Currency is a system of money used as a mode to exchange goods or services. Traditional currency is the monetary system of a region, specifically a country. The currencies of different countries hold different values and are used as hard currencies in the form of paper. Digital currency on the other hand is a form of money that can be stored digitally and exchanged on a digital platform using the internet. The emergence of digital currency has put a great impact on the market worldwide and changed the economy as a whole. It has also started to replace traditional currency on various platforms.
Drawbacks of traditional currency
To compete with traditional currency, the digital currency must outperform in the major drawbacks of traditional currency which are as follows;
- Traditional currencies are made of paper and are only valid in the country of issue and limited within the international borders.
- Traditional currency is more prone to physical damage and theft.
- Since paper currency is very easy to use hence it can always be over-issued during financial difficulties leading to increased note-printing. Over-issue of paper currency can make it lose value and cause inflation.
- Inflation in turn can cause a steep price rise. In such situations, those with fixed income suffer the most.
- An increase in prices of goods can decrease exports and a rise in imports.
- This can lead to a fall in the external value of the home currency.
Benefits of traditional currency
To serve as a better alternative for traditional currency, cryptocurrencies should possess the benefits of paper currency as well. Some benefits of the paper currency are as follows;
- It is economical as it is more feasible and costs almost nothing to the government for its manufacture and requires low maintenance.
- It is much more convenient to carry and gives ease of use. It is extremely portable as it does not require carrying heavyweights in the form of money. A very less weight (paper note) can hold a huge value, giving it ease of use.
- It is homogenous and all currency notes of the same value are the same type.
- With the proper issue of the currency notes, the value will remain stable and will not show volatility or fluctuation.
- The quantity of production of paper currency is elastic and its manufacture can be regularized based on the requirements of trade and industry.
- The paper currency also holds advantages for the banks. Cash can be reserved against liabilities because currency notes are full legal tender.
Digital currency: an alternative to traditional currency
The digital currency should have all the benefits of traditional currency and lack the drawbacks of currency notes to serve as an alternative. How bitcoin and other cryptocurrencies stand out in the world of the paper currency are as follows;
- Digital currency gives user autonomy to the person who owns it, unlike paper currency which has some governmental influence. Banks and governments have some authority over the currency note that we use but that would not be the case for bitcoin use.
- Bitcoin transactions can be kept completely discreet and are not associated with the identity of the user by generating an anonymous address.
- Bitcoin transactions do not require the approval of a third party. Transactions are done in a one-on-one mode where the user can directly send and receive payments from another user.
- Foreign purchases involve exchange costs when the traditional monetary system is in use. Bitcoin transactions do not require any intermediate or third party institution, and hence allows the user to make cost-free transactions or they have to pay a very minimal amount. This is extremely useful for quick currency transfers.
- In this era of technology, everything around us has become digital to some extent. Cash transfers have also resorted to online modes of transaction. Using a mobile application, cryptocurrency transactions can also be made while avoiding additional drawbacks of cash transfer.
- Bitcoin and other cryptocurrencies are easily accessible to the user without banking systems.
- A lot of trees need to get cut to produce paper for the currency notes. If the entire traditional currency system shifts to digital currency then it will also prove to be an environment-friendly act.
The drawbacks of traditional currency like inflation, theft, and physical damage can be avoided by using digital currency. Unlike traditional currency, the issue of bitcoin and cryptocurrency is not limited to international boundaries. Bitcoin can be easily traded on platforms like british british bitcoin profit.