Cryptocurrency has taken the world by storm. Beyond presenting an alternative investment opportunity to stocks, bonds, commodities, etc. No single government controls cryptocurrency. Also known as decentralization. But what is decentralized currency and why does it matter?
Centralized Currency vs. Decentralized Currency
The difference between centralized currency and cryptocurrency is that government authorities control centralized currencies. Fiat currency, such as US dollars, Canadian dollars, Euros, Yen, etc., are all examples of centralized currencies. All currencies controlled by a government are fiat currency. In contrast to fiat currency systems, decentralized cryptocurrency systems have no central authority behind them. They rely on mathematical equations instead of trust in one specific entity or government to regulate value exchanges.
What is Fiat Currency?
As said before, any government-controlled currency is fiat currency. As such, it has value because of government regulation. In other words, a $100 bill isn’t specifically worth anything on its own. What gives fiat its value is trust in governments and legal systems. Which is both a benefit and a potential issue. For example, the market crash of 2007. Banks lent money left and right, and eventually the bubble burst, which made the USD tank.
Benefits of a Decentralized Currency
More companies are accepting cryptocurrency as payment every day. Because these currencies aren’t beholden to any single government entity, transactions aren’t regulated in the same way as fiat currency. For example, sex workers are using crypto to avoid financial institutions such as Visa and Mastercard, which consider any “adult transactions” high risk. Any transaction using cryptocurrency is also completely transparent. Meaning you can track exactly when, how much, and who traded the coin.
The Future of Cryptocurrency
World government authorities have already begun passing legislation to regulate and tax it. And there are benefits and drawbacks to that. Crypto is still in its infancy and highly volatile. Regulation could help stabilize it and make it more viable as an everyday form of currency. Though, government regulation is exactly what crypto was made to avoid in the first place. Regardless, it seems like crypto is here to stay.
