The technical term for real or physical money is fiat money. Fiat in this case derives from Latin and means “let it become” or “it will become”: money without intrinsic value that is used as money because of government decree.
Fiat money is physical money (paper money and coins), while so-called representative money is something that represents intent to pay the money such as a check. Fiat money is backed by the government, and representative money can be backed by different things, e.g. by the money in a bank account, like a personal check. Without any backing, both fiat and representative money would be worthless. In fact, every US Dollar in circulation is backed only by “the full faith and credit of the United States”, and has no inherent or intrinsic value whatsoever. Then, there is commodity money that is created from a good, often a precious metal such as gold or silver. Unlike fiat or representative money, commodity money has uses other than as a medium of exchange.
Main differences between fiat currency and crypto currency
Bitcoin, the most popular crypto currency in the world as of March 2017, has a fixed supply of 21 million coins, beyond which no more coins can ever be issued. That gives all bitcoins in circulation some form of value at any time, with the potential to increase in value over time. Until 2140 all 21 million Bitcoins will be mined.
Back in 2010, Florida programmer Laszlo Hanyecz asked someone into accepting the 10,000 Bitcoins he’d ‘mined’ on his computer in exchange for two pizzas from Papa John’s. He got his two pies for $30 of literally found money. In March, 2017, Laszlo Hanyecz could exchange his 10,000 Bitcoins for $10 million at one of the crypto currency exchanges none of which existed 7 years ago.
Speaking of generating new Bitcoins, there are no institutions ‘printing’ additional funds. The only way to bring additional coins in circulation is through a complex process called ‘mining’. As a reward for bringing new coins in circulation, Bitcoin ‘miners’ receive the privilege of being able to spend these coins first.
Until the last Bitcoin is mined, anyone in the world can participate in the mining process. There is no approval process to go through, as Bitcoin is so-called public blockchain welcoming people from all over the world to participate. All funds are controlled by the people active in this ecosystem, creating a decentralized system, or blockchain. Bitcoin has no single point-of-failure, making this blockchain network far more secure and completely tamper-proof. Unlike fiat currency, where one institution – a central bank – is responsible for controlling money supply, Bitcoin is consumer driven. Then, Bitcoin has multiple points of distribution, as the mining process takes place all over the world. In March, 2017, there are more than 6,000 miners, or: nodes, actively creating new Bitcoins. Lastly, Bitcoins are typically held in wallets – as fiat money is. But a Bitcoin wallet is a digital wallet, represented by an app on a mobile phone or another kind of computer.
Bitcoin is not the only crypto currency. As of March, 2017, there are 755 different crypto currencies with a total merket capitalisation of roughly $25 billion. However, there are only 9 currencies with a market cap above $100 million, with Bitcoin ($16 billion) and Ether ($4.5 billion) being the only ones with a market cap in the billions.
List of Top 10 Crypto Currencies Market Cap (March 2017)