Can Cryptocurrency Replace Fiat Currency?
We use money every day for bills, shopping, deliveries, etc. Not all people use the same currency, though. Some people are more traditional and prefer to stick to fiat currencies, while others have more confidence in technology and try to keep up with the latest trends by using cryptocurrencies.
Recently, there have been debates about which currency type is more trustworthy and convenient. The discussion usually dwells on crypto vs fiat and why one is better than the other. Currently, both of these currencies define market value.
Today, we will dig a bit deeper to determine their pros and cons.
Is Cryptocurrency the Future of Payments?
Cryptocurrencies are digital currencies made in 2008 by an individual who named himself Satoshi Nakamoto. These currencies are built on blockchain technology and use cryptography for additional security. An algorithm controls the supply of cryptos and they cannot be used for paying taxes.
The main disadvantage of cryptocurrencies is that they are not “legal tender,” and governments and banks do not back them. That only means they are decentralized, unlike fiat currencies. Cryptocurrencies’ worth is dependent on the market’s demand, and there is no way to control it. Besides, it is subject to market manipulation. Also, crypto transactions are private, which means that pump and dump schemes are hard to track, along with insider trading.
However, because they are decentralized, cryptos are accessible to anyone in the world whether or not that person has access to a bank. Crypto transfers are quick and easy — they happen in a manner of minutes. Therefore, there are no banking fees to worry about, including transfer fees, monthly maintenance, international banking fees, and withdrawal fees.
Moreover, there isn’t a way to counterfeit cryptos since blockchains verify tokens and digital coins.
Will Fiat Be Replaced?
Fiat represents a “legal tender” that is backed by central governments — that includes any country’s currency such as dollars, euros, pounds, yens, etc. Fiat’s value is dependent on how well its state and banks are doing. The government controls fiat’s supply, and it is possible to pay taxes with fiat.
A con that is instantly connected with fiat currencies is inflation. Fiat has an unlimited supply, so inflation is unavoidable. Besides, fiat is subjected to taxation based on a person’s location and amassment.
Furthermore, transactions are slow and possibly costly because they are subject to a particular bank’s scheme. Internet transactions are time-consuming, even with today’s advanced technology. Also, counterfeiting paper bills and checks is a possibility, which makes everyone an easy target.
On the other hand, central banks can manage supply because fiat as a currency does not depend on a fixed resource. That means banks have the economic power to manage liquidity, interest rates, and manage credit, among other things.
Even though they are not effective on a broader scale when dealing with a global recession, fiat currencies can be printed out and used to help control a crisis. Fiat’s value is relatively stable despite its dependency on the market and the strength of its government.