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Why is fiat currencies not the same as digital currencies? my 2021 explanation

 

Well let’s see if I can be able to convince you on why the fiat currency is not valuated the same as a digital currency (asset).

Now, for any money or currency to be effective, it must be regarded or considered as a medium of exchange, unit of account and store of value.

Both digital and fiat currencies has this utility. However, a key number of ways causes the difference. These major differences are the reason why digital assets has higher value but are not trusted.

What is a fiat currency?

Fiat money or currency is just simply the currency issued by the government. It’s a kind of currency is particularly a legal tender having it’s value tied to a particular government that issues it. This kind of currency is not pegged against any commodity as is the case with digital assets.

What then is a digital currency?

Digital currency is a digital asset that can only be traded or transacted only on digital platform. They are the digital assets that derives their value from Blockchains.

What is a Blockchain?

Have you ever wondered how cryptocurrencies work? Well, we will understand vividly how cryptocurrencies work but first and foremost we must understand Blockchains, How they work and why they are used to implement digital assets.

READ ALSO; Crypto: Do you want to get free Bitcoin? This is how to mine them without buying with cash

A Blockchain is primarily and specifically a type of database. This kind of database is to some extent different from the other types of databases because it stores data in blocks which can thereafter be chained together.

What actually happen when a new data comes in is that a new data will first get into a fresh block, when the block is filled with data it’s then chained together in chronological order.

Don’t know what a database is?

Now, when informations are collected and then stored electronically on a computer system, it is referred to as a database.

Transaction process through the Blockchain

For us to understand this very well, we must look at the following illustration that perfectly explained how a network of computers can collect information and deliver a completed transaction.

• A new transaction is initiated or entered.

• The transaction is then transmitted to a network of peer-peer computers scattered across the world.

• Network of computers then solves the equations to confirm the validity of the transaction.

• Once confirmed to be legitimate transactions, they are clustered together into blocks.

• The blocks are Chained together creating a long history of all the transactions that are permanent.

• The transaction is completed.

Written by T.I Ukende

T.I Ukende is a professional writer and ICT consultant. He has written many evergreen articles for Benuecast blog, classicgist, ellabase and many others before birthing the newsway blog.
Newsway delivers well researched and undiluted information on business, employment opportunities, personal finance and government empowerments.

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