As cryptocurrency is rapidly growing, the potential for it to replace fiat currency is possible. Fiat currency is therm used for a currency that has been declared by a government to be legal tender which is money as we currently know it. After an astonishing rise in popularity of cryptocurrencies, we have seen, only now, the breaks slowly being applied. A slow down in the market has emerged from its first release in 2009 in the form of Bitcoin. However, cryptocurrency has not yet been explored and implemented to its full potential. This means we are still arguably at the very begging of the cryptocurrency revolution.
Even so, the question remains, does it have the potential to replace physical money as we know it today? To explore further, we must first understand how the current banking system works and what the primary differences are between cryptic currency and paper money.
Fiat currency vs cryptocurrency
Durability
In regards to paper money, there are many concerns regarding its durability. Regular use of paper notes causes them to wear and tear over time. Efforts to make them more durable have been put in play with re-design and replacing old paper notes will polymer banknotes but is this enough. Cryptocurrencies, on the other hand, in nature, are entirely digital. The data is stored on a decentralised network which means, unlike paper money, you can actually lose it. Its features, in comparison to paper money, make it more durable.
Fungible
Both currencies are fungible, which means they can be replaced with the identical value of its own kind. This means the currency must be precisely the same and interchangeable. For example, a dollar is a dollar no matter what. No one US dollar is of a different value to another US dollar, the ar both identical in value. This is the same for cryptocurrencies such as Bitcoin and Ethereum; they all hold equal value.
Trade
One of the primary purposes of currency, no matter what form, is to facilitate the exchange of goods and services. In this respect, some cryptocurrencies lag behind fiat currency. This is because transactions can take too long to verify.
Divisibility
All types of currencies must have the ability to break down into smaller units. For example, the US dollar can be broken down into cents. Cryptocurrencies like Bitcoin can be broke down into satoshis. However, Bitcoin, depending on its value, has the ability to be broke down into infinitely smaller units.
Possible advantages of crypto
One of the most significant advantages of cryptocurrencies is that unlike fiat currency, it cannot be manipulated. This is due to the fact that crypto lives in a decentralised world which is unregulated in compassion to paper money which is run by central banks. Above that, cryptocurrencies can better support the universal basic income. This is a concept where all citizens of a country receive a set amount of money regularly to give every individual a fair chance at an adequate quality of life. It is a concept that fiat currencies are finding difficult to deal with.
Concerns if crypto replaces cash
There are some enormous challenges and concerns when it comes the idea of crypto taking over cash. The potential for crypto to outpace cash in term of usage means traditional currencies will overtime lose value. Crypto works a very different way to our current cash system. If it were to take over entirely, the need for new infrastructure would have to be developed for the world to adapt to this new way of working. The frightening thought of difficulties in the transition to crypto could happen too quickly, making cash incompatible very rapidly, leaving many with lost assets.
Why crypto will replace fiat in the long run
Cryptocurrency offers a fairer financial system as it is decentralised. In the current system, there are only a few who can influence and directly control the currencies. These are financers, large business magnets and bankers. Regular people do not influence the market even though they are affected by it the most. Also, if everyone came together, there is very little they would be able to do to change the market. One of the core functions that control the market is the supply of money. If the quantity of money increases the value of it goes down. The same goes for if the supply decrease the value of it goes up. Thos in the driving seat can massively profit from sudden changes in the market. Crypto and its decentralised market will massively affect the financial control from elite authorities and restore it to the masses.
Fiat replacements have limited supply which means crypto is likely to prosper in the face of it. Furthermore, cryptocurrencies, as we know, are not owned by governments. This means they will not suddenly drop or devalue due to the political actions of a controlling group. This means cryptocurrency can remain stable, unlike fiat currency. For example, in the wake of Brexit, the pound has fluctuated. The bottom line is that decentralisation means less manipulation. Cryptocurrencies are not affected by interest rates and inflation which make then slightly more attractive than the current way of working.
All views and opinions expressed in this article are the opinions of the author and not FXStreet. Trading cryptocurrencies or related products involves risk. This is not an endorsement to invest in or trade any of the cryptocurrencies, stocks or companies mentioned in this article.
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