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January 11, 2022

What is the difference between crypto currencies and real money?

Today, we point out the biggest differences between crypto and real currencies.

Let’s ignore the short-term challenges like blockchain transaction costs and lack of ways to pay with crypto in real life, because those will be solved eventually. But there are actually a number of inherent differences, and real money still has big advantages. Let’s dig in!

One important difference is that a currency like the US Dollar is backed by the entire power of the US government. The government has massive buying power, in turn creating a high degree of stability that is backed by the world's largest reserve.

Crypto currencies on the other hand, even stablecoins, are not backed by a system with that much power. It’s easier for those currencies to lose backing and collapse, and there is no central force to actively help avoid that should it become reality.

Another fundamental difference is how quickly decisions can be made. By design, the US Dollar is controlled by the US government, and it can decide what to do with it in somewhat arbitrary ways. But that power means that it can make quick decisions to react to real world scenarios like inflation or a weak economy because it has central control.

Crypto currencies on the other hand are decentralized, and their operating principles are set in code. Scenarios that were not foreseen by their makers could be impossible to respond to and cause economic trouble.

So there you have it. And with all that in mind, next time we’ll ask ourselves: Is crypto ever going to replace real money for good?

Disclaimer: This podcast references our opinion and is for information purposes only. It is not intended to be investment advice. Do your own research and seek a duly licensed professional for investment advice.

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