Fiat currency is government-issued and backed by the sovereign. This includes dollars, euros, pound sterling and Swiss francs, amongst many more. Cryptocurrency is a digital currency built on blockchain and is explained in further detail below.
With the emergence of new e-currencies and cryptocurrencies, we find ourselves wondering where to store this digital money as we navigate the internet. This article outlines what you need to know about a crypto vs fiat wallet, whether internet users require both, as well as the pros and cons of these types of wallets.
Fiat Wallet Vs Crypto Wallet Explained
What is a Fiat Wallet?
Put simply, a fiat wallet is a place to store fiat currency.
There are lots of different fiat currencies. Each country typically has its own fiat currency that is backed by the government. For example, the U.S. fiat currency is US Dollars (USD). The currency of the European Union is the Euro (EUR).
A fiat wallet can be both digital and physical. The wallet where you store your paper notes and cards is considered a fiat wallet. There is also a digital fiat wallet: a place for fiat currencies that you can store and spend virtually. You’ll find these on cryptocurrency exchanges and in the form of mobile apps.
Since digital transactions are more popular than ever, digital currencies – both fiat and crypto – are becoming the norm rather than the exception. That’s why it’s important to understand a fiat wallet vs crypto wallet.
What is Cryptocurrency?
Before addressing the crypto wallet vs fiat wallet debate, it’s important to understand what cryptocurrency is and isn’t. You’ll likely have heard of Bitcoin and perhaps Ethereum and Cardano: each of these is a cryptocurrency.
Cryptocurrencies are a digital currency that allow users to send and receive payments directly. Unlike fiat currencies, where authorization is needed from a third party, such as a bank, cryptocurrency is sent peer-to-peer.
Like fiat currency, cryptocurrency offers a store of value. There are a limited number of Bitcoins, which makes it scarce and can increase its value. Since crypto is built on blockchain technology, it has a public ledger on which all of the transactions, made in a currency such as Bitcoin, are visible to the public.
Cryptocurrencies can be sent and received by anyone in the world, providing the sender and receiver have a crypto wallet. This is revolutionary because it means users do not need permission from centralized authorities such as banks or governments to make payments.
Cryptocurrency is highly volatile and not regulated or backed by banks or governments.
Crypto wallet vs fiat wallet: what’s the difference?
With so much talk about crypto, it’s easy to find yourself asking, what actually is the difference between a fiat wallet vs crypto wallet? The two wallets have many similarities but very distinguishable differences.
Both crypto and fiat wallets store a form of currency. A fiat wallet is a place to save your fiat currency, such as dollars or euros. On the other hand, a cryptocurrency wallet is a place for your crypto. The fiat wallet can be a physical or digital item, whereas a crypto wallet is often digital.
It is not possible to store crypto in a fiat wallet. Many cryptocurrency exchanges offer a place to store fiat in a wallet, alongside a crypto wallet. Storing fiat in a wallet digitally is much like storing it in an online bank. Often, the wallet is also owned by a central authority.
A crypto wallet is protected by a private key, so the crypto can only be accessed by its owner. It also has a public key, which the wallet owner can share to receive crypto payments to the wallet.
Fiat Wallet: Pros & Cons
A fiat wallet comes with advantages and disadvantages. Some pros of this kind of wallet are:
- Fiat is the longest-standing accepted method of payment.
- Currency stored in a fiat wallet is widely recognized and accepted around the world.
- A fiat wallet is a highly convenient place to store your fiat currency.
The fiat wallet also comes with some downsides:
- Using currency stored in a fiat wallet relies on the authorization of governments and financial institutions.
- Inflation has long been a problem for fiat currencies because they are in unlimited supply.
- Currencies held in a fiat wallet can be at risk of counterfeiting and forgery.
Crypto Wallet: Pros & Cons
Crypto wallets have some major benefits and a couple of downsides. The reasons people choose a crypto wallet are because:
- Crypto wallet users have full control over their funds. This means they cannot be frozen or taken away by a bank.
- It is simple to trace cryptocurrency transactions, meaning it’s easy for anyone to see where money is coming and going to.
- Sending and receiving money is fast and immediate. It goes from crypto wallet to wallet.
- A crypto wallet can be accessed anywhere in the world and isn’t limited by borders and regions.
The cons of using a crypto wallet are:
- A crypto wallet is still an emerging technology and can be at risk of bugs and hacks.
- There are certain things a user must learn in order to use a crypto wallet and keep their funds safe.
- If a user loses their private key, they will no longer be able to access the fund stored in the wallet.
Which is Better for the Average User?
When it comes to the fiat wallet vs crypto wallet debate, you’ll probably find yourself wondering, which is better?
The truth is the average user will likely find themselves using both for online transactions. With crypto a fast-evolving industry, we may see an increase in crypto wallets in the future.
