Advantages of cryptocurrencies over fiat currencies

Cryptocurrencies have important and convincing use cases over ordinary fiat currencies issued and run by central banks and governments.

These advantages of using cryptocurrencies in day-to-day activities together make a compelling case for their adoption over fiat in nearly every area of economy.

1. Time for change, digitization and automation

Compared to barter trading of goods and services, introduction of fiat currencies was a huge step forward because with it, people were able to trade more easily and over much greater distances.

In the last centuries, fiat currencies have helped in the building of large cities and societies we have today but in the 21st century, the economic and financial challenges facing the world need a much better alternative. Not only is there a greater push for globalization, digitization and automation, but also people expect things instantly, more securely, and diversely. Digitization and automation, as we know them, are entirely unavoidable in this and coming centuries.

And if "digitization of everything is the future" then digitization of money is unavoidable or inevitable and cryptocurrency is the best way of digitizing money so far.

The digital forms or versions of traditional currencies or fiat currencies have been with us and this present a good evidence for evolution of money. We have seen payments and transactions with smartphones, electronic bank transfers, credit cards etc which is far greater than the traditional handling of physical coins and notes. These earlier digital versions of fiat money further opened economies to a greater deal. But do they have weaknesses even as full digitization beckons?

Among the many challenges of any fiat, in digitized or physical form, we have seen centralized control of fiat money because central banks control how much gets printed etc and existence of inflation in many countries and hyperinflation in some economies are facts not fiction. With cryptocurrencies, there are no political risks involved, for instant in printing more money to lower its value or decrease how much is available to increase it. We also have seen fiat and economic systems being dominated by intermediaries -- the banks and everyone else -- which increases costs for businesses and their individual customers.

Decentralization as an important aspect of cryptocurrency projects helps to solve some of these issues of this form of centralized control while peer-to-peer transactions as a nature of cryptocurrencies help to cut down transaction and business costs hands-down.

Other challenges of fiat-based systems or ecosystems such as credit cards include charge-backs which increase fraud and yet this is not possible with cryptocurrencies. Cryptocurrencies cannot be counterfeited or reversed arbitrarily. Using cryptocurrencies also reduce chances for identity theft for instance when you automate card payments, lots of information gets pulled from accounts as compared to sending transaction via wallet addresses.

Today, in addition to the ordinary digitization, the security of digital data and information, need for secure storage and sharing of information, monetization of information, instant sharing of information, distributed nature of data storage are all very closely related and inseparable topics from digitization.

In 21st century, we are not only talking about digitization of information at the office or manufacturing processes and logistics for purposes of automation to increase efficiency and quickening of processes, but we are also interested digitization of ownership of assets to unlock fractional ownership of assets and make possible marketization of illiquid assets that could not be traded before, to secure digital copyrights, to enhance global citizenship, and to facilitate transparency of transactions.

Right now, there is no doubt about the benefits of adopting blockchain for almost any company that wants to keep up to per with what we would call modern-day digitization. Blockchain may suit a digital economy because it helps to deal with modern-day challenges of automation and digitization such as data security and need to transfer assets quickly in an environment of improved transparency and for decentralization, but cryptocurrencies are naturally digitally suitable, given the current challenges of digitization and automation, to define the value of those assets an individual/group/company owns and as a medium of exchange and store of value inside of blockchain-based digital platforms of the future because cryptos are sort of "native" to blockchain-based digital ecosystems. It is a tried and tested thing.

Digitization of securities such as stocks, bonds and debts etc, for instance, will bring more advantages to markets such as increased liquidity, efficiency, cost, post-trade streamlining, asset prices, fractional ownership, speed, global access, new financial products, business models etc.

Therefore, whether you are talking about utility tokens or security tokens for securitized assets, cryptocurrencies can help unlock economies by redefining what digital value is and can be. That value can flow instantly and on global networks, being traded and exchanged as their owners wish and at very low cost and with less delays compared to fiat-based. Digitization with cryptocurrencies helps with immediate settlement because there are less parties involved in a transaction. Besides, peer-to-peer method of transaction and payments can help eliminate delays and irrelevant legal hurdles or restrictions to unlock a global economy across borders.

Given the low to zero access fees, cryptocurrencies also lower the cost and requirements for access to financial services because they are accessible by everyone even people who do not currently have bank accounts. For instance, there are no costs to opening a wallet and sending and receiving transactions are, in most cases, free.

2. Lower transaction cost, better access of financial services to un-banked, and lower cost of access

The cost of sending or transferring money via fiat systems is between 0.5-5% and there may be additional one-off charge for a transaction. This is accompanied by worse-than-market exchange rates when sending money abroad. With credit cards,

Due to high transaction fees, some companies end up losing 1-5% of potential earnings on transfer, which could lead to increased prices of products in shops for consumers and even lowers wages since companies try to cut costs to break even or to make some profits.

Credit card transactions cost merchants around 2 to 3% of the value involved. Besides the normal consumer and merchants who are involved in the transaction, the issuer, acquirer and switch are also involved. The issuer is the card issuer, the bank from which the consumer received their debit or credit card while the acquirer is the bank the merchant is using to process their debit/credit transactions such as Stripe, Square and PayPal and the switch are the likes of Visa or Mastercard which tie the acquirer and issuer to complete the transaction.

While automated clearing house (ACH) are the most efficient traditional way to move money electronically in the United States, they cost about $0.27 and take 2-3 days to process.

With banks or credit card companies, you get fees charged for writing checks, transferring funds or withdrawal, account maintenance etc.

Cryptocurrency charges fee of between 0.1 and 1.5% per transaction. The cost of transactions for other cryptocurrencies is so low for instance Ethereum is $0.178 USD per transaction on average; 0.0047% for BCH which is around $0.22 to send $100. In some cases such as for IOTA and Nano, there is no transaction fees at all. While the cost of transactions in Bitcoin is currently $1.22 to have a transaction mined in 10 minutes, it has gone as low as $1.3 per byte and as high as $20 this year.

Due to the fact that cryptocurrencies are not subject to exchange rate fluctuation as money is transmitted from one country to the other, interest rates and other levies that may get imposed by a specific country due to the peer-to-peer nature of the ecosystem. In some cases, they enable users to transact where there are banking restrictions or that some payment methods are unavailable in some countries.

By removing intermediaries compared to fiat systems such as banks, cryptocurrencies finally manage low transaction fees through peer-to-peer systems. That's because every intermediary in a banking system will charge some fees to allow transaction through.

3. Better transaction confidentiality, privacy and security with cryptocurrencies

Fiat-based credit card systems and cash systems in many cases make a reference to your transaction and other documents, bank accounts and card details each time you make a transaction. Plus during the transaction, there might be need to make a more thorough examination of the user's financial histories in case of complex business-critical transactions.

Besides, with fiat methods, you might never get opportunity to choose what information you want to send because transactions are executed on a pull basis. In cryptocurrencies, you get to decide what information you intend to share and what transaction you decide to send because it is shared on a push basis.

In a traditional banking or credit ecosystem, a user is effectively turning stewardship of their funds over to a third party and accounts can get closed without prior notice for infringement of terms of service. With cryptocurrencies, you get to keep private keys of your wallet unless you can delegate management of your wallet over to a third party service.

Furthermore, cryptocurrencies employ encryption technology over blockchain to help safeguard against fraud and account tampering and guarantors of consumer privacy.
This also helps to improve privacy of digital currencies.

Security features on cryptos can help governments to save on billions spent to try and prevent counterfeiting of money. It cannot be forged. Also, these security characteristics of cryptocurrencies and blockchain help to secure personal and financial information which could help reduce if not eliminate identity theft, and other forms of fraud. It secures your balances, credit score, credit line, and transaction history and other details such as who you associate with, what you buy, what you do and where and how we transact.

4. Lesser fraud with cryptocurrencies

Besides, online shopping systems are now popular in the current days and many merchants continue to accept cryptocurrencies. Therefore, not only are cryptocurrencies more suitable for e-commerce but also merchants are able to avoid loses due to charge-backs and fraud, loses due to high transaction costs, and they can benefit from quick or instant transactions as well as ease of conversion from one crypto to another.

Chargebacks mostly occur because customers cannot wait for long (not instant payments) to have the transaction complete and therefore they have to cancel.

5. Making possible the easier transfer of varied types of illiquid assets

In most cases, what we term as asset ownership is data ownership in that when a party exchanges ownership of an asset in a contract, what gets to change are the details of ownership in the contract, which has something to do with information and data whether the assets involved are automobiles or real estate. Of course change of ownership grants the user the rights to possess the property.

With digitization of such information via blockchain, smart contracts are enabling tokenization of previously illiquid assets that could be hard and difficult to invest in and exchange given the traditional valuation models.

Illiquid assets such as buildings; vehicles and equipment; real estates; intangible assets; long-term financial investments; and goods that aren't successfully marketed -- are in a traditional setting very hard to market because the people interested are usually very few (given the asset's limited demand, supply and high price and niche nature of assets). For instance, the location of these assets may limit their demand to that certain geographical location or that its categorization in a given industry may limit demand to that specific industry. Unstable economic systems may also make it hard to market a certain product or commodity. Blockchain and cryptocurrencies, through tokenization, helps unlock the market for these kinds of assets.

Tokenization basically means digitally valuing of the property in a way that is trusted and verifiable and using certain standards, and secondly, it's value can be fractioned such that investors do not need to tie large amount of money buying a single asset but can buy the "fractional value" of the asset and invest expecting some returns.

Tokenization of property is redefining property ownership and exchanging globally and can be employed on virtually any kind of asset. The assets that were unable to be moved from a location to another can now have a different owners in different countries from the area of location, and many times without having to physically maintain or even visit the property.

Today, most of these tokenization is taking the form of security tokens where for instance, if a real estate is tokenized, then buyers of these tokens are assured some form of returns and the agreement between the buyer and seller of tokens is legally binding. Token holders also get the right to acquire property or part of it, through for instance selling of the tokens they own.

That said, even asset management is much better with cryptocurrencies.

Disadvantages of using cryptocurrencies

Some of the disadvantages of cryptocurrencies include the fact that they are not widely adopted currently, which is changing slowly. Although the cost of transactions for most of cryptocurrencies is very low, the cost of verifying Bitcoin transactions is sometimes prohibitive sometimes going beyond $20. Plus volatility is very high for cryptocurrencies and tokens. The high price fluctuations, which are not necessarily bad for traders, holders and speculators alike, sometimes make it hard to predict value in the future.

David Kariuki

David Kariuki likes to regard himself as a freelance tech journalist who has written and writes widely about a variety of tech issues that affect our society daily, including cryptocurrencies (see cryptomorrow.com and coinpedia.org); climate change (cleanleap.com), OpenSim and virtual reality (see hypergridbusiness.com). He is currently pursuing a MSc in Environmental Management at Open University. He does write here not to offer any investment advise but with the intention of informing audience, and articles in here are of his own opinion. Anyone willing to use any opinion here as advise to invest in crypto should obviously take own responsibility and accountability of their losses (or benefits) thereof. You can reach me at eqariu@gmail.com or david@cryptomorrow.com

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