Is Cryptocurrency the New Fiat?

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More and more businesses are accepting cryptocurrency payments globally – from fast-food chains to travel agencies to clothing brands. PYMTS' latest study, "The Cryptocurrency Payments Opportunity: Driving Crypto Adoption and Use Around the Globe," shows that investments in cryptocurrencies in America have risen significantly. 48% of the participants purchased Bitcoin and other alternative coins during the first six months of 2021.  

The rise in digital currency adoption can be attributed to its numerous benefits. Some financial experts have predicted that cryptocurrencies will dethrone fiat eventually. So, is cryptocurrency the new fiat? Read on to find the answer to this question and expectations from countries that support cryptocurrency at the state level.

Will Cryptocurrencies Eventually Replace Fiat Money? 

This is the most asked question on social media ever since countries started issuing their digital currencies, or considering that thought. If more nations follow suit, cryptocurrencies have the potential to revolutionize the future of money. 

Analysts believe that soon, cryptocurrencies will replace fiat as the primary mode of payment in daily activities. The technology behind digital currencies – blockchain technology – eradicates government and central banks' influence on money. This restores the power of money to the people/holders. However, digital currencies have experienced a reputational and regulatory nightmare in the recent past despite their vast potential. 

The idea of cryptocurrency taking over fiat has made some governments consider using blockchain technology in issuing Central Banks Digital Currencies (CBDCs). Unlike regular cryptocurrencies, such as Bitcoin and Ethereum, CBDCs have stable prices; thus, they are more ideal for daily use.  

Previously, institutional reluctance, opportunistic investors, and cybercriminals hindered the global adoption of cryptocurrencies. However, considering the growing popularity of cryptocurrency from governments and institutional investors, crypto may replace fiat in the long run.  

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Fiat vs. Cryptocurrency

Fiat currency is money issued by governments through central banks. Examples include the US dollar, the Australian Dollar, the Euro, and the Chinese Yuan. Fiat currencies act as legal tenders and are not backed by real-world commodities like copper and gold. Instead, they are backed by the governments that issue them. This makes them highly susceptible to value-losing because of hyperinflation.  

A cryptocurrency is a digital currency secured by cryptography. It acts as a medium of exchange or store of value, where ownership records are kept in a computerized database. The primary trait of all cryptocurrencies is that third parties do not verify transactions; hence they are immune to manipulations.

Benefits of Digital Currencies 

Below are the major benefits of cryptocurrency. 

  • Decentralization: Since crypto is decentralized, no central authority or person can control it or act as an intermediary of verifying transactions. This streamlines the acquisition and trading activities while upholding a more substantial value for every unit than fiat. 

  • Security: With the heightened number of credit card identity theft cases, cryptocurrency has emerged as the best bet for more secure and anonymous transactions because of blockchain technology. The technology makes crypto more secure, minimizing the risk of identity theft.

  • No government manipulation: Governments increase the currency circulation ratio by printing more money. When this decision is not accompanied by more production, countries are faced with the problem of more money to spend on the same amount of goods and services as before. Everything ends up costing more, and currencies become worthless. Contrary to this, no government or individual has exclusive authority or influence over cryptocurrencies. 

  • Mobility: Since users store their crypto holdings in digital wallets, they can freely move with them and use them to make cross-border payments more conveniently than fiat. You only need a smartphone and an internet connection to access your wallet and make online transactions
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Outcomes if Cryptocurrency is the New Fiat  

Is cryptocurrency the new fiat? This is probably the biggest concern right now. One clear thing is that crypto has to overcome several challenges before dethroning fiat. For instance, for digital currencies to become the primary medium of exchange, governments globally must create the necessary infrastructure for adoption.

Co-existence is Necessary! 

Will crypto become the new fiat? Yes, it eventually will! Remarkably, this forecast has been shared by many analysts and even major financial institutions, like the Deutsche Bank. Because of the instability of the underlying system, crypto may dethrone fiat in the coming years, according to Deutsche.  

The bank's latest research reveals that the system that holds fiat money may flop, leading to more growth of digital currencies. The emergence and issuance of CBDCs indicate what the future financial world holds. 

But again, co-existence is more likely as various governments create clear rules for using both currencies. Currently, digital currencies are swayed by tweets from high-net-worth individuals, whales, regulations, actors, and seasoned investors. A clear regulatory framework will safeguard them from such manipulations. 

What to Expect from Countries that Accept Cryptocurrency at State Level 

As crypto adoption gears up, some countries like El Salvador, Japan, Switzerland, Estonia, and Malta have developed crypto-friendly rules to govern the issuance and use of cryptocurrencies. This step has boosted their business growth and structural support by attracting foreign investors, developers, and engineers. This group of people is creating small silicon valleys that can turn into large developmental cities.   

Creating crypto- friendly rules and recognition at the state level has enabled digital currencies to compete with fiat currencies favorably. Definitely, more countries are watching how these early adopters are progressing before they board the train.

Conclusion

It is undeniable that cryptocurrency is the future of money. There is a high likelihood that by 2030, traditional wallets will be outdated, and people will be keeping money on their phones. However, this won't be exclusively crypto. Some countries have developed their own CBDCs, and others consider making this move. As the crypto regulatory environment continues becoming more explicit, it is evident that cryptocurrency adoption will reach unprecedented levels and co-exist freely with fiat money.

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