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The Difference Between Bitcoin & Traditional Money

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It is difficult to understand the relationship between Bitcoin and other traditional currencies. Bitcoin seeks to challenge the traditional ways of dealing with money. Bitcoin vs. traditional money is an obvious opposition.

Money has existed in different forms throughout human history. Barter, tangible items like rocks or shells, precious metals, banknotes, and paper currency were all used before digital money and, finally, decentralized digital currencies like Bitcoin arrived.

Over time, people became aware of the qualities that money should possess. 

For a currency to be considered useful, or rather of value, it has to possess this criterion:

  • Divisible – This means it can be used to make smaller pieces, such as micro-payments or payments of a certain amount.
  • Non-consumable – cannot be used for any other purpose than the exchange of value.
  • Portable – Can be carried easily from one place to the other.
  • Durable -Does not wear down or depreciate over time
  • Secure – Cannot be copied 
  • Transferable- Can be easily transferred.
  • Fungible – Each piece has the exact same value as its counterpart.
  • Recognizable – It is recognized and accepted by the bank as a method of payment.

The Main Difference Between Bitcoin and Traditional Money

Bitcoin is decentralized, which makes it different from other currencies. Its decentralized nature allows Bitcoin to function independently of anyone’s wishes. It is dependent on the computing power of all network participants. Each participant is of equal importance. Because Bitcoin is decentralized, the costs are reduced, especially concerning transactional fees and times. It also helps reduce the cost of the system by eliminating transaction fees and transaction times. There is also no governing authority or intermediary. The Bitcoin blockchain network operates independently.

Fiat currencies, on the other hand, rely on central entities such as central banks, commercial bankers, governments, payment processors (VISA and Mastercard) and other intermediaries. Any one of these organizations can decide whether or not to approve your transaction. They also have the power to determine whether or not youare allowed to send money to specific people or organizations. These processes include data-sharing and surveillance of everything you do with your money.

Another difference is that Bitcoin is not sovereign, unlike fiat. According to cryptocurrency experts, Bitindex AI, “Bitcoin is not backed by any government, so its value is not tied to any economic or political situation”. 

It can exist on its own outside the traditional system.

Last but not the least, Bitcoin brings a new dimension to programmability. This means that Bitcoin transactions will be able to be attached to smart contracts and other programs that only execute if certain conditions are met. This feature would allow for additional solutions to bitcoin such as reputation management systems, insurance contracts, and similar. These contracts do not require third-party intervention.

Is Bitcoin Supported By Any Entity?

Most people will answer the question of how Bitcoin differs from the dollar by saying that Bitcoin isn’t supported by any physical currency. Although Bitcoin does not have any physical support, the dollar does. The majority of currencies used to be backed by a commodity up until 1971. This was usually silver or gold. However, this is no longer the case. There is also ample evidence to support the claim that every Bitcoin is supported electricity used in mining it.

Contrary to conventional currencies, Bitcoin:

  • Lacks a single authority that makes financial backing claims.
  • Is vulnerable to deflation because of manufactured scarcity, whereas central banks can generate more money whenever they want.
  • Every transaction is permanently recorded on a public ledger that cannot be altered.
  • Requires transactional fees to be paid to miners, which serves the same purpose as paying taxes to the government, except that taxes may be avoided but a transfer cannot be completed on the blockchain without paying fees.
  • Cash transactions are confidential and leave no paper trail, whereas online purchases include public addresses.

Bitcoin is frequently referred to as the next phase in the development of money. It is normal to have doubts about the idea and contrast Bitcoin with conventional currencies since we have never had anything like it before.

Hopefully, you are now aware of the main distinctions between Bitcoin and traditional currency.

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