Will cryptocurrency replace fiat money in the future? This is one of the biggest questions people ask, considering that the use of cryptocurrencies has significantly grown over the years. Without a doubt, the use of cryptos has the power to overcome fiat currency usage in everyday life.
Experts project that in a few years, these digital currencies may supersede traditional currencies as the prominent medium of exchange.
Look – block-chain-powered cryptocurrencies such as Bitcoin remove the influence of governments and central banks, thus taking control of money away from authorities and institutions and handing it back to the people.
However, despite the inherent potential, cryptocurrencies have suffered a reputational nightmare during their first decade of existence.
Institutional reticence, insalubrious investors, and enterprising criminals have tarnished the public perception of these digital assets. But with its ever-increasing popularity, will Bitcoin replace cash? Read on to find out!
Cryptocurrency vs. Fiat Money
The fact that many people around the globe transact through electronic money continues to affirm that digital currencies could be the currency of the future.
Nonetheless, before we dig deeper and answer the question, “would cryptocurrency replace cash?” let us look at some of the key differences between cryptocurrency and fiat currency.
What is Fiat Currency?
Fiat currency is a type of currency that is issued by a central authority like the central bank. Fiat currencies act as legal tender and are often not backed by a physical commodity.
This means that they are at a high risk of becoming worthless due to hyperinflation. Fiat currencies such as Euro, US dollar, and Pound derive their value from forces of demand and supply in the market.
What is Cryptocurrency?
A cryptocurrency is a type of virtual or digital currency that works as a medium of exchange. By being virtual in nature, they utilize what is known as cryptography technology to process, verify, and secure transactions. Unlike fiat currencies, cryptos are not issued or controlled by a central authority.
Rather, they are limited entries in a complex technology such as blockchain, which cannot be changed or manipulated, unless outlined conditions are met.
Cryptocurrencies are a side product o Satoshi Nakamoto, the anonymous individual who is regarded as the brainchild behind Bitcoin.
This person, or persons, didn’t intend to create a cryptocurrency but a peer-to-peer electronic cash system that would enhance typical transactions without oversight from a central authority.
The decentralization aspect of cryptocurrency means that there is no central authority or central server where transactions are hosted. In decentralized networks, all transactions are displayed for everyone to see.
However, the identities of the participants in a transaction are concealed, and only their public keys are shown.
As long as you use secure wallets such as Tezro to store and send and receive cryptocurrencies, it is nearly impossible for anyone to trace your truncations.
Read more in this article about how cryptocurrency gains value.
What Are Some of the Key Differences Between Fiat Vs. Cryptocurrencies?
Below are some of the main differences between fiat and cryptocurrencies:
It is impossible to have a physical feel of cryptos since they operate virtually. On the other hand, fiat currencies can exist as notes or coins; hence it is possible to have a physical feel.
The tangibility of fiat currencies sometimes poses a challenge because it can be a nuisance and a security threat to walk around with huge chunks of cash.
The virtual aspect of cryptocurrencies means that they only exist online and can only be stored in cryptocurrency wallets. However, not all crypto wallets are secure. Some of them have been hacked in the past, and investors have lost a substantial amount of holdings.
Therefore, before you choose a crypto wallet, make sure you do your due diligence and ensure you choose the best you can find. Experts recommend that investors choose cryptocurrency wallets that eliminate the need for multiple wallets such as Tezro.
Fiat currencies are versatile in nature. This means that they can be stored in different forms. They can be stored in the bank, or you can use services such as Skrill and PayPal that allow you to store them as digital currencies.
Divisibility is one of the most important aspects of any form of currency, be it fiat, crypto, or commodity. This is because divisibility makes something of value or use into exchangeable money.
Both cryptocurrencies and fiat currencies can be divided into smaller units. For example, one dollar can be divided into 100 cents. Similarly, Bitcoin can be divided into smaller units.
The main difference between these two currencies is that cryptocurrencies are more feasible or micropayments than fiat currencies.
Bitcoin can be divided into units as small as 0.00000001 BTC. This smallest value is known as Satoshi. This value simply means that one BTC can be divided into 100,000,000 satoshis.
4. Deflationary vs. Inflationary factor
When it comes to fiat currencies, a central authority or the government can print as much money as they want. Due to this, fiat currencies are inflationary.
To understand this, let’s look at this example. If you keep $10,000 in the bank today and wait for 10 years, you will withdraw $10,000 in 2030, but the value of this currency will be different.
This means you won’t be able to buy what is worth ten thousand bucks today in 2030 because the value of the dollar will have dropped significantly.
Cryptocurrencies are not controlled by any central authority. This means there is no one constantly controlling the monetary policy. This crypto runs on an algorithm that runs out. Once it hits 21 million coins, mining will come to a halt. This means that 1BTC of today will be equal to 1BTC 10 years from now.
Governments issue fiat currencies, which are regulated by the central bank. Fiat currency is regarded as the legal tender and is the official means of finalizing transactions. Laws are constantly enacted to control the supply of fiat currencies, and this affects their value.
Cryptos, on the other hand, is digital assists that act as a medium of exchange that no central authority has control over. In some countries, cryptocurrencies are illegal because they are believed to fuel activities such as money laundering and terrorism.
Benefits of Cryptocurrencies
Will cryptocurrency replace cash?
Well, for a fact, we cannot answer this question without first understanding the benefits cryptos have over other currencies. Here are a few benefits you should know:
1. Easy Transactions
When dealing with legal representatives, brokers, or doing business with fiat currencies, there are lots of transaction fees involved. Additionally, there is a lot of commissions, brokerage fees, and paperwork that must be done.
However, when you use cryptocurrency, you eliminate the need for middlemen. All transactions take place on a peer-to-peer networking structure.
This enhances clarity and accountability since, on a blockchain network, there is no confusion on who should pay who.
The parties involved in a transaction know who they are and clearly understand their responsibilities.
2. More Confidential Transactions
Under cash systems, your transaction history can be used as a reference document every time you make a transaction. A third party can even check your account and see the funds available.
One of the biggest benefits of cryptocurrencies is that every transaction made on the blockchain network is unique between the parties involved.
All exchanges are made on a ‘push’ basis, which means you can send exactly what you want to send to the recipient and nothing else. This protects investors’ financial history and safeguards them from the threat of identity or account theft, which is rampant in traditional systems.
3. You Can Take Cryptos Anywhere
Since cryptos are stored in digital wallets, you can carry them wherever you go.
Most wallets can be managed via mobile devices, meaning you can use cryptocurrencies to buy commodities and make payments when on the go.
We recommend the Tezro app, which allows you to exchange crypto through your mobile and also includes a fully encrypted text message app. Click here to know more.
4. Complete 24/7 Traceability of Transactions
All transactions on the blockchain are verified by a decentralized network of devices known as nodes. They are stamped on time and linked to previous transactions, hence creating a chronological series of transactions.
These successive transactions are irreversible and are continuously updated on devices participating in the blockchain network.
On this network, third-parties cannot manipulate the system, and senders cannot reverse payments. Everyone is also allowed to continuously verify if a transaction has taken place.
Is Bitcoin the Best Cryptocurrency to Replace Cash?
Will Bitcoin replace money? This is one of the biggest questions crypto enthusiasts and investors ask. The blockchain industry sees Bitcoin as the future of currency.
Thanks to Bitcoin’s high liquidity and limited supply, we have seen mass adoption of Bitcoin wallet holders, following a decline in cash use.
People around the world have wavering distrust in the fragile fiat system and modern-day banks, and this is why the popularity of Bitcoin continues its skywards trajectory.
Some of the reasons why Bitcoin could be the best cryptocurrency to replace cash include:
1. Bitcoin Has Greater Liquidity Relative to Other Cryptos
Since it is the most popular cryptocurrency, Bitcoin has far much greater liquidity than other cryptos.
This enables users to retain their inherent value when converting it to fiat currencies.
2. Increasing Wide Acceptance as a Payment Method
One of the biggest reasons why Bitcoin could replace fiat currency is because of its wide acceptance. Thousands of merchants accept Bitcoin as a form of payment.
Plus, around the world Bitcoin ATMs are becoming more and more common. According to CoinRadar, there are over 10000 Bitcoin ATMs installed in the US, with Florida being the state with a higher number of these machines installed.
Also in Europe, they are becoming more mainstream, as you can witness by the following graph provided by Statista.
3. International Transactions Are Easier With Bitcoin
Making Bitcoin payments overseas is not any different from making payments in-country.
Unlike other international cash transfer methods, you don’t have to pay huge international transaction fees to send money to another country.
4. Built-in Scarcity
Bitcoin has a built-in scarcity feature that cannot be found in other cryptos. Only 21 million coins will ever exist, and this is likely to support long-term value against fiat currencies.
What Will Happen if Cryptocurrency Replace Cash?
From the information above, we have answered the question, “will cryptocurrency replace fiat currency in the affirmative. However, there are significant concerns and challenges when this happens.
Also, when cryptocurrencies take over, countries around the world will be forced to put up the infrastructure for them to adapt.
In case cryptos outpace traditional money in terms of usage, fiat currencies will lose their value significantly without any means of recourse.
There would inevitably be challenges with this transition, as fiat currency could become incompatible rather swiftly and leave many people with lost assets.
Additionally, established financial institutions will be forced to scramble to change their ways while smaller institutions will close business.
How Digital Currency Can Replace Cash?
For cryptos to replace cash, the crypto industry must overcome three hurdles. They include:
Experts believe that once a regulatory framework is put into place in key regions around the globe and the government-backed move towards cashless systems continues, cryptocurrency has a great potential to replace cash in the next few years.
- The need for a robust virtual financial system that can contain cyber-attacks and other potential risks.
- Building alliances with the wider payment industry
- The Acquisition of legitimacy in the eyes of governments
Could Cryptocurrency Replace Fiat Currency?
Cryptocurrencies are slowly defying the ancient monopoly of central banks issuing money. With central authorities threatened by the prospect of cryptos replacing fiat money, they are now exploring the idea of digital currencies issued by central banks.
These currencies, known as Central Bank Digital Currencies (CBDC), are currencies that are guaranteed or backed by a reserve bank and can be used as a unit of account and mode of payment.
You can see in the chart below, provided by Statista, how Bitcoin is already competing with mainstream payment networks, having already surpassed Western Union and closing the gap to PayPal.
With CBDC in place, there is nothing preventing fiat currency from being replaced. Therefore, the next time anyone asks, “Can cryptocurrency replace fiat currency?” answer with a resounding yes!
Will cryptocurrency replace cash? Well, yes, it will! Surprisingly, this is a prediction that has been echoed by many people across the world, including Deutsche Bank – one of the largest financial services companies in the world.
According to this company, cryptocurrency could replace fiat currency in the near future due to the fragility of the current system.
In its latest report dubbed “Imagine 2030,” Deutsche Bank argues that the system that holds traditional currency could crumble and lead to the rise of cryptocurrencies.
The rise of many well-established cryptocurrencies, including CBDC, means we should prepare ourselves for a cashless future!
To be prepared for that eventuality, don’t forget to download Tezro app. You will be able to make crypto transactions, knowing that your data is completely private and secure.