The notion of cryptocurrency has intrigued some and turned others off, and even more people have likely been baffled by the concept. Some believe it’s the wave of the future while others reject it as an online fad. There is a group that believes that cryptocurrency, and the technology behind it can change the world for the better; there are others who see it as a dangerous trend that is wasteful.
In terms of economics, the rise of Bitcoin and cryptocurrency has triggered passionate debates about the future of currencies. This genuine spike of interest in the way the monetary system in the world functions is a positive development. As a result, it takes a genuine understanding of fiat money and its mechanics to understand why cryptocurrency appeals to so many.
There are over 1000 cryptocurrencies available on online platforms for trade. While most have not seen the peak, some cryptocurrencies like Bitcoin, Litecoin and Ethereum have seen exponential growth in these past years. The volatile market nature of such market capitalists has attracted many traders to invest in these cryptocurrencies.
But before we compare this revolutionary technology to the traditional fiat currencies, lets take a moment and understand the concept of both.
What are Cryptocurrencies?
Cryptocurrencies are exactly the way the sound. Rather than just a tangible piece of currency you can take with you, a cryptocurrency is an exchangeable digital asset. The “crypto” part is derived from the use of cryptography during transactions for safety and verification purposes.
By using cryptocurrency instead of fiat currency for an exchange, cryptocurrency owners don’t need to rely on banks to facilitate transactions, and can successfully avoid the fees that come with using financial institutions.
Cryptocurrency transactions are generally processed and completed over a network of blockchains. Blockchains are designed to be decentralized, which means that each computer connected to the network must confirm the transaction successfully before it can be processed. Ideally this creates a more secure transaction for all involved. It can also cause you to wait a while; one big complaint about Bitcoin is how long a transaction can take to complete.
Cryptocurrency transactions are placed in a “block” and a complex mathematical problem is solved by the computers in the network. Once a computer resolves this, the solution is shown on the network to the others, and if the entire network agrees that this solution is correct, that block is added to the chain and the transaction is completed. Multiple transactions in one block make it more difficult to edit a single transaction; the blockchain is constantly reconfirmed by the network on its way to the latest block and will notice if a suspicious edit is made to one transaction in a block.
And since most of these digital currencies are mined, they are in finite quantity. For instance, there are 21 million Bitcoins that can exist inside the Bitcoin blockchain.
There are banks that are interested in what blockchain can do for them, but cryptocurrencies such as Bitcoin have been expressly developed to avoid bank use altogether. Fans and developers of cryptography such as the idea of a decentralized network that doesn’t require any other party to process a transaction-and as a third party with a centralized network, a bank isn’t where owners of cryptocurrency
How is it different from Fiat Currencies?
On the other hand, a fiat currency is a legal tender that has value rather than physical assets based on the issuing Government. The strength of the government which issues the currency in terms of its ability to maintain a coherent monetary policy is vital in such a monetary system. This explains why most developed countries have stable fiat currencies while failed states have the opposite.
Fiat currency as legal tender is about trust and trust in the currency issuer. A stable fiat currency can help save, invest, and buy goods and services. For decades now, that has been the basis of the global economy.
Being centralized, the inherent risk of fiat money is clearly that it is very vulnerable to market shocks. As such, investors have spent decades exploring alternative financial systems. Globally, gold has been a consistent safe haven but not even gold can address some of the fiat money model’s shortcomings. Finance was remarkably evolving in 2008. Blockchain technology has been a revolutionary invention which significantly disrupts the finance world. Although initially low-key with little fanfare, cryptocurrency has risen dramatically to capture the worldwide consciousness of financial experts.
Why is Cryptocurrencies Revolutionary?
Most cryptocurrencies restrict token supply. In Bitcoin the supply decreases in time and sometime around the year 2140 will reach its final number. All cryptocurrencies control token supply through a schedule that is written in the code. This means that the monetary supply of a cryptocurrency can be roughly calculated today in any given moment in the future. No surprise whatsoever.
Additionally, debt creates the Fiat-money on your bank account, and the numbers that you see on your ledger are nothing but debts. It is a crediting system. Cryptocurrencies are not debts; they represent just themselves.
To understand cryptocurrencies revolutionary impact, you need to consider both properties. Bitcoin as an unauthorized, irreversible, and pseudonymous means of payment is an attack on the banks and governments’ control over their citizens’ monetary transactions. You can’t hinder anyone from using Bitcoin, you can’t ban someone from accepting a payment, you can’t undo a transaction.
Cryptocurrencies attack the scope of monetary policy as money with a limited, controlled supply that is unchangeable by a government, a bank or any other central institution. By manipulating the monetary supply, they take away centralized control of inflation or deflation.
Mostly because of its revolutionary properties,cryptocurrencies have been exceptionally successful. While every other attempt to create a digital cash, system didn’t attract a critical mass of users, Bitcoin had something that gave rise to fascination and enthusiasm. There are times when it feels more like religion than technology.
Bitcoin Forex Trading
Crypto or bitcoin forex trading is to trade your digital coins against a fiat currency. This means that instead of the regular crypto-crypto pair, you trade a crypto-fiat pair. Investors can use a forex trading guide to develop strategies in order to gain maximum profits from their forex trades.
Although relatively new, bitcoin forex trading is attracting investors rapidly. While some are still reluctant to try it, many claim it to be even more profitable than regular cryptocurrency trade methods. Bitcoin is the most frequently traded cryptocurrency so naturally it is the most used cryptocurrency for forex trading option as well.
On the other hand, US dollar is among the top currencies on forex with a large number of trading pairs. It is also currently one of the top fiat currencies to be used in crypto pairs. As the idea is still in early stages, there are only a few platforms offering this option. They also offer discounts for their services in order to attract more traders.
There are a couple of reasons behind the growing popularity of crypto trading on forex. Some investors are even willing to give up crypto-crypto trade pairs to be able to invest more into crypto-fiat pairs instead. This is because the latter is just as profitable but with far more stability and lower trading fees.
Benefits of Trading Crypto against Fiat Currency
As discussed earlier, brokers charge less to trade crypto-fiat currency pairs in order to attract traders. This is a great advantage considering the amount of fees you usually have to pay to cryptocurrency exchanges.
Trading one cryptocurrency against another cryptocurrency demands that you analyze the fluctuations of both those coins. While that is the case for all trading pairs, unusually high volatility rates of cryptocurrencies make it a especially tiresome task to manage two digital coins’ price charts. On the other hand, trading crypto against a fiat currency means that you have to deal with just one highly volatile coin instead of two.
