Anyone who has been watching the global economy has noticed the shift towards the digital eco-system. From money transfer to investments, everything is fast becoming paperless. The rise of cryptocurrency has transformed the digital payment sector.
With the move comes the debate over what the future of money will look like. Some people think that digital currencies will do nothing to upend the world’s currency system. Tech-savvy investors are pinning their hopes on cryptocurrencies taking over the world.
For the ordinary person, the one who may not be caught up in the debates, the questions are rather simple. Should I invest in cryptocurrency, or should I not? This article offers a guideline to answer some concerns you may have about how to keep your wealth.
Fiat currency versus cryptocurrency; the difference
Fiat currency is money declared legal by central governments. Fiat currency can be physical dollars or can be electronically represented as in bank credit. The government controls its supply, and you can use it to pay tax.
Digital currencies are not legal tender money; that is, a bank or a central government does not back the currency. They are global and decentralized. An algorithm controls its supply, and you may not use cryptocurrency to pay taxes.
Otherwise, the two have no intrinsic difference. Both cryptocurrency and fiat can be called currency or money. They are mediums of exchange that transfer and store value and can be used to buy services and goods. Their value is governed by scarcity, work, demand, supply, and other economic factors, and their value is affected by their surrounding systems.
What gives the cryptocurrency value?
Like with other things, cryptocurrencies derive value from their utility and the consensus by the people. They work the same way diamonds, oil, US dollars, and pet rocks work. Technically, they can be devalued if you introduce a new supply.
The difference between storing wealth in fiat versus cryptocurrency
The major difference between fiat currency and crypto is that supply in crypto cannot be diluted the way it can be diluted with fiat when supply is increased. No wonder many ICOs will introduce a limit to the number of coins that can ever be mined. If, for example, there will only be 21 million bitcoins, as individuals and corporations lose some, supply goes down. The coins become fewer, and it becomes more successful.
Even if bitcoin could increase to the eighth decimal, there would still not be enough for everyone on earth to earn large amounts. The people who adopt cryptocurrencies early stand better chances of owning more in the future.
What about equity?
Equity is typically tied to the laws of every nation, and the rights you have can be arbitrarily impacted or diluted without your consent. A piece of land in your neighborhood, fiat, or other stores of wealth, including gold, can be taken from you, but if you secure cryptocurrency, you can have access to it until you die.
More arguments could be made for storing wealth in cryptocurrency. Every person has to answer for themselves questions like how much they invest and the particular coin they want. As a rule of thumb, seek out information that will help you make more informed choices.