There’s a Big Difference Between Electronic Fiat and Cryptocurrency

With all different types of digital money these days and accounts represented electronically, people often wonder what’s the difference between traditional electronic currency issued by banks and permissionless cryptocurrencies like Bitcoin.

Also read: Why All Central Banks’ E-Currencies Will Fail Horribly

The Big Push for a Cashless Society

There's a Big Difference Between Electronic Fiat and CryptocurrencyOver the past few years, there’s been a lot of discussion concerning the world’s progression towards a cashless society. Furthermore, bureaucrats and government authorities worldwide have also bolstered the idea further by removing individual notes of tender from circulation by demonetizing cash reserves. Before the seventies, cash was a dominant form of money, but since then most people now transact with an electronic representation of their local currency in their day to day lives.

For instance, only 8 percent of the world’s money is represented by physical notes, and everything else is a form of digital fiat. Countries everywhere around the world have slowly been progressing towards a cashless society. In the U.S. the practice of electronic deposits into bank accounts became popular in 1975, and a decade later people were using these balances with debit cards.

Now throughout a few particular countries, large denominated notes like the $100, $500, and $1,000 bills are becoming rarer as governments are removing them from circulation. One country, in particular, India is suffering from a cash crisis as leaders started a demonization process last year. The use of cash within India is becoming less visible as Indian authorities are pushing hard for a cashless society by replacing it with digital fiat.

The Glaring Differences Between Electronic Fiat and Cryptocurrencies

There's a Big Difference Between Electronic Fiat and CryptocurrencyThere are significant differences between the traditional digital currency in your bank account and cryptocurrencies like Bitcoin. One of the biggest contrasts between the two is bitcoin’s deflationary attributes which is backed by the currency’s 21 million capped supply. Many economists believe this is a great benefit as the public knows that there are only so many bitcoins, which causes people to save, and purchasing power usually increases.

With traditional digital fiat reserves, there is no telling how much money is circulating, and no one knows if the central banks are printing money on a whim. Economists who are against this type of monetary practice, such as those from the Austrian school, believe the world’s citizens are experiencing a silent robbery called inflation due to central planners printing vast amounts of fiat reserves. Sometimes central bank’s like the Federal Reserve tell the public they are creating more money with concepts like quantitative easing and the recent bank bailouts.    

There's a Big Difference Between Electronic Fiat and CryptocurrencyAnother reason the world’s traditional fiat currencies are no good is because the electronic form is also used to monitor the public’s wealth. Cash is harder to track, and governments can keep a keen eye on funds moving around their electronic databases. Furthermore, other government agencies such as the UK’s GCHQ, the NSA, the FBI, and the CIA have been known to being spying on citizens and the world bank’s monetary movements.

With this power, central authorities can censor people’s privileges to move money in any way they see fit. There are clear examples of banks, credit card companies, and Paypal freezing peoples funds or halting operations because of reasons they don’t particularly agree with.

Censorship Resistance and Unstoppable Tax Protests

With bitcoin, people can move their wealth in a permissionless way using their individual sovereignty. Bitcoin users can utilize the decentralized currency for operations that are typically frowned upon by third party forces. This includes online storefronts selling pornography, illicit drugs, and other black market activities. Cryptocurrencies can also be used to avoid taxation as it leaves the decision of reporting to tax officials up to the user.

The infamous whistleblower Edward Snowden has agreed with this sentiment explaining to his Twitter followers on November 13 stating;

Coincidentally, new technologies raise the possibility of unstoppable tax protests.   

Because the public is embracing bitcoin and blockchain-based permissionless currencies authorities worldwide are trying to co-opt the technology. Rather than be disrupted, central monetary planners believe adding the word “blockchain” to the incumbent databases used today will lure more people towards a cashless society. One that will still be monitored, controlled with censorship, and even “editable” for those trying to erase fraudulent behavior.

There is a big difference between the electronic money used by banks today and bitcoin, as the latter is far superior for those who embrace freedom.

What do you think about electronic fiat currency in comparison to cryptocurrencies like bitcoin? Let us know in the comments below. 

Images via Shutterstock, and Pixabay. 

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  • Mattyoung

    Central banks ate no longer stupid enough to pretend on block chain. That is sort of old news.

    Central Banks right now are worried that bitcoiners will develop savings and loan technology that auto trades. Once bitcoiners learn pricing and banking, then all currencies compete on an equal basis, with or without block chain. Central banking sticks around, it will get about 50% market share in the USA.

  • Mohamoud Hassan

    bitcoin is overtaking all forms of paper currencies .
    it will be the currency of the outer space in future. Mars, moon, galaxy neptune and other stars in space.

  • I am not a NUMBER, I am a free man!!! Central planners need to learn how to participate and make their own profits in anonymous currency market ACM for the benefit of the citizen without burdening the citizen with fees and taxes to keep FIATs afloat. Curve Accounting, open Public Ledger, Traceable, Truth in their Profit or Loss, de-monopolization of Reserves. Stayout of AML and KYC, its a lose lose lose issue. FREEEDOOOOMMMM!!! should be a central planners job. Welcome to the numbers revolution that will judge you on the values you know, not hoard.

    • Mattyoung

      You are right. The currency bankers job is to advance the technology of money, not hide the new technology. The new cash layer is pure no arbitrage, there are absolutely no hedge in the cash layer. W can do this because pure cash is auto traded and monetary congestion optimally managed. For 250 years bankers were clueless, it was not until 2001 and further that the technology of banking and pricing was understood. The whole concept of monopoly banking was and is an attempt to cover up the new knowledge,

      • Yes, technology rise. Rise in worldwide technology education is revealing the monetary and freedom controls that Sovereignty and War of Sovereigns have had on the weak and uneducated. Central Bankers are appointed from a pool of known good actors of State Business. They are usually Luddites. Cryptocurrency has been boosted by the rise in technology and rise will get even better over time through better cryptology use and development. More and more users will understand it is better to know than to leave it up to someone else to manage your crypto affairs. I think this is a misunderstood influence in the rapid development of cryptography. The failures of virus scanners, the loss of personal identity, the loss of trust in identity, network outages, multiple network access all contribute to the rise in crypto. It is and will continue to be necessary, not only to safeguard wealth for your future. Bankers are the least of my worries.

  • Mohamed M. Basiouny

    The concept behind cryptocurrencies embrace the ideas of complete free untraceable unregulated ” no middle man” money system. Views saying that this free system shall overtake the ordinary “somewhat flawed” current system, assumes the mass will sooner or later accept and participate in the cryptocurrency world. I believe that view is not correct. The majority when truly understanding the way it works would stand against it. Unregulated money system where taxes can be evaded, black market “drugs, pornography, weapons or any illegal activity” shall nourish is a significant downside that will gain more opposers than supporters. I think that the cryptocurrency system will expose the flaws of our currently used system putting pressure on governments and financial institutions, resulting in a new way the majority will agree on that combines the advantages on both.

    • De Wilde Weldoener

      It’s not primarily, drug pushers pornographers or arms dealers in Venezuela that are using Bitcoin, it’s primarily normal people trying to buy food so they don’t starve, which they can’t do with the Bolivar because it’s been inflated into oblivion.

      It’s not primarily drug pushers pornographers or arms dealers using Bitcoin in China, it’s primarily normal people that are trying to escape government capital controls that make people less free to use their property as they see fit.

      This might be hard to see if you live in a country that is doing ok, with a national or regional fiat currency that isn’t inflating that badly (yet), but it is happening.

      It’s normal people adopting Bitcoin when and where their fiat currency is failing to meet their needs.

    • Stephen Jones

      Criminals will be criminals regardless.

  • Mahesa Suprobo

    So in short, the movement toward Bitcoin is a revolutionary freedom movement. I like it!

  • Very, Very Good Article! HODL!

  • Darey Olushina

    The best part of this lovely article is

    Because the public is embracing bitcoin and blockchain-based permissionless currencies authorities worldwide are trying to co-opt the technology. Rather than be disrupted, central monetary planners believe adding the word “blockchain” to the incumbent databases used today will lure more people towards a cashless society. One that will still be monitored, controlled with censorship, and even “editable” for those trying to erase fraudulent behavior.

  • Marco T.

    Mr. Redman, I love your articles and the passion you have for Bitcoin, but you have missed in this article the central point of fiat currencies like the Federal Reserve Note dollars and how it is created into existence. This money and therefore 99% of our monetary supply is created into existence through DEBT. When a bank lends on a million dollar house, the borrower let’s say puts $100,000.00. The bank is only required to have $90,000.00 of its own money to chip in to the transaction. The other $810,000.00 gets lend out assuming there are deposits, but the depositors are also entitled to their money. As soon as the borrower signs , then he owes $900,000.00 and BOOM, $810,000.00 just got created into existence from nothing. This is called fractional reserve lending and why we have inflation. Now, our society has to go and lend more so that the interest expense and principal created from the $810,000 loan can also be be paid.

    Our national debt is also created from nothing but it varies depending on how many private hands buy the auction notes. The Federal Reserve Act of 1913 was an instrument of slavery but most people do not know it. The Monetary Act of 1980 made the chains stronger. In fact, it is because of the Monetary Act of 1980 that quantitative easing was so easily applied.

    In either case, governments are not “printing money on a whim”. In fact, it is even more nefarious. Governments are borrowing money and then paying interest on that money. I say nefarious because let’s say that our government wants to borrow 100 billion dollars for ten years and only 1 billion gets bought by private hands. The Federal Reserve through an accounting entry (nothing) buys the other 99 billion and now we are paying interest on 99 billion that never existed. Take into consideration the compound interest that needs to be paid back and there is no greater evil. Our society has been slaved with paying money to entities that we do not know who owns them. Bitcoin can curb this, but rest assured that there will be some kind of “financial engineering” to counter this.

    There have been only three instances of when our government actually printed money into existence for the benefit of the people, the Legal Tender Act of 1862 and 1863 and minting coins.

    There is a lot more to be said on this but for now, let’s support Bitcoin.

    • Mattyoung

      The problem is not fractional reserve, which is a mis-understood term. The problem is that the central bank only marks currency risk to market once a generation, and we make the humongous adjustment. The other problem with central banking is the government carries currency insurance for us all, and the risk accumulates.

      The new system, the pure cash layer, supports central banking just fine, but it also supports gold deliveries, bitcoin, and Wal Mart value points. It can support fractional reserve banking because the system tracks currency risk and prices it, always.

  • Good article. I might add that another major difference between crytocurrency and fiat currency is that only the first exists SOLELY in digital form while the latter exists as both a physical and digital currency at the same time. This “duality of form” directly impacts a nation’s ability to inflate their own nation’s currency supply. A country with a high percentage of paper currency can only inflate as fast as the printing presses can run but a country with a high percentage of digital currency can inflate with a keystroke and mouse click at lightning speed. Since there is a large difference among countries in the rate of their rates of usage of each fiat form type there are drastic global discrepancies to adapt global economies when a country’s Central Bank goes on a money-creation tear. Some economies can quickly and easily adapt to the fraud while paper based fiat currencies cannot and, subsequently, get defrauded.

  • BTCD

    The blockchain ensures that Bitcoin is NOT anonymous. I can trace a transaction on a Darknet market easily. Whether or not you, the individual, have taken proper anonymizing measures (and they can be onerous with many steps involved and many pieces) is the key to whether I can trace it back to YOU or not. Bitcoin does not ensure anonymity in any way. The blockchain ensures this. This regularly perpetuated apologue needs to be stopped. An anonymous wallet will not do it. It requires hardware, software, middleware, VPNs, and proxy servers. Some level of knowledge having to do with network security is required and even then it is a vast and very complicated field. Making sure that the VPN “really” doesn’t keep logs and paying for it with anonymous shopping cards purchased far from your home, etc , etc, etc.

    I have used no brand names in this article and it contains no urls. It is directly related to the article and some comments in question. I expect this comment to go through without controversy or calling me a spammer. Thanks in advance.