Many people have taken a great interest in various types of cryptocurrency, especially in light of the big Bitcoin boom and crashes of the past few years. Recently Bitcoin peaked at a cash value of more than $4000 in US currency value. Speculation by financiers and money movers on wall street have even placed a potential high end value at over $1 million dollars USD, as Bitcoin is a finite digital currency, one of the many differences between that and cash. But what is the difference between cryptocurrency and cash. For that matter, what really is cash?
Cash or dollars or fiat currency of any kind, for that is what cash is, fiat currency or money, is simply a trading mechanism termed legal tender by a government. Cryptocurrency has nothing to do with any currency, is a finite, openly produced and traded bartering tool that is transparently made and verified by thousands of machines crunching numbers. The dollar bill, on the other hand, is printed by the Federal Reserve, in secrecy, and then backed by the United States government. Neither have any inherent value, like gold or oil or even food, but they are used to trade for things with inherent value. The big difference is that the government prints money, or fiat currency, in secrecy. They can print as many or few as they like, and do not have to tell anyone how much they are making or destroying. They have physical properties, so they can be counterfeited or copied.
Cryptocurrency has no government backing. It is openly traded and created by the crunching of numbers viewable online in a block chain, as computers hash through endless code to verify the creation of the cryptocurrency, ensuring it is created one time with a unique code that cannot be copied or counterfeited. Also, most cryptocurrency, like Bitcoin, is finite, so only a certain amount will be created, meaning that the value cannot be inflated and so long as it is traded, its inherent value will increase. Many large companies around the world now accept and utilize various forms of cryptocurrency, as it can instantly be transmitted, cannot be counterfeited and is easy to store without the need of bank fees and other fees.
Most Popular Types of Cryptocurrency
Bitcoin: Bitcoin, often referred to as BTC, is the king of cryptos. It dominates headlines, upsets markets, and has been heavily invested in by Wall Street and many large investors, which also explains its extreme volatility. It can shoot up by thousands of dollars in value in months and fall twice as quick. It also has become such a big deal, traded by so many, that most governments are or have developed regulation regarding its trading.
Litecoin: If Bitcoin is Batman, Litcoin (LTC) is Robin. It is not nearly as valuable or as volatile as BTC, but it is steady and stable, having been around almost as long as BTC, and created and verified by complex ‘scrypts’. It is usually traded for or alongside BTC on exchanges, and is popular and a great long term cryptocurrency to carry in any diverse portfolio that contains BTC or other cryptos.
Ripple: Ripple is a big crypto currency exchange, and unlike BTC or LTC it is not mined. Ripple is an exchange mechanism or protocol that allows for instant exchanges across borders and reduces bank fees. In fact, many banks use Ripple. While it is different than other cryptos in so far as it is not openly mined, it is extremely popular, widely used, not affiliated with a government so it is not a fiat currency, and has had some longevity considering the small history of cryptocurrencies.
Cryptocurrency is an independent barter mechanism tool, a cyber form of money. The value of cryptocurrency is determined by the market, what people are willing to pay for it by other means, such as fiat currency or services rendered. Cryptocurrency is a relatively new form of currency, developing in the last decade, is a transparent form of currency and has no physical properties whatsoever.
Fiat Currency 101
Fiat currency is generally referred to as cash or money. Dollars are fiat currency. Fiat currency is produced and distributed by governments. Governments set the value for it, as fiat currency is backed by no commodity or anything other than the value that is determined for it by whatever government creates it. It is not transparent, in fact its creation, distribution and even destruction are carried out in secrecy, and it has a physical presence, which can be copied or counterfeited.