When Bitcoin was first launched in 2009, its primary purpose was to act as a currency that could power daily transactions. While that is yet to happen, there’s no denying that the digital asset market has evolved considerably over the years. While in the beginning, it was the domain of a few and far-between tech lovers, it is now regarded as a valid part of many financial portfolios. Its ability to diversify holdings and the potential to act as a hedge against inflationary pressure are just two of the aspects that make it so attractive to investors.
Many have sought to expand the ways in which they purchase crypto, with many looking into ways to buy Bitcoin with a debit card. Many follow the historic development of BTC as a means to get an edge when investing. In contrast, others have taken to interpreting price charts in order to make their own estimations and predictions. These are just a few factors that have led many to believe that cryptocurrencies will likely replace fiat money someday.
Can it happen?
While it might have seemed absolutely impossible in the early 2010s, technology has progressed quite a lot since then, achieving impressive feats that many didn’t imagine even a decade back. Artificial intelligence is another example from this category. While not long ago, the idea of machines that are actually intelligent seemed far-fetched at best, you can currently chat with AI systems that often sound unnervingly human.
Therefore, is it so far-fetched that the world might switch to crypto someday? While the fact that it is entirely digitized might have seemed like an impediment not long ago, it can be regarded as a positive thing now. Society is increasingly becoming more and more cashless, as cards and applications make it easier and more accessible to perform all kinds of payments. You don’t have to worry about not having enough on you or digging in your pockets for change.
Crypto adoption is also becoming increasingly more visible. Some countries, such as El Salvador, have adopted Bitcoin as fiat currency. While many have called the move rushed and not sufficiently planned, it’s not unlikely that other countries will soon follow suit. Emerging economies are particularly attracted by Bitcoin, as it can provide an outlet for saving money. In places rife with unemployment, it is also a way for people to achieve financial stability.
Some other nations have also shown interest in cryptocurrencies. Recently, a mining facility was discovered in Bhutan. Located in the Himalayas, it used hydropower to generate crypto for many years. Japan is also highly attracted by the development prospects and adopted a white paper discussing the potential of the digital sector for fueling growth. Across the world, many researchers have expressed the opinion that the blockchain system will soon be used to power virtually all industry sectors due to its resistance to fraud.
The rules and regulations currently underway in the United States also indicate that the world is beginning to view Bitcoin as something genuine, with realized power, rather than something far removed, which has no real-life implications for people. So, considering all these aspects, is it improbable to expect crypto to battle fiat currencies for market supremacy someday?
Fiat issues
When it comes to discussing this hypothetical scenario, many are quick to discuss how cryptocurrencies lack several important characteristics compared to fiat money. However, it’s essential to recognize that digital coins offer several unique advantages. The main one is the fact that they are entirely digitized. Many countries have increasingly switched to applications and cyber currencies, with the physical money-losing ground. Cryptocurrencies are fully digitized, removing the need for physical, printed coins and banknotes.
Secondly, it’s important to consider that traditional financial systems are highly complex, and many funds go into maintaining and optimizing them. The blockchain offers an alternative solution, as it’s much easier to maintain. Moreover, since it doesn’t require any third-party intermediaries during the transactional process, many might feel that the process is fundamentally more straightforward and trustworthy.
Since the decentralized ledger uses an automated mechanism, transactions are verified much more rapidly. It also ensures higher accuracy and guarantees everyone is debited accordingly.
The possibilities
Currently, cryptocurrencies are not subjected to any centralized authority. This has both positive and negative aspects. In the case of the former, the most crucial element to consider is that inflation and interest rates are unlikely to be just as much of a problem in the case of a crypto-based financial system. However, the same financial protections set in place today might only be possible in the case of a system replacement if digital money sets some of its own particular regulations in place. The rules should be perfectly customized for the challenges of a digital currency market.
According to the IMF, adoption is more likely to occur faster in areas in which cryptocurrencies manage to improve the current financial system. In countries dealing with severe currency devaluation, military conflict or other crises, cryptocurrencies can offer considerable help and even enable some with the means to survive. Preserving savings and conducting business procedures are the different ways cryptocurrencies can help nations deal with unfortunate circumstances.
The Future
Considering all these aspects, it can seem like there are both good and bad parts to changing the current financial system. As blockchain’s popularity develops, it’s not far-fetched to imagine it might become more substantial someday. If society would hypothetically fully accept crypto and it was to be entirely adopted as legal tender, it might displace fiat currencies from the fiscal environment.
A hybrid society is also possible, in which the general public uses both well-established currencies and digital coins. In this case, consumers could choose which one they prefer, and both systems could benefit from each other’s strong points.
While it’s still early to determine whether or not crypto will ever replace fiat currency, it certainly won’t do so anytime soon. However, the blockchain clearly has some functional aspects that would benefit the conventional system.