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Getting to Know Traditional and Technology-Based Currencies
Getting to Know Traditional and Technology-Based Currencies
Monday, 16 August 2021

The world continues to move towards a cashless society, which is driving the global financial system to adapt to these rapid changes. One of these changes is the development of cryptocurrencies which are predicted to replace fiat currencies. Even recently, Visa, the world's largest digital payment service provider, announced its long-term plan to use cryptocurrencies as a means of payment. One of them is that cryptocurrencies related to USD can be used to complete transactions on its network.

The development of cryptocurrencies has been so fast in the last three years globally. In fact, the overall capitalization of global cryptocurrencies is currently touching USD1.56 trillion. The number of coins that have sprung up with their respective functions and capacities has made many countries classify cryptocurrencies not as a means of payment but as an investment asset, so they are referred to as crypto assets. Then many questions arise regarding the inherent value or embodied in crypto assets, especially compared to fiat money.

“The most prominent difference between the two is that issuance and operations are decentralized with Blockchain technology on crypto assets, while fiat money is centralized or centralized. To be able to understand this, a basic understanding of crypto assets and fiat money is needed," said ICDX Research & Development Manager, Jericho Biere.

Fiat money is a currency that is officially issued by the central bank like physical notes and coins. Meanwhile, crypto assets, also known as digital currencies, virtual currencies, are not regulated by a central bank or government. Nonetheless, both crypto assets and fiat money, both have similarities in their roles and uses. What they both have in common is that they can be used as a medium of exchange for a transaction. Both also have a role as a store of value, a medium of exchange, and a unit of account.

The value of fiat currency can increase or decrease in the event of inflation or deflation. In contrast to crypto assets which are generally not affected by a country's inflation or deflation, unless the crypto asset is a stable coin linked to a country's currency, so it can be affected by economic indicators of the country concerned, including inflation or deflation rates.

From the supply side, the central bank can determine the circulating fiat currency depending on market needs, as well as carry out economic scenarios to regulate the circulation of the currency. Overprinting of fiat currency by the central bank will make the value of the currency continue to fall, so it can make the prices of goods and services soar that is not in line with demand, especially during the current pandemic situation.

“Unlike crypto assets, coin issuers can declare a limited number of crypto assets or unlimited crypto assets. In addition, the advantage of crypto assets is that there is a coin-burning mechanism to maintain the price and amount of crypto assets when needed,” added Jericho.

The value contained in crypto assets is private and operates independently. They work and run on a decentralized platform. Crypto asset transactions on the blockchain are immutable, or immutable, which makes them more secure than fiat money.

“Both fiat currencies and crypto-assets can be a medium for financial transactions. Therefore, crypto-assets are not to replace existing fiat money, but to complement them. With technology that continues to evolve, crypto-assets can become the future of the financial system and can be widely adopted," concluded Jericho.

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