The Difference Between Cryptocurrency and Fiat Currency
Since the rise of cryptocurrency, there has been much debate about which is better, cryptocurrency or fiat? Both have pros and cons, and figuring out which is better depends on the business using it. Some people believe that cryptocurrency is a better investment for the future, while others argue that fiat money like the US dollar is more stable and reliable.
Both cryptocurrency and fiat money have their advantages and disadvantages. For businesses, choosing between the two depends on many different factors, such as your industry and the regulatory environment in your country.
This can leave business owners feeling overwhelmed and confused about which is the best option for their company. But don’t fret. In this guide, we’ll take a look at some of the biggest pros and cons of both cryptocurrency and fiat money.
What is Fiat Money?
Fiat money is a currency that a government declares to be legal tender. Unlike cryptocurrency, fiat money is centralized and controlled by government bodies and banking intermediaries.
The most common fiat currency today is the US dollar. Other popular currencies include the British pound, euro and Japanese yen.
Fiat money is often used in international trade and is also the currency of choice for most central banks.
Fiat is regulated
One of the biggest advantages of using fiat money is that its regulated by the government. This means that businesses can be sure that they’re compliant with the law, and they won’t have to worry about breaking any regulations.
For example, if you’re running an online store that sells CBD products, you can be sure that you’re not breaking the law by accepting fiat payments.
Fiat is accepted all over the world
Fiat money is still the most widely accepted form of payment in the world. This means that businesses will have no problem finding customers or suppliers who are willing to accept fiat money.
For example, if you’re running an online store that sells consumer electronics, it’s likely that most of your customers will be willing to use traditional payment methods like credit cards or bank transfers.
Fiat is stable
While the price of cryptocurrencies can fluctuate dramatically, fiat currency is much more stable. This means that businesses can rely on being able to access a consistent amount of funding, which is essential for planning and forecasting.
Fiat payments takes time
One of the disadvantages of using fiat money is that it can take a long time to process payments.
For example, if you’re running a digital business and you want to accept bank transfers from your customers, you may have to wait several days for these payments to clear. In contrast, cryptocurrency payments can often be processed instantly.
Fiat is subject to inflation
Another downside of fiat currency is that it’s subject to inflation. This means that the value of your money can decrease over time, which can be a problem for businesses that need to hold large amounts of cash.
For example, if you’re running a business that deals with high-value goods, you may need to keep a large amount of cash on hand. However, if the value of fiat currency decreases, the value of your cash holdings will also decrease.
Fiat is subject to government control
One of the main disadvantages of using fiat money is that its subject to government control.
For example, if you’re running a business that sells products online and you want to accept fiat payments from your customers, the government may have the power to shut down your website or block access to your funds. This can be a big problem for businesses that need to process transactions quickly.
Overall, there are several advantages and disadvantages of using fiat money. However, despite its limitations, it’s still the most widely accepted form of payment in the world.
What is Cryptocurrency?
Cryptocurrency is a digital or virtual currency that uses cryptography to secure its transactions. Cryptocurrency is decentralised, meaning it is not subject to government or financial institution control.
Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Since then, thousands of other cryptocurrencies have been created. Some of the most popular include Ethereum, Litecoin and Bitcoin Cash.
Cryptocurrencies are often traded on decentralised exchanges and can also be used to purchase goods and services. For example, Bitcoin can be used to buy coffee at some cafes, to book a hotel room on Expedia and more recently, we’ve even seen crypto mortgages which let homebuyers pay in Bitcoin.
Cryptocurrencies are digital and global
Digital currencies are an excellent option for businesses that need to make cross-border payments, as they can be transferred quickly and easily between accounts. This makes cryptocurrencies ideal for online businesses and eCommerce platforms.
For example, let’s say you own a business in a high-risk industry such as online gambling, pharmaceuticals or forex. You may need to make international payments on a regular basis and this can be expensive and time-consuming when using fiat money.
In contrast, cryptocurrency allows you to make these transactions quickly and easily without worrying about the high fees charged by banks for cross-border payments.
Cryptocurrencies can be anonymous
One of the biggest problems with fiat money is that every time you make a payment, it can be traced back to you. This means that your spending habits may be visible to government agencies and other institutions which may have access to this data.
However, cryptocurrency transactions are anonymous and pseudonymous. Once a transaction has been made, it is very difficult to trace it back to the sender or receiver. This makes cryptocurrency a great option for businesses that need to keep their transactions private, such as political campaigns or non-profit organizations.
Cryptocurrencies are secure
Cryptocurrencies use blockchain technology, which is a decentralised and distributed ledger. This means that all transactions on the blockchain are recorded and can be verified, but they cannot be tampered with or changed.
This makes cryptocurrencies very secure. For example, once a transaction has been made it is impossible to reverse or stop it. This helps to prevent fraudsters from taking advantage of businesses that accept cryptocurrencies. So, if you have a high-risk merchant account, you may find that accepting cryptocurrency can help to reduce your chargebacks and fraud.
Cryptocurrency transactions are fast
Another problem with fiat money is that it takes time to process transactions. In contrast, cryptocurrency transactions can be verified and processed almost instantly, making it a great choice for businesses that need to make fast payments, such as those in the e-commerce industry.
Cryptocurrency is highly volatile
The price of cryptocurrency can be very volatile. This means that the value of your investment may go up or down, and this can happen very quickly. For example, in December 2017, the price of Bitcoin surged to almost $20,000 before crashing to around $3,000 just a few months later.
This volatility can be a problem for businesses that accept cryptocurrency. For example, suppose the price of cryptocurrency drops dramatically overnight, and you need to pay for your inventory or supplies in fiat money. In that case, you may not have enough funds to make these payments.
Cryptocurrency is mostly unregulated
One of the biggest problems with cryptocurrency is that it’s currently an unregulated market. This means that the government has very little control over it, which can be a problem for businesses that need to comply with regulations.
For example, if you’re a company that deals with high-risk payment solutions, such as online gambling, you may need to comply with anti-money laundering (AML) regulations. However, because cryptocurrency is unregulated, it can be difficult to comply with these regulations.
Cryptocurrencies are not yet widely accepted
At the moment, cryptocurrencies are not widely accepted as a form of payment. This means that you may have problems finding businesses that accept cryptocurrency, which can be a problem if you’re trying to use it as your primary form of payment.
Now that we’ve taken a look at some of the pros and cons of cryptocurrency let’s take a closer look at fiat money and see why it’s still a popular choice for most businesses.
With the rise of cryptocurrencies, many people have started to question whether fiat money is still necessary. However, despite its limitations, there are several reasons why businesses continue to choose fiat over crypto.
The Best Payment Method for Medium to High-Risk Industries?
When it comes to medium to high risk industries there is no definitive answer to the question of which payment method is best. However, there are several factors that can affect this decision, including the type of business you’re running, your customers’ preferences, and the regulatory requirements for your industry.
Some things that you may want to consider include:
- The type of business you’re running
- Your customers’ preferences
- The regulatory requirements for your industry
- The processing time for payments
- The fees associated with different payment methods
- The security of different payment methods
- The level of customer service offered by different payment processors
Overall, there is no single best payment method for medium to high-risk industries. However, by considering the various factors that can affect this decision, you can choose a payment method that works well for your business and meets the needs of your customers.