Before jumping into the difference between Bitcoin and physical currency, let us take a crash course on what exactly the two mean.
Physical currency is usually issued by the government and central authority like a central bank has the responsibility of regulating it. Physical currency is the only legal tender that operates in the financial system even though it is not necessary for them to be supported by a physical commodity. As opposed to that, physical currency constitutes the very essence of the credit system of an economy.
The disadvantage of fiat currencies
A physical currency such as the American Dollar, or the British Pound or the Chinese Yuan usually derives is value from the intersection of the invisible forces of demand and supply in the market. Whenever there is an incident of hyperinflation, there is a chance that physical currencies are at risk as they end up becoming worthless. This is mostly due to its non-association to any physical commodity. Physical currency was first introduced sometime around 1000 AD in China and following that it spread over the whole wide world.
The charm of Bitcoin
Bitcoin can be defined as a kind of digital money or virtual currency that has the potential to act as a medium of exchange. Since it is virtual in nature, it employs the technology of cryptography in order to process the transactions along with securing and verifying them. As opposed to physical currencies, Bitcoin happens to be a lot more independent as it cannot be controlled by any central bank or similar central authority. Bitcoin is being extensively used in trading now – reliable platforms like bitcoin-buyer.app help you trade seamlessly. Even if you’re an amateur, you can make great profits with the right guidance.
The history of Bitcoin
Bitcoin is often credited to be the brainchild of one Satoshi Nakamoto even this claim is disputed on many counts. Apparently Nakamoto had no intention of developing a currency, although he did think of establishing a peer-to-peer electronic cash system so that transactions can take place without having to be monitored by a central authority. This feature of decentralization implies that no central server hosts or even controls the transaction in this medium.
The BIG difference
Now that we have familiarised ourselves with types of currency, let us jump in straight to their differences.
Physical currencies are issued by the government and regulated by a central bank. In other words, physical currency has ample official markings to be declared as legal tender and is mostly used for any monetary transaction. In addition to that, physical currency is also under the control of the government who implement different policies which in turn have an impact on their value. On the hand Bitcoin, is like a digital asset and is not under the regulation of the government, even though it is used as a medium of exchange. There is no central body that influence the value of Bitcoin. As a result, many countries have enforced strict regulations on its use since it is very easy to use it for money laundering, or worse, terrorism.
You cannot exactly feel Bitcoin as it has a virtual existence it operates within that realm only. Physical currency, from its very name, can be felt in usually forms – coins and paper notes. This at times poses difficulty, as it is not easy to carry paper money or coins beyond a certain limit.
Bitcoin has a digital form as it is created on a computer with the help of private pieces of code. In other words, the entire means of transaction is digital. As opposed to this, physical currency can exist virtually as well as physically. Today, a lot of people employ electronic payment services that helps in an online transfer of money from account to the other. The physical exchange is a given.
The aspect of supply is a crucial point of difference between physical currency and Bitcoin. The former does not have any stipulated upper limit, which means that the central authority regulating this currency can produce an unlimited amount of this money. On the other hand, Bitcoin, like most cryptocurrencies, usually generates a limited number of coins that continue to be in circulation. For example, in the case of Bitcoin, the upper limit may be constituted at 21 million. There is no telling regarding the limit to which physical currency can be in circulation.
The virtual existence of Bitcoin means that it can be stored only in digital wallets, also known as cryptocurrency wallets. These wallets claim to be a safe space, even though there have been numerous incidents of people hacking into these wallets and looting the money stored in it. Physical currency, on the other hand, has some kind of a liquidity to it, which means it can take any form in terms of storage. For example, PayPal allows physical money to exist in a digital form.