Cryptocurrency vs Fiat Money: Can they coexist?
Crypto vs. Fiat: or Coexistence?
With the crypto sector exponentially progressing, many have wondered about the coexistence of cryptocurrency and fiat money and the future together. I will be talking about both sides of the crypto vs. fiat debate whether cryptocurrencies and fiat money can coexist or not in detail.
Crypto vs Fiat Money: Coexistence is possible
Technically, there is a fair possibility that cryptocurrency can coexist. Since the value of cryptocurrency is measured in fiat, and fiat is becoming increasingly digitized as we march toward a cashless society, their ecosystems are rapidly integrating. Moreover, there is a lot of conjecture about crypto replacing fiat currency to the extreme side.
Governments and financial organizations in different countries, formerly huge skeptics, now accept those alternative currencies here to stay. Governments realize that cryptocurrencies’ transparency, minimal cost, and freedom of movement could alleviate many of the world’s financial problems, particularly in unbanked markets.
Central Bank Digital Currencies: CBDCs
Cryptocurrency inspired central banks to establish their own digital money in their national currencies, but solely in numerical form. Some banks, such as Sweden’s Risbank and the BCE, are researching “Central Bank Digital Currencies” or CBDCs to determine whether there is an approach to develop them. It will not use the same technology as Bitcoin, but it has impacted them significantly.
Since 2017, Venezuela has been developing a CBDC called the “petro,” backed by real crude oil stockpiles. In 2018, the Venezuelan government announced the creation of “petro gold,” which is connected to the value of oil, gold, and other precious metals. While using central bank digital currencies (CBDCs) settlement functionality and stability, some central banks could enable other forms of digital money to coexist — similar to parallel operating systems. This will allow for more rapid innovation. According to Thomas Frey, a futurist of the Da Vinci Institute, cryptocurrencies might replace 25% of fiat assets by 2030.
Crypto Vs Fiat: The Other Side of Argument
Now let’s discuss the other side of the argument of crypto vs. fiat. While the coexistence of cryptocurrencies and fiat money is a hopeful statement to make, numerous hurdles realistically occur, making the coexistence very difficult to happen.
It is still believed that the governments will eventually come down hard on cryptocurrencies. Controlling currency remains a national concern, since governments do want to be able to increase or decrease the quantity of money circulating in an economy to promote investment and spending, create jobs, or avoid inflation and recession. The majority of the attention paid to the risks of cryptocurrencies is on their potential for illicit purposes, such as sanctions evasion or purchases on darknet markets.
Yet, it is believed that the stakes of cybersecurity are possibly raised as there is no centralized authority with blockchain, and no one can undo changes that have been made. The private key holder has complete authority over the assets.
Let’s take a look at many other inherent risks as well.
Crypto Market Risks
Liquidity issues might arise with cryptocurrency, and restricted ownership makes it vulnerable to market manipulation. Furthermore, crypto money can appear more volatile than other physical currencies, driven by speculative demand and exacerbated by hoarding. However, to address this risk, cryptocurrencies are an “emerging market” in the idea that they are relatively new and hence do not yet have all of the established functionalities of mature financial markets.
Crypto Business Risks
The cryptocurrencies’ promising nature makes them prone to a lot of uncertainty. Speculators aiming to benefit from long-term or short-term holdings of cryptocurrencies are active on online platforms in large numbers.
Cryptocurrencies are not backed by any central bank, a national or international organization, assets, or other forms of credit, and their value is solely based on the value that market participants place on them through their transactions, which implies that a loss of confidence could result in a drop in value.
Crypto Regulatory Risks
The absence of coordination and transparency on regulatory, financial, tax, and legal handling of cryptocurrencies, and this asset class in general, is another big risk. This is understandable considering the market’s development and the frequently delayed and sluggish nature of “regulatory catch up.” Crypto legalization and regulation over the globe could be a way to address this risk.
Due to a large amount of power needed to mine the coins and verify the transactions, environmental concerns may also hamper the rise of cryptocurrencies. But it is still trusted that cryptocurrencies are unquestionably here to stay as technology improves.
Along with these risks, crypto legalization is still a big concern in many countries. It will take some time for the public to embrace and trust the currency, but the risks may stay the same, with some looking to be more severe and elevated than previously for both the currency and the business.
Crypto vs Fiat: Conclusion
The cryptocurrency market works in tandem with the fiat market, and businesses that leverage both systems’ characteristics gain a significant competitive edge. Not surprisingly, the biggest names in the fiat and cryptocurrency sectors are banding together to give businesses and individuals even more options through new multipurpose solutions. The winner of the crypto vs. fiat debate can’t be decided right away. However, the future is hopeful for the crypto sector if the hurdles and risks are addressed by solutions