Besides you finding Bitcoin being used as a payment option on the best online casino, there are also advantages to it. It’s created new ways for investors to store money through buying and holding tokens so it’s more accessible and possibly more lucrative than keeping physical money with you on hand. But when it comes to the two and comparing exactly the difference between them, we see that there are several differences between investing in traditional banking and purchasing Bitcoin.
So, if you’re interested in wanting to know more about the key differences between Bitcoin and traditional banking systems, you can continue reading for more.
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Looking At Structure And Assets
The most obvious thing about investing in cryptocurrencies like Bitcoins is that structurally, digital currency isn’t the same as putting your funds in a bank account. Bank accounts keep fiat currency in its existing form with an existing institution. This means that your money is protected from an illegal activity like fraud and you’re likely to experience perks like being part of membership programs and having insurance against any theft or loss that you may encounter.
But storing money in Bitcoins is more about structurally being part of an investment. It’s the purchase of an asset that’s similar to you buying a foreign currency or investing in real estate. There isn’t an existing institution or structure that you’re necessarily part of because you’ve already used the funds to purchase the asset. Where you’d find your money being stored in a bank, your Bitcoin asset is simply responsible for storing the value of your investment.
Understanding Fiat Currency
The bank is responsible for keeping your money in its original fiat currency value. When you put a dollar in your account, it will remain a dollar, however, when you invest in Bitcoin, you’re transferring your money into a token making the contents of your wallet, Bitcoin.
Fiat currencies are run by policies set by the respective government so their value can expand or contract based on judgments made by the central treasury. On the other hand, Bitcoin is a fixed currency commodity and this means that its supply won’t contract. Instead, it will only expand at set rates that are dependent on the number of tokens that will be circulating at the time.
Stability Between The Two
Bank accounts change based on two factors which are the underlying value of the cryptocurrency and what the interest paid is worth. With Bitcoin, change will primarily occur based on the market value of the token.
The money that’s stored in a bank grows interest using a fixed rate that’s set by an agreement between the bank and the consumer. There can also be changes with the currency itself through influences like inflation that cause the value of the respective currency to erode. Even though the erosion is influenced by the bank’s interest rate, it’s very uncommon to find banks paying an interest that’s keeping up to the actual inflation rate.
Government policies have a huge impact on inflation rates while Bitcoin remains influenced by market forces, primarily. Since there’s no regulating authority behind Bitcoin and how it operates, the Bitcoin supply is fixed in the marketplace and a single token’s value is almost entirely dictated by demand and supply. This means that there isn’t any government that can increase or decreases the value of Bitcoin through inflationary policies.
The last point we’ll be attending to is with regards to ease of spending. With a bank account, your money remains stored so spending it will involve a third-party transaction that will collect that money from the institution like an ATM or through the use of a debit card. All these systems will check your account and should the funds be available, a transfer will occur making the funds spendable within the economy.
But since Bitcoins are assets, they are less fungible meaning that they can only be spent with merchants that are interested in accepting the Bitcoin. However, these merchants are relatively few. But one thing to note is that by using Bitcoin, this only involves a single transfer meaning fewer steps are involved in the process because you’re in direct handling with the merchant.