Cryptocurrency is growing by the day which brings about the question of its displacement of the old fiat currency.
The coronavirus pandemic of 2021 has no doubt brought about changes in human lives. Technology has had more impact on the world than ever. One of the numerous technological advancements in blockchain technology that birthed cryptocurrency.
Today, a little of the world’s global population makes use of cryptocurrency. Although it is still a long way to go to replace the widely accepted fiat currency, many have predicted the future of digital currencies.
In this post, we’ll discuss to know if cryptocurrency will ever displace fiat currency as a legal tender globally. Before then, let’s learn more about both currencies.
What is Fiat Currency?
It is a legal tender that is backed by the government that issues it rather than a tangible good or commodity. The word ”Fiat currency” means money issued by a country’s government
This type of currency may be in the form of physical money or maybe represented electronically, e.g. by bank credit.
Fiat currency includes paper currency, banknotes, coins, bills, etc., which has a store of value and is used as a means of trade to purchase goods and services. The supply is controlled by the government, and you can use it to pay your taxes.
What is Cryptocurrency?
Cryptocurrency is a digitally encrypted, decentralized currency that is not linked to or regulated by any government or central bank.
It is based on blockchain technology, which is a distributed ledger framework. Blockchain is a distributed ledger that is managed by a network of computers. It maintains an exact copy of the database and updates its records by consensus based on pure mathematics.
Bitcoin is the first cryptocurrency created which has led to the creation of others alike known as altcoins.
Cryptos are categorized as virtual or digital currencies. They were originally developed to provide an alternative mode of payment for online transactions.
However, cryptocurrencies have not yet been generally adopted or legalized by many nations and are actually too unreliable to be used as payment methods.
What are the differences between Fiat Currency & Cryptocurrency?
One of the major differences between Cryptocurrency and Fiat currency is that crypto is a digital/virtual currency while fiat currency is a physical or electronic currency.
Cryptocurrencies are operated independently without government backing while Fiat currencies are regulated by the government and issued by its central bank.
Cryptos doesn’t need an intermediary to make transfers while that is required for fiat currencies.
There is always a limit to the supply of most of the cryptos while the supply of fiat currencies are unlimited.
Cryptocurrencies are illegal in many nations of the world while fiat currencies are legal all over the world.
Cryptos are stored in digital wallets while fiat currencies are stored in bank accounts.
Another major difference is in their exchange. Fiat money may be used to make digital or physical payments or transfers of funds. Only a digital transfer of funds is possible with cryptocurrency.
Cryptos are represented by private and public pieces of code while fiat money is represented by coins, notes, and bills.
Examples of cryptos include Bitcoin, Litecoin, USDT, Shiba Inu, etc. The unit of fiat currencies includes Euro, Pounds, Dollars, Yen, etc.
Will Cryptocurrency Ever Replace Fiat Currency?
Bitcoin came to be after the global financial crisis of 2007/8. It was proffered as a solution to the reckless behavior of large financial institutions & the inability of government to regulate them.
The advantages digital currency have over the traditional forms of money has made it one to consider for many people. Currently, about 300 million people, or 4% of the world’s population, are using cryptocurrencies in some form. If this figure will increase significantly in the future is a question to answer.
Some industry players and experts hope and believe that cryptocurrency could rise significantly by the end of the decade. This as a result of the giant strides made by the blockchain and cryptocurrency in the past couple of years.
Why Cryptocurrency is Tipped To Become The Future of Money
According to some industry experts, at least 20% of large enterprises will use cryptocurrency in the nearest future. It is to be used for payment, store of value or collateral, which will disrupt current financial networks and business models.
In fact, top companies like Tesla, NBA’s Mavericks, and several other companies are receiving crypto as form of payment for goods & services. The use of stablecoins (crypto that are pegged to fiat currency like the USD) have also quintupled in value in the past one year.
Non-Fungible Tokens are also on the rise these days. A one-of-a-kind piece of artwork valued for a large amount of money has made people to go into crypto investment. Payments on these artworks which could be paintings, tweets, video, GiFs, are in cryptocurrency (Ethereum especially).
Another benefit cryptocurrency via blockchain is having with regards to the future of money is in customer royalty programs. Today, retail businesses are adopting blockchain technology to help them track and manage transactions. This is aimed at elevating users experience by providing more dimension, flexibility, clarity and transparency.
Governments throughout the world are also opening up to blockchain and crypto now. So far, 83 countries are experimenting with or implementing so-called Central Bank Digital Currencies (CBDCs). Nigeria, USA and China, which banned miners as not left out in the creation of these CBDCs.
The opportunities provided by metaverse, DeFi, smart contracts, and so on from the blockchain may also bring a change in the future of money to digital currencies.
Hinderances To Cryptocurrency as Future Money
Cryptocurrency has not been widely adopted because of its risky nature (volatility), scams, misuse and other reasons. In fact, countries like Iran, Russia, recently gave order on the use of crypto in its territories.
Currently, a Bitcoin is valued at around $40,173.06, well below its all-time high of $68,223 on November 10, 2021. This has raised doubts about its use as the future of money.
Crypto scams have been on the increase because crypto cannot be regulated as it is built on the blockchain. Anyone can create his/her own token and with a hype around it can dupe many of their hard-earned money. This is also a concern.
The fact that it cannot be regulated makes it a tool for cyber scam, money laundering and so on.
There is so much hope for cryptocurrency as the replace for the traditional money (fiat currency). This is as result of the growth and success recorded so far with the blockchain technology.
Clamping down on crypto scams and misuse will be key to gaining mainstream legitimacy and getting a reply to if cryptocurrency will stand a chance of replacing fiat currency.