[Feature] Will Crypto Dethrone or Lose Out to Fiat Money?

Money Then, Money Now

The use of money, no matter the form, dates back at least 5,000 years and is intertwined with economic history. Today, we have gotten used to handing over cash upon purchasing something, be it digitally or physically. However, seashell, metal coins, and the likes, represented money back in those days, and a system of bartering, which is a direct trade of goods and services, was used before that. But it was tedious to find a fair trade when you barter, and so over time, a type of currency was developed involving more tradable items like salt, weapons, animal hide, and the likes. It might be perceived as primordial to you and me now due to technological advancement, but it was history-in-the-making back then. Money in those forms, even the fiat currencies we use now or a string of code electronically mined by computer, does not have a value ─ they are dependent on the importance people place on them instead.

The usage and form of money has evolved throughout history; from metal coinage to gold and silver, then paper currency, with the emergence of cryptocurrency in the recent years.

The Future of Money: Cryptocurrencies VS. Fiat Currencies

Once upon a time, people scoffed at the idea of transiting from payment by goods and services to a more centralised paper currency. However, when the latter became socially accepted as a mode of payment, everyone had to adapt and adopt, one way or another. The emergence of cryptocurrencies was due to the 2008 financial crisis ─ public indignation was widespread; they wanted to reclaim control over their money and were demanding a currency that would not be controlled by a central authority.

Though cryptocurrencies have been around for over a decade, payment by crypto is nowhere near as widely accepted compared to our traditional fiat currencies. That is not to say that cryptocurrency is not the future because it is already very much in the present.

Various characteristics of fiat money and cryptocurrency

Each has its own advantages and disadvantages. As of now, the technology used to meet all technical feasibility of sustaining a crypto as a legal tender, is not there yet. In addition, in a world filled with differing ideologies and governments, it is difficult to bring all nations onto the same book, much less the same page. Just like how the adoption of fiat currencies took time, and trial and error, adoption of crypto will likely be the same. Let’s take into account exchange rates much like fiat money: accepting the same crypto means nullifying all exchange rates across the globe, whereas permitting different crypto for every nation will complicate the issue which in turns generates more problems than solutions.

According to the International Monetary Fund (IMF), it recommends against adopting crypto as a main currency in its current state due to price volatility. Issues like macro-financial stability, lack of consumer protections, and the likes need to be addressed, explored and evaluated prior to a potential complete replacement of fiat currency. Several scenarios could emerge: cryptocurrency is embraced and fully accepted by the society and the economy, it is recognised as a legal tender, and fiat money’s usage ceases; or, a combination of crypto and fiat currencies are recognised, and consumers and businesses could choose whichever they want, or, crypto is completely rejected and society continues the established fiat currency.

The above graph obtained from Statista illustrates the countries which use cryptocurrencies the most

However, as of 2022, crypto payments’ transaction value is estimated to increase to $10.4b, which is a 70% increase from 2021. 10.7% of crypto owners currently use crypto to pay for their purchases which amounts to about 3.6m people! Looking at these numbers and the statistics, it does look like crypto use will continue to expand regardless of its speed.

Based on a study by Allied Market Research, the crypto market will grow by 12.8% per annum from 2021 to 2030. The fastest growth is anticipated in the transaction segment as more and more individuals and corporations engage in crypto.

Final Word

So will cryptocurrency eventually replace fiat money? This question has been wildly debated and still is; many would have or still are pondering over it too. As more is understood and used, acceptance and adoption will inevitably follow. Subjectively, it is difficult to pinpoint a specific time frame of if and when cryptocurrencies will become the norm. Markets might be in a slump but crypto ownership and payment usage trajectory is continuing to increase, and the technology adoption curve is getting shorter over time. The notion that cryptocurrencies are here for the long haul, is a reality, not a pipe dream.

What will be the fate of cryptocurrency and fiat currency? Will both co-exist harmoniously and peacefully? Will crypto eventually dethrone fiat money and become a new established currency or will fiat money be destined to continue its victorious reign? Only time will tell.

Disclaimer: The content in this article is solely the author’s opinion and is by no means financial/investment advice; it is purely for educational/informational purposes only.

Written: [Coinlive} Catherine