Cryptocurrency has undergone growth and become phenomenal since it was first launched, the Bitcoin, in 2009 by Satoshi Nakamoto. Many people started using and becoming interested in having a cashless society. So, the question now is: can cryptocurrency replace fiat currency?
For many years, people have been using their current currency or fiat currency. However, in recent years, many are starting to use cryptocurrency, primarily Bitcoin. It is the first and by far the largest digital currency today. This is why there have been many speculations on whether digital money can replace fiat currency. Does cryptocurrency have the power to replace fiat currency? Continue reading to find out.
What Is Fiat Currency?
The word fiat is from Latin, which means “it shall be” or let it be done.” Fiat currency is a government-issued currency. It is a currency without an intrinsic value established as money and often legal tender by government regulation. Its value is derived from the supply and demand and the government’s stability issuing it, instead of the worth of a commodity backing it. Most of the modern paper currencies are considered fiat currencies. The US dollar and the euro are two of the most popular fiat currencies. This type of currency gives central banks greater control over the economy since they can control the money they can print. However, one danger of fiat currency is that it can result in hyperinflation when governments print too much of it.
Fiat money has value because the government maintains it or because two parties who are in a transaction agree on its value. In ancient times, governments mint coins from a valuable physical commodity, like silver or gold, or printed money that could be redeemed for a certain amount of a physical commodity. Fiat money can risk losing its value due to inflation. It can also become worthless in the event of hyperinflation. When the people in a nation lose faith in its currency, their money will no longer have value.
What Is Cryptocurrency?
Cryptocurrency is a word derived from the encryption techniques that are used to secure the network. Crypto means the various encryption algorithms and cryptographic techniques that safeguard entries, like elliptical curve encryption, public-private key pairs, and hashing functions.
A cryptocurrency is a new form of digital asset. It is based on a network distributed across a large number of computers. This has a decentralized structure that allows them to exist outside of governments and central authorities’ control. These are systems that allow for secure payments of online denominated in terms of virtual “tokens” represented by ledger entries internal to the system.
Most cryptocurrencies are based on blockchain technology or organizational methods for ensuring the integrity of transactional data. Blockchains are essential components of cryptocurrencies. One example of a blockchain-based cryptocurrency is Bitcoin, which remains the most popular and most valuable. Knowing these facts, can cryptocurrency replace fiat currency? Is it stable enough?
Can Cryptocurrency Replace Fiat Currency?
According to a study by Deutsche Bank, Germany’s largest bank, cryptocurrencies will replace fiat currency by 2030? How can this be possible?
To become a serious alternative in an economy, cryptocurrencies need to solve the deflationary problem that avoids hoarding. Also, other issues need to be resolved before crypto money will be adopted. Can cryptocurrency replace fiat currency? For that to happen, these main issues need to be addressed first.
- Scalability – Cryptocurrency is slow and expensive, although new developments are continuously being made to improve its speed and reduce transaction fees, such as the Lightning Network and the Raiden Network. These networks allow users to make micro-payments that otherwise not be feasible because of fixed per-transaction fees. Many cryptocurrencies, even Bitcoin and Ethereum, are fighting hard to overcome scalability issues.
- Spend-ability – It is not easy to find stores and establishments that accept cryptocurrency payments. However, there are cryptocurrency debit cards that are being used to resolve that issue. Litecoin by LitePay was also created to allow users to convert LTC to USD and vice versa while making purchases in real-time. The cards can be used anywhere where regular debit cards are used. This allows consumers to use cryptocurrency as a form of payment when purchasing clothes, food, and more.
- Regulations – Everything that enters the market needs to be regulated. Since cryptocurrency is relatively new, there are no specific regulations yet for its use. Proactive measures such as anti-money laundering regulations are necessary to make sure that consumers are protected. Regulations of this currency as of the present time are few and far between. Only time can tell whether or not the cryptocurrency will be accepted and validated as a payment system.
- Stability – In December of 2017, Bitcoin’s value was more than $19,000. However, in the following weeks, it went down drastically. As of now, cryptocurrency is seen as an investment, not as a way to pay for goods and services. It is necessary for cryptocurrencies to be stable to be used as a medium of exchange. If it is stable, then it creates trust. Trust and stability are necessary for a cryptocurrency to be accepted and used by the masses.
- Exclusivity – One main problem linked to cryptocurrency is the general public’s lack of understanding of the topic. Many people do not understand crypto money, what it is, and how it works. It will be difficult for the public to trust something they do not fully understand. Education regarding cryptocurrency is essential for it to become accepted and used and probably replace fiat money.
Everything in the world we live in is becoming digital, and the currency is no exception. So the question, can cryptocurrency replace fiat currency, remains. This is one of the biggest questions in today’s generation that has to be answered and decided on. Well, only time can tell which monetary system will be used. But whatever it is, one thing is certain: it will surely define the future generation. Learn more about monetary currencies here!