The relationship between bitcoin and traditional currencies is complex. Bitcoin seeks to undermine the traditional way of handling money, so we might call BTC a kind of opposition to the traditional financial system. This article outlines the main differences between the two.
Characteristics of Money
Throughout history, money has taken many forms. There has been barter, objects such as stones or shells, precious metals, banknotes, paper bills, digital money, and finally decentralized digital currencies such as bitcoin.
Over time, people have identified the most desirable traits that money should have. For a currency to be useful and convenient, it must be:
Divisible – can be divided into smaller pieces for certain purposes, such as paying a certain amount.
Non-consumable – cannot be used for purposes other than exchanging valuables.
Portable – can be easily carried with you.
Durable.
Safe – cannot be counterfeited.
Deficient – limited in quantity.
Equal – each piece has the same value as its equivalent.
Recognizable – it is recognized and accepted as a means of transaction.
This is how you can compare gold, paper currencies, and bitcoins with these characteristics in mind.
The main difference between bitcoin and traditional currencies is that no one controls bitcoin because it is decentralized. This allows bitcoin to be an independent monetary system that can function independently of anyone’s wishes. It relies on the combined computing power of network members, each of whom is equal to the other-no one is more or less important than the others. It also helps reduce the cost of using the system by eliminating the fees and transaction times that banks maintain.
No one can affect your money and the transactions you send or receive.
Traditional currencies, on the other hand, rely on centralized entities: central banks, commercial banks, governments, payment systems such as
VISA or Mastercard and others. Any of these entities have the authority to decide whether to approve your transaction, and whether you can send money to certain people or organizations. These processes also include comprehensive surveillance and data collection on everything you do with your money.
Another important difference between bitcoin and fiat currencies is that it is not backed by anything. This means that its value is not tied to any political or economic situation and can exist independently of the traditional system.
An important feature of bitcoin is programmability. This means that in the future bitcoin transactions can be attached to smart contracts or other programs. This feature will allow the creation of additional bitcoin-based solutions, such as reputation management systems, insurance contracts or the like. Such contracts do not require third-party intervention for execution.
Is bitcoin not backed by anything?
When asked what makes bitcoin different from the dollar, most people will tell you that bitcoin is not backed by anything. That’s not quite right: while bitcoin really has nothing to back it up, we can say the same thing about the dollar. Yes, before 1971, most currencies were backed by a commodity, usually gold or silver. But that’s not the case now.
Bitcoin, unlike traditional money:
Has no central authority.
Subject to deflation due to artificial scarcity, while central banks can print more money at any time.
Records every transaction in an open ledger.
Must pay transaction fees to miners, which is similar to paying taxes to the government, except that taxes can be evaded, while transfers cannot be made without paying fees on the blockchain.
Transactions are made over the Internet and include public addresses, whereas cash transactions are anonymous and leave no trace.
Many people call bitcoin the next step in the evolution of money. And since we have never had such money, questioning the concept and comparing it to traditional currencies is normal.
We hope you now know the key differences between bitcoin and conventional money.