Can cryptocurrency replace fiat money?

Written by Evgenia Sidorova
Written by
Investing reporter
ECOS brand manager....
3   min.
Actual news 

Even before the cryptocurrency boom in December 2017, some people expressed opinions that in the future, Bitcoin and other digital assets will become an alternative to traditional (fiat) money. Then only crypto enthusiasts believed in such an idea, but the current situation forces us to think more seriously about this issue.

In this article, we will find out if cryptocurrencies can completely replace national money. We will analyze the current market situation, determine the strengths and weaknesses of the two types of currencies, and, based on the information received, try to understand what awaits us in the future.

As of May 2021, fiat’s positions remain unwavering. Several important factors speak in favor of traditional money

  1. Official status. It is fiat that is used in the overwhelming majority of countries as a means of payment. Cross-border transfers are also often carried out in fiat. Moreover, even the value of cryptocurrencies is tied to their fiat rate.
  2. Total superiority in prevalence. This point follows from the previous one. Globally, not everyone knows about cryptocurrencies. Even those with an understanding of digital assets still mostly use dollars, euros, and so on.
  3. High stability indicator. In the table above, we said that fiduciary money has low volatility. This moment largely determines the choice of people in favor of traditional money.
  4. Everyone is used to fiat. Another factor that cannot be ignored. Fiat money has been used for over 2 thousand years. They simply cannot disappear in a decade. Of course, the crypt is promoted by progressive enthusiasts, but their numbers are not yet that high.

As for cryptocurrency, its position has improved markedly in recent years. Now we have the following picture

  1. The process of legalizing cryptocurrency is underway. Already, digital assets are legalized in South Korea, Switzerland; they are positively treated in Singapore, Ukraine, Belarus, Japan. There is a positive attitude in the European Union. So far, the ambiguous situation remains in China, Russia, and the United States. Still, most likely, these countries will transfer cryptocurrencies into a legal field and recognize them at the official level.
  2. Blockchain-based infrastructure is being developed. Already, platforms such as Ethereum, EOS, and TRON are operating, based on which decentralized applications can be created. Cryptocurrencies are slowly but surely being introduced into everyday life.
  3. The list of financial services with cryptocurrency is expanding. Already, on exchanges (for example, on Binance), you can receive passive income for staking.
  4. The capitalization of the cryptocurrency market is growing. Now the cryptocurrency market is valued at $ 2.02T. In 2017, during the last boom in cryptocurrencies, the capitalization was $ 300B.

Undoubtedly, cryptocurrencies already have a lot of advantages over their fiat competitors

Oddly enough, but one of the main advantages concerns the resistance to inflation. The same Bitcoins cannot be «printed» in any quantity. Their number is included in the program code and cannot be changed.

It would seem that the superiority of cryptocurrencies is observed on all fronts. But if you look at things, then the complete displacement of fiat is unlikely. In the future, blockchain technology and the traditional financial sector will most likely be able to work in tandem. With the help of cryptocurrencies, it will be possible to simplify people’s lives, but they are unlikely to give up fiat. And besides, digital analogs of national currencies are already being created. Even if they are on a full-fledged blockchain, the signs of fiat will remain (for example, centralized and unlimited emission). With a high probability, we will not see a preemption but rather a merge of two branches.

We are now experiencing an interesting era that is laying the foundation for the society of the future. It is unclear when it will come, but the fact that the world we are used to will undergo serious changes is a fact.

Click to rate this post!
[Total: 28 Average: 4.7]
Investing reporter

Crypto investment platform
Download the free app on android and ios
Scan the QR-code with your smartphone to download app