Crypto
Understanding the Fundamental Differences Between Cryptocurrency and Fiat Currency
In recent years, the emergence of cryptocurrency has revolutionized the way we perceive and engage with currency.
Unlike traditional fiat currencies, which are issued and regulated by governments, cryptocurrencies operate on decentralized networks based on blockchain technology. This fundamental distinction creates a myriad of differences between the two forms of currency, ranging from their underlying principles to their practical applications.
This article explores these disparities and shows what makes cryptocurrency distinct from fiat currency.
Decentralization vs. Centralization
At the core lies the concept of decentralization versus centralization. Fiat currencies are centralized, meaning they are issued and regulated by a central authority, typically a government or a central bank. This central authority holds the power to control the supply of money, influence interest rates, and intervene in monetary policies as deemed necessary.
On the other hand, cryptocurrencies operate on decentralized networks that rely on blockchain technology. These networks are distributed across a vast array of nodes, each contributing to the verification and validation of transactions. Decentralization ensures that no single entity has absolute control over the cryptocurrency network. Instead, consensus mechanisms, such as proof of work or proof of stake, govern the validation process, making cryptocurrencies resistant to censorship and manipulation.
Accessibility and Financial Inclusion
Cryptocurrency has the potential to enhance accessibility and financial inclusion for individuals who are underserved or excluded by traditional banking systems. With cryptocurrencies, anyone with internet access can participate in the global economy, conduct peer-to-peer transactions, and access financial services without the need for a traditional bank account.
The above, coupled with the proliferation of mobile devices and internet connectivity, has further democratized access to cryptocurrencies, empowering individuals in developing countries to participate in the digital economy. Cryptocurrency wallets can be easily downloaded and installed on smartphones, providing a convenient and secure way to store and transact digital assets.
This in turn provides greater access to other services. For example, players living in regions where online gambling is restricted can access the best options for crypto gambling thanks to these digital currencies. This works as crypto is not regulated in the same ways as fiat currencies, so crypto casinos and sports betting sites don’t fall under traditional regulations set for gambling.
Furthermore, cryptocurrencies enable cross-border transactions with lower fees and faster settlement times compared to traditional banking systems. This feature is particularly beneficial for remittance payments and international trade, where traditional banking processes can be cumbersome and costly.
Transparency and Immutability
Another differentiating factor between cryptocurrency and fiat currency is the level of transparency and immutability inherent in their respective systems.
Blockchain, the underlying technology behind most cryptocurrencies, provides a transparent and immutable ledger of all transactions ever conducted on the network. Every transaction is recorded in chronological order, forming a chain of blocks that cannot be altered retroactively without consensus from the network participants.
In contrast, the traditional banking system lacks the same level of transparency and immutability. While banks maintain records of transactions, these records are not always easily accessible to the public, and they can be subject to alteration or manipulation by centralized authorities. Cryptocurrencies, with their transparent and immutable blockchain ledgers, offer a higher degree of security and trust in the integrity of transactions.
The transparency provided by blockchain technology also fosters accountability and auditability in the cryptocurrency ecosystem. Anyone can inspect the blockchain to verify the validity of transactions, ensuring that no fraudulent or unauthorized activities take place. This level of transparency contributes to building trust among users and investors, bolstering the adoption of cryptocurrencies as a legitimate form of digital currency.
Monetary Policy and Inflation
Monetary policy and inflation mechanisms differ significantly between cryptocurrency and fiat currency systems.
Central banks have the authority to implement monetary policies, such as adjusting interest rates and controlling the money supply, to stabilize economies and manage inflation. However, these policies are often subject to political influence and can lead to the debasement of fiat currencies through inflationary practices like quantitative easing.
In contrast, many cryptocurrencies, such as Bitcoin, have predetermined issuance schedules and fixed maximum supplies, making them deflationary by design. For instance, Bitcoin has a capped supply of 21 million coins, ensuring that inflationary pressures cannot devalue the currency over time. This scarcity model contrasts sharply with fiat currencies, which can be printed at the discretion of central authorities, potentially leading to currency devaluation and loss of purchasing power.
Conclusion
In conclusion, the differences between cryptocurrency and fiat currency go beyond their technicalities and encompass fundamental differences in principles, governance, and practical applications. While fiat currencies rely on centralized authorities and traditional banking systems, cryptocurrencies operate on decentralized networks with transparent, immutable ledgers.
Moreover, cryptocurrencies have the potential to enhance accessibility and financial inclusion by providing an alternative means of participating in the global economy. As the adoption of cryptocurrency continues to grow, it is essential to recognize and understand these differences to navigate the evolving landscape of finance and technology effectively. Cryptocurrency represents not only a new form of digital currency but also a paradigm shift in the way we conceive of and interact with money.
For those unfamiliar with cryptocurrency, this is a major milestone in Asia and across the world as it opens the road for adoption and investment in cryptocurrency, moving the asset class from niche to mainstream. Although the US allowed spot bitcoin ETFs in January, it only recently approved applications to list spot ether ETFs; a second round of approvals will be needed before the products can begin trading. The US’ decision on ether ETFs came a month after Hong Kong became one of the first in the world to approve them.
Hong Kong’s first-mover advantage could attract a new wave of fintech activity and talent to the region, leveraging its forward-thinking regulatory framework. These steps have promoted the city as a global digital asset hub.
Hong Kong already has plans to maintain its advantage over the US by looking at strategic ways to keep developing as a cryptocurrency hub. It could do this by approving advanced financial products before the US does. For example, Hong Kong could allow yield-earning options such as ether ETF staking.
Staking involves locking cryptocurrency tokens to a blockchain network for a set period of time to earn rewards, a practice that the US might be slower to approve. Hong Kong taking a progressive stance would not just be a regulatory success but an indirect endorsement of the potential of decentralised finance. This momentum could draw fintech investment to the region.
Hong Kong is also becoming one of the main destinations for major cryptocurrency conferences, which are drawing foreign investment from venture capitalists into local cryptocurrency start-ups. In 2023, the Web3 Festival attracted a crowd of 50,000 attendees, including many investors from around the world. These events, which some have referred to as “cryptocurrency tourism”, bring high earners to Hong Kong, who boost the local economy through their spending and investment.
Overall, Hong Kong is showing the world that cryptocurrency can be regulated reasonably while maintaining an innovative environment. This is likely to impact Hong Kong’s wider financial position. Such regulatory clarity is likely to attract more start-ups and established companies, especially if cryptocurrency start-ups move from the US looking for a friendlier climate to support their growth and innovation.
Additionally, this regulated environment reassures global investors which could enhance Hong Kong’s reputation as a secure and innovative financial hub, boosting investment and job creation in related fields, and driving further economic growth.
Developing the cryptocurrency sector could help alleviate Hong Kong’s talent shortages. Nearly three-quarters of employers in Hong Kong are experiencing talent shortages, exacerbated by a 1.6 per cent population drop by mid-2022. Hong Kong’s ageing population, with 30 per cent expected to be aged 65 and above by 2040, could further intensify this issue.
Hong Kong’s rise as Asia’s cryptocurrency hub, while not guaranteed, is well-supported by its progressive regulatory environment. Challenges such as red tape in other jurisdictions and talent shortages persist, yet the dynamic cryptocurrency sector could attract and retain talent. The recent US decision on ether ETFs highlights the widening adoption of cryptocurrency assets, making it even more important for Hong Kong to stay competitive.
As global institutions seek clarity and innovation, Hong Kong stands out as an ideal location to set up shop. With its strategic initiatives, Hong Kong is poised to take the lead in the evolution of the finance industry, attracting both companies and professionals to the city.
Danny Chong is CEO and co-founder of Tranchess, a decentralised yield-enhancing asset tracking and management protocol
VanEck CEO Jan van Eck sees a major sentiment shift underway in the cryptocurrency market linked to the U.S. Securities and Exchange Commission’s approval of a rule change allowing for Ethereum exchange-traded funds.
“This is really one of the most amazing things that I’ve seen in my career with respect to securities regulation,” van Eck told CNBC’s “ETF Edge” this week.
VanEck was the first to apply to the SEC for permission to list its proposed Ethereum ETF. With that first hurdle cleared, VanEck can begin the process of bringing the product to market, though the exact timeline is unclear.
“There was a real risk that the SEC was going to lose any kind of jurisdiction over digital assets. So the first reaction was to get the ETF, Ethereum ETF approval green lighted,” he said. “But I think there’s a bigger narrative going on as well.”
To van Eck, the buzz around Ethereum this May means clearer regulation on the horizon and an increased investor interest in crypto. In a statement on its website, his company said that “the evidence clearly shows that ETH is a decentralized commodity, not a security.”
Van Eck said the Financial Innovation and Technology for the 21st Century Act, or FIT21, passing in the House on May 8 was another major step toward regulatory clarity for cryptocurrencies, even though he is doubtful it will make it to the Senate before the election.
Ether spiked on the SEC’s approval of applications to list Ethereum ETFs on May 23, but is virtually flat since then.
Disclaimer
Crypto
Fueled By Craze For Nvidia, South Korean Crypto Traders Embrace Risky AI-Linked Tokens By Benzinga
Benzinga – South Korean traders are showing a growing interest in digital assets linked to artificial intelligence (AI.) This surge in interest has seen the country’s share of global trading volumes for Nvidia Corp.’s AI-linked tokens rise to 18.7% in May from a mere 0.6% in mid-2023.
What Happened: The AI tokens are typically issued by early-stage projects that aim to use blockchain technology for AI services, reported Bloomberg on Friday.
Despite the unproven utility of this combination, South Koreans are showing a strong affinity for both AI and crypto.
Approximately 10% of the South Korean population is exposed to tokens, with the majority of local trading being in volatile smaller coins, rather than the more established Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH).
Notably, Nvidia and Microsoft Corp. are the second and third most popular overseas stocks among domestic investors in South Korea this year, according to Korea Securities Depository figures.
Nvidia’s chips are integral to AI computer processing, while Microsoft is a key supporter of OpenAI and its ChatGPT tool.
See Also: ‘Dogecoin Killer’ Shiba Inu’s Burn Rate Spikes Nearly 250% As Whales Show Interest In The Memecoin
The weekly trading volumes for AI tokens have averaged $8 billion since February, a significant increase from the all-time low of $300 million in mid-2023.
However, there are concerns about the sustainability of the interest in AI-linked crypto projects, given the digital-asset sector’s history of booms and busts in coins tied to popular memes or social trends.
Why It Matters: South Korea has been a significant player in the global crypto market for some time now. As of September 2023, South Korean citizens had declared over $98 billion in foreign digital assets, leading to the country being dubbed a “crypto nation.”
The growing interest in AI-linked crypto projects is not surprising, given South Korea’s strong tech industry and the country’s ongoing fascination with cryptocurrencies.
This trend also reflects the global enthusiasm for AI and its potential applications in various sectors, driving investors to explore AI-related opportunities in the crypto space.
Meanwhile, top AI-based cryptocurrency tokens tumbled last week after AI chip giant Nvidia Corp. reported higher-than-expected earnings for the first quarter. Render, the token made gains ahead of the earnings announcement, was trading 3.79% lower. Render is know for the “most significant” ties with the tech giant
Read Next: ‘Dogecoin Killer’ Shiba Inu Spikes 5%: Trader Sees ‘SHIB Season’ And This Data Point Could Mean He’s Right
Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
Photo courtesy: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Read the original article on Benzinga
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