundrum. Getting paid in both fiat and crypto and choosing how their pay is split up gives employees the best of both worlds, while letting businesses continue using their preferred payment methods. 
We endeavor to provide everyone with the opportunity to take advantage of the novel features blockchain brings to the table while maintaining stability in terms of personal cash flow and business expenditures. If you have the option to get paid in either fiat or crypto, and are wondering which to pick, stop wondering. Head over to Binamite and get started in a few simple steps.