Cryptocurrency vs. traditional currency exchange rates

In 2024, it’s fair to say that the financial industry is beyond complex, and this is best seen in the way we simply pay for goods and services. We are no longer limited to using physical money or Visa cards or Mastercards, but phones with tech solutions that do the same thing as well.

The above, however, only applies to traditional currency. Though, with cryptocurrency having gained popularity over 15 years, things have gotten more interesting. Naturally, questions about which is better have arisen, and answering such requires an in-depth comparison of both currency types as well as where they are in terms according to Rates – money exchange rate. This, and more is in the piece below, so let’s get into it.

Traditional vs. digital: defining the two

Before getting into the actual comparisons, we have to define what both currency types are, starting with the traditional or fiat currencies, as they’re also called. These are backed by a government or central bank, and not by the value of a commodity, such as gold. A prime example is the US Dollar which is now backed by the Federal Reserve, although it was under the gold standard until 1971, after which most of the world’s money went in that direction.

Cryptocurrency on the other hand is completely digital and is completely based on blockchain technology, which essentially takes away a middleman, like a central bank. This very definition shows that this currency type was made as a response to the traditional alternative. In 2024, it would be fair to assume that a good number of people have at the very least heard of crypto, as it has been a bit of a cultural staple since Bitcoin’s release in 2009.

Comparison

The major difference between the currency types in question is the lack of an intermediary in one, where it is present in the other. This one difference is seen in how the money exchange rate, or rather the value of each present itself. With fiat exchange rates, the basic idea answers the question of how much one currency is worth compared to another in a fluctuating market.

In other words,1 USD will equate to a certain amount of Japanese Yen depending on the day. This money exchange rate, of course, depends on the supply and demand dynamics that surround the two currencies that pair up with each other according to Rates. This is either currency will fluctuate based on several factors, and seeing as it isn’t tied to a commodity, the following do:

• Interest rates
• Inflation rates
• Monetary policy set by central banks
• A country’s general stability
• Trade deficits

Value: key determinants

Cryptocurrency’s value is determined in a similar way, which is via supply, and demand for particular tokens. In the case of something like Bitcoin, only a limited amount of it exists, about 21 million, so, the more we progress in time, the more in demand it will be until all of it is mined. Of course, not every cryptocurrency is like this, and so are other factors such as standing among investors, and the public, as well as the presence of competing tokens.

However, they, unlike their traditional counterparts, don’t have a central bank, or any intermediary for that matter. What the regulatory bodies do for fiat is try to keep it stable through policy, and it’s this type of regulation that crypto lacks and makes it volatile. That said, with the advent of stablecoins, which tie their value directly to a commodity like fiat currencies or gold, there is some semblance of stability.

Other notable comparisons

While the above simply refers to how these two types of currency differ from the standpoint of money exchange rate, other notable differences exist. Said differences center around a few key pillars which are:

• Security
• Privacy
• Usability

Guarding against malicious intent

Everyone wants their money to be safe, and fiat currency can be protected in banks through physical arms. However, this doesn’t prevent thefts from occurring, which is why banks need to have insurance.

Another thing that traditional currency is susceptible to is counterfeiting, which is something that cryptocurrency is immune to as because of cryptography, replicating tokens is impossible. Also, it is part of an entirely digital space in which physical thefts are impossible, and any theft requires the possession of private keys.

However, crypto can be at a bit of a disadvantage, because its decentralized nature lacks a regulatory body that leaves it more vulnerable to scams. Such worries can affect the value of crypto, as investors will look at it as a great loss waiting to happen.

Staying private

Privacy is one place where crypto outshines fiat, as transactions stay hidden at all times, due to their wallet addresses being the only visible ones. This is unlike with fiat where transactions can be traced personally.

General usability

Here, we have to look at two key areas, which are: How easy transactions are, especially on the international level, and how the world views them in the present. As far as usability in the digital realm is concerned, crypto has quite the edge over fiat, mainly due to the following:

• Lower transaction fees
• Speedy transactions due to a lack of an intermediary
• Growing transparency

However, it isn’t widely accepted in the world the way fiat is. The reasons for this revolve around fiat’s stability due to mature regulations set by the very intermediaries crypto wishes to do away with. This makes it more volatile, more prone to fraudulent activity, and thus, not as widely accepted, although that could change going forward.

Conclusion

We live in a world where both standard currency, and crypto coexist, and interact with each other, but because of their differences, asking for preferences is only natural. This is especially the case when you think about where they edge each other out, be it due to money exchange rate (which you can look up on Rates.fm), general usability, or otherwise.

The importance of knowing this centers around crypto, which is getting popular, and may be seen as a great alternative, if it isn’t already. Also, in the present, it is wise to know where things stand in case you want to use one over the other.