There was a time we were so sure cryptocurrency could never replace fiat currency. However, El Salvador’s move of making Bitcoin a legal tender makes us reconsider our conclusion. At first, it was only big companies and significant financial institutions that got involved in cryptocurrencies through trading and storing. Now, even governments are getting involved with cryptocurrency trading.
Moreover, cryptocurrency was once restricted to the digital world. Today, you can buy Litecoin and trade with it even in offline establishments. You can even book flights, shop groceries, and pay for cars with it.
While it appears like a lot of successes have been recorded in the cryptocurrency market, steps are still taken to achieve more. Major players in the cryptocurrency world are on their toes to ensure they make the most of the competition which will also enhance the global acceptability of digital currencies.
The Evolution of Cryptocurrency
Cryptocurrency mining began in earnest in 2009, with Bitcoin leading the train. Altcoins (a name used for other digital coins that are not Bitcoin) came into existence in 2011. At the time, cryptocurrency, even Bitcoin, wasn’t used for transactions – mostly because of its decentralization. No government had concerns over buying cryptocurrency for many years after it circulated. That’s perhaps why the market has become so wild.
Issues around regulation and mining have also come up over the years. Some nations are struggling to design a comprehensive regulation to govern crypto transactions while others are worried about the effects of crypto mining on the environment.
However, due to the rapid changes, putting regulations in place for Ethereum and other coins is unavoidable. Presently, some countries have placed an embargo on cryptocurrency. The countries include China, Bangladesh, Nepal, Egypt, Iran, Taiwan, and Algeria, to mention a few. Nevertheless, the number of countries that have accepted crypto outweighs those prohibiting it. For example, countries like Switzerland have embraced cryptocurrency, which indicates that things are about to change where crypto regulations are concerned.
Can Cryptocurrency Displace Fiat Currency?
Most top companies and experts predict that cryptocurrencies like Bitcoin, Ethereum, and Litecoin will take fiat’s position or at least compete with it in ten years at the most. With the way crypto is going, financial institutions need to get on board; or risk losing their spot to rivals. Nearly 80% of financial companies believe virtual coins will become a strong alternative to fiat currency if they don’t replace it in ten years.
Moreover, there is an increased flow of digital funds thanks to more and more top investors and institutions getting interested. The rapid growth crypto adoption has brought to new business models reflects a shift in the financial world. For example, many businesses brainstorm and devise ways to make their services readily available for their consumers’ needs.
In addition, experts and crypto enthusiasts agree that companies that refuse to adopt digital currencies and blockchain will miss out on big opportunities. They stand the risk of losing ground to competitors.
Limitations of Cryptocurrency
Despite the rapid evolution of cryptocurrency, there are still concerns about it that make replacing fiat currency impossible. Crypto will never take over the world so much that it sends central and traditional banks packing. Although, cryptocurrency is profitable and useful for the plumbing of financial services – for example, sending money across borders easily.
However, digital currencies are still too volatile to overtake and fully replace fiat. The highest point crypto assets can get is being an alternative to fiat currency. It’ll just be that we’re using digital currency rather than using cards and paper for transactions. Moreover, even El Salvador, the first country to adopt crypto as legal tender, has announced that crypto will not replace its currency.
Cryptocurrency is unstable, unlike fiat currencies, and this is the major reason replacing fiat is not likely to happen. For example, Bitcoin prices swing too wildly; if a country’s economy is placed on such an entity, it’ll be disastrous. Nevertheless, cryptocurrency can greatly improve a company’s economy if used as an alternative to fiat currency. For example, underdeveloped countries can adopt digital assets to combat poverty and alleviate dependence on remittance inflows and financial inclusion.
In conclusion, cryptocurrency undoubtedly has what many countries need: a ticket to financial freedom. For example, countries can wield the value of digital assets to better their economy. However, as far as crypto replacing fiat currency goes, it’s not a likely occurrence, not with the volatility issue.
One the flip side, no one can tell where technological advancement is going. Many years ago, who would have thought of a world where digital currencies will thrive? As such, while digital currencies stand a low chance of replacing fiat currencies, it is not a possibility that should be completely ruled out.