As cryptocurrencies like bitcoin evolve, governments are finally waking up and taking notice. Some are even creating their own cryptocurrencies. A change is coming, but will cryptocurrencies replace fiat currency? Tony Nyarunda explores.
Money is dynamic; evolving from the primitive days of salt, seashells, gold to fiat currency and now, the cryptographic bits called cryptocurrencies.
Cryptocurrencies have introduced the concept of frictionless money, without the need for third-party trust in banks or governments.
Cryptos, with no intrinsic value, are threatening to make fiat money (traditional currency like dollars or euros) obsolete.
Cryptos Could Supplant 25% of Fiat by 2030
Venture capitalist and investor Tim Draper of Draper Associates knows about money. He entered the crypto game after purchasing 30,000 bitcoins (BTC) during a government auction in 2014. He paid $20 million but they are now worth $190 million. He said:
“In five years, if you try to use fiat currency they will laugh at you… bitcoin and other cryptocurrencies will be so relevant… there will be no reason to have the fiat currencies.”
Draper represents many opinion leaders who believe the fiat system is on the verge of being replaced by cryptocurrencies like bitcoin, dash, and others.
Author Thomas Frey shares a similar sentiment, saying cryptos will supplant at least 25% of national currencies by 2030.
“They’re just much more efficient, the way they run,” he said.
Governments See Cryptos as a Disruptive Influence
Governments around the world are all too aware of this shift.
The European Parliament released a report in July on the state of cryptocurrencies, dubbed Competition Issues in the Area of Financial Technology (FinTech).
The task force explored the challenges presented by digital currencies concluding that blockchain was a highly disruptive influence on the financial ecosystem. It added that the development of bank-backed cryptocurrencies would “reshape the current competition level.”
The report reads in part:
“In this environment, new agents, particularly tech start-ups, are generally able to offer financial services for lower costs and at a higher efficiency […] they can offer better user experiences, which poses significant challenges to other agents, especially traditional financial service providers.”
In other words, cryptocurrencies and blockchain are a threat to the traditional banking system, and the European Parliament knows it.
Governments Are Creating Their Own Cryptocurrency to Replace Fiat
In Venezuela, cryptocurrencies are already replacing fiat.
Here’s why. Fiat currencies, like the dollar, suffer from a huge problem: inflation.
Inflation occurs because governments have the unlimited power to “print money.” By creating money out of thin air, they can push down the value or purchasing power of fiat currency.
Sometimes we get hyperinflation, like in Venezuela. Venezuela’s national currency is on track for 1 million percent inflation by the end of the year, effectively making it worthless.
In response, the government created a cryptocurrency: the petro. The petro is “stable” in that its value is tied to the price of an oil barrel. Venezuela has ordered its banks and major companies to begin using the petro cryptocurrency.
Having said that, Venezuela’s citizens are flocking to bitcoin and dash instead.
Whichever way you look at it, Venezuela is switching fiat for cryptocurrency, fast.
A Cashless Future
We are already headed towards a cashless future where banknotes and coins become obsolete. One country has already shown that we can become a cashless society: Sweden.
People in Sweden no longer use cash. Only about 1% of payments are made using notes or coins. This should sound alarm bells for central banks around the world; Sweden is leading the pack towards a cashless society.
Citizens of the Nordic country are mostly positive about their no-cash payment policy saying it is risk-free as they just have to swipe their cards and move on.
Sweden is laying the groundwork for an entirely digital financial system. The leap to cryptocurrency isn’t so much further.
A Future without Fiat
A future where all currency is crypto is bright. It’s a future where a currency’s value isn’t open to manipulation as easily as fiat currency. A future where the transaction for goods and services are handled digitally and prices are affordable since cryptocurrencies eliminate intermediaries who take a cut.
That future will disrupt the current global economy as cash will become obsolete; the losing party diminishes in value with nothing else to do.
Governments would be hardest hit as they lose control over currency and the ability to print more money in response to financial crises since cryptocurrencies are mined. Flipping from fiat to crypto is a real prospect in our time, and could “disrupt” the way we spend and save.
The Future of Cryptocurrency
Just like the internet was in the 1990s, digital currencies are still in their infancy, but as the technology develops, cryptos could follow a similar path to mass adoption.
There is abundant speculation that cryptocurrencies are in a bubble, and that the prospective threat of cryptocurrencies taking over the financial world is laughable.
It’s true, cryptocurrencies are still volatile, but that may change as governments slowly begin to regulate bitcoin and other cryptocurrencies.
As blockchain technology improves and new use cases are discovered, things could easily change in a microsecond. So prophets of doom can’t be too sure yet.
Cryptocurrency has a place, it is not yet taking control, but it’s headed there. The response of many countries is still erratic, so the effect is still different around the world, at least for now.
HiveEx.com founder and CEO Fred Schebesta, a renowned cryptocurrency enthusiast, summarizes it for us:
“Adoption isn’t wide enough for cryptocurrency to overtake fiat currencies just yet, but we will start to see incredible growth […] a lot of people don’t want to carry cash around and want to go from one country to another without changing money. Once we see more ways people can access and use cryptocurrency, adoption will be fast.”
We’re not there yet, but a future when cryptocurrency replaces fiat is coming.
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