Even the Federal Reserve understands about Bitcoin’s potential now. Bitcoin could eventually become a contender to replace fiat as a means of payment as it rapidly drives out the use of cash, according to a report from the St. Louis Federal Reserve Bank.
Even though cash has its advantages the end of it may be near due to political reasons, reports the St. Louis Fed. This is primarily down to three reasons: it’s inefficient and more expensive than electronic means, it promotes crime and aids money laundering and tax evasion, and it hinders monetary policy.
Technological reasons also apply, such as the growth of cryptocurrencies like bitcoin. Consequently, the report predicts a transition from fiat to digital currencies, arguing:
In the near future, a close cash substitute will be developed that will rapidly drive out cash as a means of payment. A contender is bitcoin or some other cryptocurrency.
It adds that cryptocurrencies have drawbacks, namely high payment fees, scaling issues, and low adoption rates. Yet, these are issues that can be remedied with the use of large-scale off-chain payment networks, such as bitcoin’s lightning network.
The report from the St. Louis Fed that cash may eventually be replaced by a cryptocurrency is nothing new. Yet, it adds to the way of thinking that many people view and the eventual expectation that cash will get left behind. Another proponent who believes that cash is on the way out is venture capital investor Tim Draper, the founding partner of Draper Associates and DFJ.
He’s said that in five years no one is going to be using fiat to pay for things, as people turn to cryptocurrencies to make purchases. Taking to social media last month, Draper also projected that the price of bitcoin would be worth $250,000 by 2022. Furthermore, such is his faith in the way bitcoin is heading that he has predicted that it will be bigger than Tesla, Hotmail, and Skype combined.
In the grand scheme of things five years is a relatively short amount of time for cash to be replaced by a cryptocurrency. Nonetheless, it will be interesting to see if such an outcome does actually come to fruition. Yet, for those who may not be particularly tech-savvy or feel comfortable paying with something that isn’t tangible, what does that mean for them?
It may be true that cash will see its supply dwindle – Sweden could become one of the first to eliminate it and rely solely on electronic payments – but more certainly needs to be done between now and five years if digital currencies are to be a contender for cash’s replacement.
Featured image from Shutterstock.