Could Cryptocurrency Replace Fiat Currencies?
The biggest difference between cryptocurrencies like Bitcoin and fiat currencies issued by central banks is that the former is a decentralized digital currency not at the mercy of any government or central bank, but at the same time highly volatile with an ad hoc value. The latter, in comparison, is a centralized currency with its value backed by the government that issued it. Due to the decentralized and deregulated nature of cryptocurrencies, Morocco have outright banned them. So, are cryptocurrencies a viable alternative to fiat currencies?
When cryptocurrencies first emerged, Bitcoin had an unquestionable advantage. However, more recently a host of altcoins have emerged that are starting to threaten its dominance. Futurism calls this phenomenon “the flippening,” – when one digital currency supersedes another. Whichever ends up on top, a future dominated by cryptocurrencies has some advantages; crypto values cannot be manipulated nearly as easily as fiat currencies, and can better support the concept of universal basic income (UBI). This is mainly due to its symbolism of being a “free” currency not backed by any government and, therefore, seen as enacting liberation in line with UBI.
Cryptocurrencies also have the potential to eliminate intermediaries who take huge cuts in online transactions such as foreign exchange (Forex). FXCM describes Forex as a decentralized global market where every currency in the world is traded. The chain which makes up the independent trade mechanism of the Forex systems, like accountants, repositories and clearing houses, to name a few, each collect fees in the Forex market. By replacing fiat currency, cryptocurrencies could remove these fees and provide a transparent and decentralized Forex market.
Yet, the biggest issue with cryptocurrencies at this point is adoption. All digital currencies, even Bitcoin, are still in their infancy. Supporters note that the argument is much like the internet in the 1990s; only select computer savvy people used it until it caught on and evolved very quickly to change the world. When cryptocurrencies see wider use and adoption, everyone will again be jumping on the bandwagon. The problem, however, is that while at one point we saw many businesses offer to accept cryptocurrencies like Bitcoin after its massive upwards surge, this trend has steadily dwindled of late. Investopedia notes that there is a growing skepticism about its use as a medium of exchange.
If, and when, the time comes when adoption increases to such a level where cryptocurrencies outpace fiat currencies in terms of usage, infrastructure would need to be developed to support it. Governments and central banks are already seeing the significance of cryptocurrencies, and are creating their own, backed not by user sentiment but by a centralized institution. Even the European Parliament have decided that the adoption of bank-developed cryptocurrencies could be a viable alternative to fiat money. With the growing numbers of financial technology platforms such as digital banking, Forex and others, we might see a day when cryptocurrencies, albeit in a different form than today, replace fiat currencies.