Difference between Fiat Currency & Crypto-Currency

By Sudheer Kumar K|Updated : February 2nd, 2021

Recently, the Union government announced the introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the ongoing budget session.

The move aimed at having or creating our own digital money by the central bank. China is also set to test a version of its digital yuan. In this article, we will discuss in brief about the difference between Fiat-Currency & Cryptocurrency.  

 

  

Difference between Fiat Currency & Crypto-Currency

Fiat currency is a ‘legal tender’, which is acknowledged by the Court of law. Its exchange value is guaranteed by the Central bank. The fiat currency is in the form of coins and currency notes.

 What is cryptocurrency?

  • A cryptocurrency is a digital asset designed to work as a medium of exchange using blockchain technology to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
  • Bitcoin is the first cryptocurrency the uses blockchain for secure transaction and creation of coins and verifies the transfer of assets. 

Difference between Fiat Currency & Crypto-Currency

S. No.

Fiat Currency

Crypto-Currency

1

It is a legal tender guaranteed by the Central Bank (i.e. RBI).

 

It is not “legal tender” and not backed by a government or (Central Bank).

2

It can be in the form of physical currency or rupees (with fixed denomination; coins and currency notes).

It is represented digitally, but not guaranteed by a bank or government.

Ex: Bitcoin, Ripple, Etherium and Facebook’s Libra etc.

3

It can be represented electronically, such as with bank credit.

It is represented only electronically, but not backed by a bank or government.

4

Its supply is regulated by the Central bank (i.e. RBI, in case of India).

An algorithm controls the supply

5

We can pay our taxes using fiat-currency as we do.

We can’t pay our taxes using Crypto-Currency.

 

Similarities between Fiat Currency & Crypto-Currency

Though there are differences, there are similarities as well.

  • Both are currencies
  • Both are used as mediums of exchange
  • Both can be used to purchases goods and services
  • Both have their value governed by supply, demand
  • Both are traded on exchanges

 

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