A Comprehensive Guide to Understanding Bitcoins and Fiat Currency

For the past decade now we have all been talking about bitcoins a lot. However, despite the awareness, many are still not aware of the full potential of bitcoins. With this article, we aim to educate you on Blockchain preventing and their relationship with fiat currencies.

A Comprehensive Guide to Understanding Bitcoins and Fiat Currency
Photo by Kanchanara on Unsplash 

What is Bitcoin? A Brief Overview

Bitcoins were first created in the year 2009 by Satoshi Nakamotowith the aim of decentralizing the banking system. These are digital currenciesthatare based on the technology of the blockchain. Blockchain refers to a complex digital network where every time a transaction occurs in bitcoins it gets recorded and adds a new block to the existing network. 

These transactions can also be viewed by the public in the public ledger that the network has. The public ledger is easily accessible but at the same time offers anonymity. These days, with the advancement of technological aspects, there are many people all across the planet who hold bitcoins in some amount. Most of these holdings come from active trading on exchange platforms. You can trade and invest in bitcoins on platforms that offer safe and secure transaction methods. 

What is fiat currency? An Overview

Fiat currency quite literally means the money that has been backed by the government or the legal tender of money. For any transaction that involves money, it is required by law to use legal tender money for it be too considered a transaction in legal terms. These are essentially the currencies we see in the modern world. 

Such as the United States Dollar, Great Britain Pound, Euro, Yuan, Yen, Indian Rupee, and so on so forth. People use fiat currencies in their daily transactions all the time. The Bitcoin users can choose to buy goods and services with the use of Bitcoins. There is the direct involvement of the government and there are regulations in place guarding the fiat currency. Hence, it can be sufficed as quite literally the money one refers to in layman’s terms. 

What's The Connection Between Bitcoins and Traditional Fiat Currencies?

One might wonder what digital currency has to do with fiat currency, it is safe to say these are interlinked. As we know historically, people believed in barter exchange. Where one kind of good was exchanged for another kind, however, that came to an end when mankind found precious metals such as gold, silver, and bronze. 

These were then used for daily transactions. This metal then gave way to what we know today as fiat currency. Again following the steps of history, we see that this fiat currency gave way to what we know today as a digital currency. The value of bitcoins can be measured only by way of fiat currency as that is the only parameter of determining what bitcoins mean to society financially. 

Relationship Between Bitcoins And Fiat Currency

This section of the article highlights the points you need to know in order to understand the terms between fiat currency and bitcoins. Read on to know more in detail!

1. Bitcoins are traditionally based on a decentralization model where there is little to no government involvement. Whereas fiat currency is a centralized model where the government is heavily involved in ascertaining the value and whatnot. 

2. Bitcoins are known to havea limited supply.Fiat currencies do not have a limited supply. However, they are only introduced when extremely needed as introducing more fiat currency in the market brings down their value. 

3. The main point of difference is that fiat currency is a legal tender of money while bitcoin is not. Most governments have not recognized bitcoins as a legal form of payment. However, that is slowly changing as the popularity and number of users holding bitcoins are growing by the minute. 

4. Bitcoins and fiat currency are not that different. They are both essentially a way of making payments and transfers in exchange for goods and services. 

e. Bitcoins and Fiat currency both have a store value. This means that they are both considered an asset class. 

f. Bitcoins and fiat currency also both have a unit value. This means that when left on their own they still have value to offer to society. 


Therefore, as you can see these are some points highlighting the relationship between bitcoins and fiat currency.