Fiat Money: the currency that we commonly use for our day to transactions is the traditional currency. Although several digital currencies and token systems have emerged are extensively for shopping platforms and other transactional activities. The government along with the central bank is in charge of regulation and authorization of the circulation of the fiat money. The government can print currencies according to the need of the economic system in a nation.
Banks use traditional ledger systems to maintain a record of the circulation of the money. In this system, the ledger is manually maintained and updated. When the transaction is made, the transaction border has to be approved by an authority. The order has to be tallied against the existing balance in an account for verification. After it has been verified the transaction is approved by the banking authority. On approval, the transaction order is received by different branches of the same bank or different Bank, which follows a similar procedural method to verify and record this new transaction.
This process is complicated and time-consuming. The traditional ledger system is susceptible to mistakes as it is manually maintained. Such human errors create miscalculation and inaccuracy in the maintenance of the ledger. It is time-consuming because a single transaction needs to be verified at several points for it to be completely executed. It is for this reason monetary transactions across borders usually take more than a couple of days for competition. This creates inconvenience in case there is a need for a quick transfer of money. Cryptocurrency aims to make transactions faster and more secure.
Bitcoin– Bitcoin is the first cryptocurrency that was ever created. In 2009 Satoshi Nakamoto produced the idea of a peer-to-peer currency system that will be faster and more efficient than the currency that is issued and regulated by the traditional ledger system.
Bitcoin uses a decentralized blockchain ledger system. This means the ledger is not controlled or regulated by an authoritative body such as the government or a bank.
The transaction usually takes more than a couple of days for completion in a traditional banking system and takes only a couple of minutes for completion. Miners are in charge of auditing and approving a transaction taking place on the crypto platform. The process of auditing and approving a transaction and then subsequently recording the transaction history as a memory block is known as mining. The process of mining is what creates the blockchain. It is also through the process of mining bad new crypto tokens added into circulation.
The decentralized ledger system of Bitcoin is much more secure. Once the record is approved and added as a block in the existing blockchain it cannot be changed without disrupting the structural integrity of the entire blockchain. It is for this system the blockchain technology can be used to maintain a secure and safe record of any peer-to-peer-based transactions.
Most of the traditional currencies do not have any limitations when it comes to printing. The government is allowed to print as much currency as required. This makes the traditional currency inflationary in nature. Bitcoin however has a limitation when it comes to the production of new crypto tokens. There is a maximum limit to the number of Bitcoin that can exist at a point in time.
Will the government ban Bitcoin?
In China, the government has banned Bitcoin and crypto trading platforms due to their association with the illicit silk route. Since Bitcoin is decentralized, the identity of Bitcoin users remains anonymous; it has been used largely to make transactions on the exchange of illegal commodities such as drugs, armaments, etc.
In India, the government has banned trading in cryptocurrency. Like the pre-liberalization history of India where owning of foreign currencies and commodities was declared illegal by the government, the position and trading of bitcoins and other cryptocurrencies are also declared illegal by the Reserve Bank of India. However the ban was removed citing the reason that such banning would curb the freedom of business in the nation.
In Saudi Arabia, the position and trading of cryptocurrency have been declared illegal due to its deregulatory structure.
Conclusion– However in countries like America and Canada, Bitcoin trading and usage is legal and supported by the government. If cryptocurrencies have the potential to revolutionize the circulatory system by making them faster and more efficient then they should be allowed to coexist along with traditional currencies. It is for this reason governments in several countries have not banned the usage of cryptocurrency. If you take interest in crypto trading, applications such as Bitcoin mining are good places to get an understanding of the crypto market.