Since the emergence of Bitcoin in 2009, cryptocurrencies have undergone a rapid rise in their value, popularity, as well as utility. Some merchants and retailers have started accepting cryptocurrencies to sell their products and services. Many investors are targeting them to make more store value and returns.
Cryptocurrencies enjoy some benefits that fiat money lacks. They rely on mathematics instead of a financial institution or government authority for their supply, which minimizes the chances of depreciation caused by inflation. Also, crypto users are less prone to cyber-attacks when compared to banks and other financial institutions. Thus, they won’t have to fear losing all their assets all of a sudden through hacking.
As digital currencies are gaining more focus, many discussions of them replacing fiat money are also happening around the world. Even though there are many advantages to cryptocurrencies, it is hard to expect them to replace fiat money shortly. They have to undergo many more evolutions and advancements to gain reliability to make this happen.
Online crypto exchanges offer a combination of modern and traditional money transactions. They interact with conventional banking and payment methods for their operations. Decentralized protocols will keep on improving their processing methods for better transactions like internal transfers, investments, and payments.
Currencies like yen, pounds, euros, dollars, and others, backed by a central government or authority, are called fiat money. The performance of the bank and the state of the fiat money determine its value. The government will be regulating the supply of fiat money which can be used for tax payments.
One of the most noticeable disadvantages of fiat money is inflation. As there is no limit to the production of fiat money, there is no way to avoid inflation. Additionally, the accumulation and location of holders determine the taxation of fiat money.
The transactions of fiat money will be governed according to the plans of a specific bank. This may make it expensive and delayed. Even modern advancements in technology are unable to curb the duration of online transactions. Fraudulent activities associated with fiat money are also common as people can easily create fake bills and cheques. But fiat currencies are not linked to a constant resource. Therefore, central banks have the complete authority to limit their supply. So financial institutions have the power to control liquidity, interest rates, and credit of fiat currencies.
Some experts predict that in the coming years, at least 25% of the fiat currencies will be replaced by cryptocurrencies. But the unreliability and decentralization of cryptocurrencies are still skeptical for many people. Cryptocurrency is still an unstable and speculative idea. Even big companies are not confident to invest in cryptocurrencies. But, even after these setbacks, the growth of Bitcoin is unstoppable. It may grow to surpass the reliability of fiat currencies and provide a transaction network that is completely encrypted and digital. So their future is something highly looked after by many financial experts around the world. But the question of it completely replacing fiat currencies is yet to be known.