Can Cryptocurrency Replace Money?
Enthusiasts behind bitcoin and other cryptocurrencies firmly believe that today's fiat currency will become a thing of the past. The principal elements behind the utility of traditional fiat money are somewhat comparable to crypto with even more added benefits that go beyond cash. Even with a favorable comparison, can cryptocurrency really replace physical currency in the future?
Money in its current paper-based form has only been around for about 1000 years, starting out in China as a replacement to coins, which were hard to continually produce and distribute. What has made money such a lasting part of the world’s history in finance is its ability to serve as a:
> Store of value: individuals can hold onto money and rely on it being worth the same from day-to-day due to its limited supply in circulation at any given time;
> Medium for exchange: money can be used as payment for products and/or services around the world at anytime;
> Accounting tool: able to be recorded in ledgers showing appropriate debits / credit.
However, there are large opportunities with the current monetary system being exploited or abused:
> Need for intermediary: central banks and governments typically control monetary policy as a tool to influence economic conditions;
> Inflation: stemming from governments adding excessive supply in the economy that minimizes the true purchasing power behind currency;
Cryptocurrency has a response to these opportunities as its innovative platform (blockchain) is a decentralized structure which requires no intermediaries in a peer-to-peer network relying on consensus before posting immutable transactions. In particular, Bitcoin is similar to money in having a limited supply, and being able to be used as a medium for exchange. The biggest challenges in Bitcoin adoption (and all digital tokens or coins) being volatility and future government regulation aimed to prevent financial crimes and fraudulent manipulation of investors.
With tremendous excitement and interest from institutional investors regarding cryptocurrency, governments will be making announcements and guidance this year that will dramatically impact the future marketplace for decades and truly test how much longer fiat currency will be relevant in society.
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Image Credit - Wired.com