What’s the Difference Between Cryptocurrency and Traditional Money?

In the last decade, the rise of cryptocurrency and the increasing popularity of Bitcoin and its alternatives have resulted in many alternative opinions, questions, doubts, hopes, and anticipations regarding the new form of money. The main reason why there are so many different positions about cryptocurrency is that it still is a novelty even for those who have some understanding of it and for the majority of the population the concept of cryptocurrency is something vague and trivial. On the surface, cryptocurrency does not resemble any other kind of exchange we have been used to throughout the centuries. However, innovation has always been a part of progress and adaptation to the demands of the time. Even the most conventional and common form of currency for today – fiat money has been once introduced as an alternative of gold and its value has been established with a common belief in the currency rather than in its intrinsic value.

What makes money valuable

Essentially, national currencies such as USD, Euro, or any other one has value because of the shared belief in society. Because of this belief in certain countries and national banks that issue those currencies, a piece of paper is widely accepted as a form of exchange around the world. Naturally, the value of fiat currencies is also derived from economic movements, money circulation, and other global factors. The belief in a certain currency, which subsequently turns it into a valuable asset and form of exchange, is based on factors such as its reliability, utility, scarcity, portability, and non-counterfeit ability. Cryptocurrency can effectively be considered as a realistic alternative of fiat money and also as a possible asset for investment. Some people refrain from trusting and accepting cryptocurrency as a form of money as it is not physically tangible and exists only in a digital form. However, considering that currently, only 8% of the world’s money is in a printed form, much of fiat currencies in circulation or in deposits are also in a digital form. Cryptocurrencies are decentralized and therefore free from government censorship. Besides, in the case of Bitcoin, they are scarce because of the finite amount of supply, and because of the amount of effort required for mining new coins. One of the main advantages of Bitcoin over government-issued currencies such as USD or Euro is that it cannot be manipulated by the government, central bank, or any such authority. Its decentralized structure, as well as the fact that there are a finite number of Bitcoins available and no additional units, can ever be created after it reaches the maximum number, (21 million) ensure its stability against manipulation and inflation. The easily portable and durable nature of digital currency together with almost no chance of counterfeiting thanks to blockchain technology, cryptocurrencies, and especially Bitcoin which has accumulated substantial trust and popularity since its inception, have all needed qualities for a good currency which serves the needs of the market. Just like regular money, the value of cryptocurrency is largely dependent on anticipations and beliefs regarding it. Considering that Bitcoin, the most popular cryptocurrency has some qualities that make it convenient, reliable, and secure for the users, it has the potential of becoming as natural part of daily transactions and purchases as is traditional currencies today.

What is Crypto Wallet?

Definition

Much like cryptocurrencies itself, wallets designed for storing them are not physical items either. Commonly referred as a digital wallet, a crypto wallet is a virtual storage of cryptocurrency through which the coins are accessible for the owner. They are utilized for sending, receiving, and storing funds in cryptocurrency. Each wallet has a corresponding private key which is disclosed only to the owner of it. The key serves security purposes and represents the address of the wallet. There are various types of digital wallets that differ from each other with the mechanism of storing the coins and with the way it can be used by the owner of the private key.

Hot Wallets

There are two main categories of crypto wallets – hot wallets and cold wallets. The difference between them is that hot wallets use an internet connection while cold wallets are storing coins offline. Hot wallets are prominently used for facilitating transactions. Though internet connection makes hot wallets somewhat more vulnerable to hacking attacks, the chance of it happening is low and they are only riskier than cold wallets because the fact of being connected to the internet creates a theoretical chance of being accessed by unwanted parties. Hot wallets are particularly convenient for those who use cryptocurrency for daily transactions and who prioritize easy access on their coins. Many of the cryptocurrency owners opt to have both, cold and hot storages with different purposes. Hot wallets can be either desktop software, mobile or web wallets that can be accessed instantly through the internet.

Cold Wallets

Unlike hot storages, cold wallets are the ones that do not require an internet connection and are mostly used for storing crypto coins for some period of time. The main purpose of using cold wallets is security. Saving funds offline rules out an even theoretical chance of hacking attack through an internet connection. There are several forms of cold storages all of which serve the purpose of securing one’s funds offline. The most basic of them is a paper wallet that contains public and private keys and the QR code which enables transactions when scanned. The drawback of such wallet is that in case of losing or destroying the papers, access to the funds is also lost. Other choices of cold wallets include hardware devices that generate private key offline or offline software with a similar mechanism as hardware wallets. As you can see, both kinds of digital wallets have their benefits and drawbacks. At the end of the day, it’s totally up to your needs and priorities which one is better for you. It largely depends on your needs and cryptocurrency managing strategies. If you are going to frequently use your cryptocurrency for daily transactions and purchases, you will probably need to have an access on a hot wallet. Alternatively, if you plan to hold your crypto funds and don’t plan on spending them on a regular basis, cold wallet might be more appropriate. Frequently, crypto owners have both, cold and hot storages and diversify their crypto assets with different purposes.

Bitcoin, Litecoin and other coins

What is Bitcoin?

Bitcoin is the first cryptocurrency ever created and also the first one that appeared on the market in 2009. Introduced by a pseudonymous developer or group of developers, Satoshi Nakamoto, Bitcoin came into existence as a digital form of money that is not controlled by any government or bank and that is decentralized between the global network of participants which gradually grows in number. Because of that, Bitcoin is resistant to censorship, is not confined by borders and operates by blockchain technology, which ensures its security with public encryption. The idea of Bitcoin is that it is operated by a collection of high-powered computers that run the code of Bitcoin and save it to a public network of Blockchain. As for Blockchain, it is a collection of blocks. Each block is storage of Bitcoin transactions. Such technology ensures that nobody is able to forge transactions because all blocks in the chain run the same history of transactions and those transactions can be seen publicly by anyone in real-time. Unlike fiat money (Regular currency issued by banks), cryptocurrency, in general, is not controlled by a centralized authority. Therefore, it is not possible for a single authority to control and direct its market price and Bitcoin’s value can fluctuate significantly. During its short existence, there have been drastic changes in Bitcoin’s market value. Because of its scarcity, difficulty to maintain, and the finite number of available supply (21 million) together with its high liquidity, security, and reliability, Bitcoin is believed to stay a valuable asset over time. Some investors prefer to use Bitcoins as a form of currency and spend them in regular transactions while others adopt a holding strategy and invest in Bitcoins with the hope of its growing value in the future.

Altcoins

Nowadays, Bitcoin is the most famous cryptocurrency in the world, however, hundreds of other cryptocurrencies have been created since Bitcoin’s success. Each of them has its own distinguishing feature or mechanism which makes particular currency valuable on the market. All cryptocurrencies other than Bitcoin are known with a collective name, altcoins. Some altcoins’ blockchains are created completely from scratch while others are based on already existing blockchains. Generally, altcoins are created with the purpose of improving some features of Bitcoin or offering alternative features or mechanisms available.

Litecoin

As numerous altcoins have appeared over the years, it is extremely challenging for them to stand out and gain popularity. One of the few altcoins that have established their place on the market is Litecoin which was created in 2011 as a ‘silver alternative’ for Bitcoin’s ‘gold’. Like Bitcoin, Litecoin is also a fully decentralized open-source network. Both, Bitcoin and Litecoin can be bought on an exchange (You can buy both of them on Swapax as well) or mined through blockchain blocks. The most important difference between Litecoin and its predecessor, Bitcoin is in their market capitalization, distribution of coins, transaction speed, and the cryptographic algorithm each of them employs. According to the latest data of 2020, the value of the total amount of Bitcoins in circulation is about 128$ billion while the market cap of Litecoin is under 3$ billion. One of the ways in which Litecoin stands out is the total amount of coins that will ever be produced. It can reach 84 million coins while the maximum number of Bitcoins that will ever be mined is just 21 million. The most significant difference between Litecoin and Bitcoin and possibly the main advantage of it is the average speed of the transaction. In the blockchain system, transactions require some time to be approved by the network. On average it takes about 10 minutes to perform a transaction with Bitcoin and about 4 times less on Litecoin (about 2.5 minutes). This difference can be considered as a competitive advantage of Litecoin. To conclude, being the first-ever cryptocurrency in the world, Bitcoin dominates the industry and represents the most expensive and popular cryptocurrency in the world. Bitcoin’s popularity and its many practical advantages induced the creation of hundreds of other cryptocurrencies. Though not many altcoins managed to establish their place on a crypto market, Litecoin managed to find its place among the top crypto coins.

Where Can You Spend Bitcoins?

When it comes to managing crypto funds there are at least two different alternatives – saving them as a form of future investment (also known as Hodling) or spending them on daily purchases and transactions. Using Bitcoin for shopping and transactions has lots of benefits which include safety, convenience, speed, and 24/7 availability. However, as cryptocurrency is a relatively new concept, not every merchant takes it as a form of payment, and because of that one of the main challenges is to find places where you can actually pay with Bitcoins. Still, there are quite a lot of places where you can pay with cryptocurrency and experience all the benefits of it.

Online Shopping

One of the most frequent uses of Bitcoin is spending them on online purchases. A growing number of online shops and retailers are accepting Bitcoin or other cryptocurrencies as a payment method. Currently, there are hundreds of online shops where you can make purchases with crypto coins and the number of them is going up. You can use various search engines like https://spendabit.co/ to find online shops that accept Bitcoin. Probably the biggest online shopping platform that accepts direct Bitcoin payments is Shopify. They are allowing merchants to accept payments in Bitcoin since 2015. While many online shops are adopting direct crypto payments, online shopping giant, Amazon.com still does not take any coins directly. However, the good news is that you can still shop with Bitcoins on Amazon. There are several companies through which you can make purchases on Amazon. They will pay for your Amazon order in exchange for your Bitcoin payment. The most well-known of such service providers is Purse.io with several alternatives on the market.

Travel

Imagine visiting around the world without the necessity of converting to local currencies and making mental calculations all the time before getting used to it. Or even better, imagine that you can avoid unrealistically high ATM fees in a foreign country. Well, it sounds too good to be true and unfortunately, it is for now. However, that is what the future holds if the cryptocurrency market will expand and crypto coins become widely accepted. Meanwhile, there are other ways to use your Bitcoins for traveling and get the best of it. The process of globally adopting cryptocurrency is still in the initial stage but several major travel-related companies are accepting Bitcoin as a payment method. The most popular of them in a Bitcoin community is Bitcoin. Travel, which offers flights, accommodations, and rental car options for travelers willing to pay with crypto. There plenty of other travel agencies also accepting Bitcoin, as well as individual airlines and hotels.

Local Stores/Businesses

Equally good news for frequent travelers and just any other crypto enthusiast is that more and more small local businesses are also starting to accept cryptocurrency and especially, Bitcoin. There are thousands of local cafes, bars, or other businesses where you can pay with your crypto coins. A public database of https://coinmap.org is one of the ways to discover such places around the globe. There’s a chance you find your beloved coffee place in the list or explore alternatives where you can pay with Bitcoins.

Major Companies that Accept Bitcoin

Unsurprisingly, small local businesses are not exceptions and some of the giants of the world also adopted crypto payment. Microsoft being at the top of the list, companies like AT&T, Wikipedia, Overstock also accept bitcoins either as a payment or a donation. Even some of the globally known fast-food chains such as Subway, Burger King, and KFC have stepped into the crypto world and started getting Bitcoin payments. Hopefully, other global giants of different industries will follow the steps of them in the near future.

Bitcoin Debit Card

While the list of merchants and service providers who accept Bitcoin or other cryptocurrencies is still fairly limited, thanks to Bitcoin debit cards available, crypto owners have an alternative of spending their coins through the debit card. Using a Bitcoin debit card will allow you to make purchases at any place accepting debit cards. This way, the retailer will get paid in regular currency while the price of it will be deducted from your Bitcoin balance.

Final Thoughts and Recommendations

Even with the limited options available, crypto transactions are extremely convenient with its security, speed, and little to no transaction fees. This is especially true when the product is bought without third party involvement, meaning that the transaction is between your personal crypto wallet to the service/product provider’s wallet. So, finding the merchants allowing crypto payment is invaluable. So, we recommend you to search for the businesses and online shops that accept Bitcoins on https://coinmap.org/ and https://spendabit.co/. Even though many of the major global companies still don’t accept Bitcoin payment, you can take advantage of growing technology and get reward shopping and purchasing services even from the merchants that don’t accept cryptocurrency. There are several software apps that can give you cashback rewards in cryptocurrency while you are shopping with your regular money without any additional expenses. 1.Lolli is probably the most popular of such apps. It allows you to get up to 30% cashback in bitcoin while paying for Sephora, Hilton, Gap, Expedia, and many more. 2.Another similar platform that gives you Bitcoin cashback while paying with regular money is Fold. On Fold you can buy gift cards of a certain amount and spend them on the variety of popular websites such as Amazon, Airbnb, etc. 3.Another alternative for collecting fractions of Bitcoins is Pei. This one is especially convenient as the customer can link their debit card to Pei and simply get rewarded with Bitcoin cashback whenever they make a purchase at any of the Pei’s partners. Such apps are a good way to get small rewards and get familiar with the Bitcoin world. As for the ones who already own cryptocurrency, they can opt for paying with their crypto fund or collecting some additional Satoshis when direct crypto payments are unavailable.

What Is Cryptocurrency?

First introduced in 2009 with a pioneer crypto coin – Bitcoin, cryptocurrency is a digital form of cash that is secured by cryptography behind it. Similarly to other forms of digital money, cryptocurrency can be used for making online purchases, personal transactions, or paying for various services. Despite the similarity on the surface, the mechanism and the idea behind cryptocurrency is quite different from either traditional currency or its digital alternatives. The most unique feature of cryptocurrency that separates it from any other kind of money is the fact that it is not owned by a single party. There is not a central bank or any kind of centralized power that influences the currency. Decentralization prevents cryptocurrencies from being controlled by any government or authorities and therefore, they are highly resistant against censorships and shutdowns.

Blockchain Technology and Security

Apart from its decentralized nature and benefits derived from it, cryptocurrencies have an advantage over other types of currencies in terms of privacy and security as well. The blockchain technology behind bitcoin and other cryptocurrencies ensures keeping an online ledger of each transaction ever conducted on a public network. Blockchain is a specific database in which data can only be added but not removed or changed. The chain is made up of individual blocks and each one of it contains a hash of a previous block. In combination, it creates a kind of a unique digital footprint. Modifying data in a single block would require changing the hash in every consecutive block as well. That is why it is virtually impossible to forge transactions conducted with blockchain-based cryptocurrency.

Privacy and Openness

Cryptography-based virtual currencies have the advantage of providing privacy and openness at the same time. Each owner of crypto-coins has its own public key and private key. A private key is a massive number that is impossible for anyone to guess correctly and this key is used as a kind of signature while conducting transactions. The public key, on the other hand, is generated from the private key and it is publicly available. Using Bitcoin means that individual coin-owner’s transactions are trackable through their public keys. However, it is extremely difficult and almost impossible to link certain keys to a real person to whom belongs this particular public key. Therefore, cryptocurrency creates the space for financial operations within which there is not a central authority, transactions are held in a secure network where users can take advantage of personal privacy and financial transparency at the same time.

Future prospects

Because of its reliability and immunity against forgery, cryptocurrency and blockchain technology is largely believed to have the potential of revolutionizing many industries including finances and law. In the future, it can be used for providing online voting systems, secure and reliable crowdfunding solutions, and much more. Besides, more and more industries and individual businesses are accepting cryptocurrency as a regular payment method. Even though cryptocurrency is still a novelty for the majority of the world and even though the value of individual crypto coins, including Bitcoin, is highly volatile, limitless possibilities created by blockchain technology hold the promise that cryptocurrencies are the future of the industry and they are here to stay in the upcoming decades.