Can cryptocurrency replace fiat currency? The debate about the advantages of cryptocurrency against fiat currencies is still ongoing and surfacing in the public. Various kinds of arguments emerge in response to the future of the world financial model.
Since the emergence of Bitcoin which is decentralized digital money. It has given a new color with several advantages that it carries. After Bitcoin, there are other cryptocurrencies that also offer advantages over Bitcoin. Say Ethereum, Litecoin, and so on. This has added to the list of cryptocurrencies that are competitors to fiat currencies.
But will cryptocurrency really replace cash? Consider the following reviews, even though the future is uncertain, from some predictions it might be able to shift the dominance of cash money.
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Cryptocurrency and its pros and cons
Since the emergence of Bitcoin which is the first cryptocurrency, this phenomenon has grown with the emergence of new cryptocurrencies by adopting the blockchain technology used by Bitcoin.
The development of the internet since the 2000s has provided easy access for the public to be able to conduct online transactions using the internet media. Public easily in making electronic money transfers. Because cryptocurrency also uses the internet in its network, only those who can access the internet can use cryptocurrency.
Meanwhile, people who have never been familiar with the internet certainly don’t know how to use cryptocurrency, especially those who live in developing or poor countries, who are among the elderly.
The main purpose of cryptocurrency is to replace the current banking system with a centralized model where every transaction that occurs is under the supervision of the bank.
In cryptocurrency, the bank is not involved as the key holder of customer transactions, but it happens by the network mechanism as a confirmation in a single transfer transaction.
Thus, the buying and selling process becomes simpler and can reduce transaction costs through banks that are charged to buyers. Some of the benefits that cryptocurrency provides include:
- There is no third party as an intermediary, eg bank.
- The user doesn’t need to obey the regulations imposed by the bank, and vice versa the bank cannot enforce their regulation on the user.
- Traders have a higher power of autonomy.
- No account will be frozen.
- There are no intermediary fees as applicable on eBay and Etsy.
- Customers get better privacy protection.
- Buyers can make transactions internationally without using currency exchange rates.
- A higher level of protection against fraudulent or fraudulent transactions.
In the current digital era, the growth of cryptocurrency is high with the emergence of new innovations that are the beginning of a financial model that is predicted to replace the traditional banking system in the future.
But cryptocurrency itself is still a lot of criticism from people who have different views of cryptocurrency and the global world. Some of the reasons underlying the weakness of cryptocurrencies are:
- Not everyone in this world knows the internet so they can’t access cryptocurrency. Meanwhile, how to use digital currency also requires learning first, so this presents difficulties for people with less education.
- There is no control from the official authorities so that in case of conditions outside the procedure it will be difficult to trace if funds are lost due to errors.
- Besides that, the biggest concern of using cryptocurrency is when it is used for illegal transactions. Because there is no institution that specifically monitors the flow of funds.
- Many new cryptocurrencies have emerged as financial solutions. It can also confuse the public to choose which cryptocurrency is safe and reliable. In fact, there are currently more than 1500 crypto lists listed on Coinmarketcap.
Flat currency advantage and disadvantage
At the beginning of its history, the fiat currency was first introduced by China about 100 years after Qin dynasty, Emperor Hsein Tsung government (806-821) had a shortage supply will be copper.
Then the emperor Hsein Tsung ordered the use of the sheet paper as a substitute. Then Emperor Hsein Tsung thought if people can make paper payments, why don’t use it continuously. Even though the paper was actually worthless. The discovery of these banknotes was probably an accident by Emperor Hsein Tsung. But world history records it as a contribution of Chinese innovation to world civilization.
Fiat money means is money that is created by something. Whether created by paper or coins that are recognized as tools exchange which is legal in the jurisdiction or country certain even though it has no value or reserve (back up) which is equal to value nominal
Flat money pros
Currently, the fiat currency is still a medium of exchange that is widely used by the public in a sovereign country, where the issuance of fiat money is controlled by the central bank in one country’s jurisdiction.
The issuance of the money is not carried out carelessly, but will also pay attention to the impact of inflation if there is too much money in circulation in the community.
Some of the advantages of a fiat currency are:
- It is a general rule that the stated value of money can be the official medium of exchange for goods and services.
- Anyone can access flat money easily because it is physical and can be touched even by the visually impaired.
- Receive legality from the government as a legal medium of exchange in one state jurisdiction. This requires that a foreigner going to another country must convert his own country’s money against the destination country. This makes it easier for them to shop in the public community.
- Because the physical form of flat money is easy to carry everywhere so that when you need to spend it you can easily reach it from your wallet. The use of flat money is easier than bartering.
Flat money cons
Besides having advantages, it turns out that flat money also has its disadvantages. Flat currencies issued by the government through the central bank, some are made of paper, and some are in the form of coins.
But in an overall image flat currency has several disadvantages including:
- It is actually created by something that is not valuable, but society does not realize that it is actually using something that is not valuable to get something more valuable.
- The flat money issued is created by of paper, this is susceptible to physical damage so that one banknote may be torn to become worthless in society.
- If carrying a large amount of money requires more storage, as an illustration, you will buy a new car with flat money, this requires more storage bags. Unlike crypto digital money, any value can be carried easily.
- If you want to transfer money, you have to go through a bank as an intermediary, this will require a higher fee, and usually take a longer time.
- The issuance of flat money is also considered to only benefit the authorities through the interest charged to the public. This is an injustice and can lead to an inflation of money which can have an impact on the economic crisis.
Cryptocurrency vs fiat currency, which is better?
In terms of fairness, cryptocurrency is considered to have more transparency and to be a fair and low-cost payment system. Bitcoin, for example, is issued in limited quantities, and miners who function as transaction validators are rewarded for solving complex mathematical algorithms for transaction confirmation.
So if the amount of Bitcoin that has all been mined runs out, it will circulate on the blockchain, and the user’s wallet is really just a private key to accessing the user’s funds. Consequently, if you lose your private key, or you forget it and you can no longer access your wallet, your money will also be lost.
So even though the number of bitcoins in the blockchain remains the same, if many users lose their private keys so they cannot access the wallet, then the number of bitcoins in the wallet will be useless.
What about a fiat currency? cryptocurrency replace fiat currency
While flat money has been recognized by the government as a legal medium of exchange in society. This is what makes people think that money is more valuable than goods. The reason is flexibility, flat money can be exchanged for various other valuables goods and services. Even though the flat money was only made of paper or copper coins the real value was low.
So what is better? cryptocurrency replace fiat currency
The use of cryptocurrency can make transactions across countries, while flat money is limited in one country’s jurisdiction, so access is limited.
But in spending, flat money can reach many goods and services, because it is the official currency by the government so that it can easily be accepted by everyone as a medium of exchange.
As for cryptocurrency, its use is still limited, even though there are hundreds of merchants and even thousands have accepted cryptocurrency, not everyone wants to accept cryptocurrency as payment.
Which one is the best, in the end, will see your needs in money, if shopping in the country for daily needs, flat money becomes an easy solution as payment. But if you want to buy goods or services abroad, or want to send money overseas, it’s cheaper with cryptocurrency.
The IMF predicts the digital money will replace cash
Recent studies from the International Monetary Fund (IMF) show that cash and various kinds of deposits in banks will be replaced by the presence of electronic money and digital money (cryptocurrency) in the future. The results of the research conducted by Tobias Adrian and Tommaso Mancini-Griffoli are summarized in The Fintech Note document entitled The Rise of Digital Money.
Even so, the stability of the electronic money format is still questionable. In writing, it does make transactions easier, but if a customer keeps 10 euros, he should also get 10 euros in the future. In addition, this paper also discusses i-money which allows the exchange of digital money for paper money.
Central Bank role needed, cryptocurrency replace fiat currency
In the research, it was stated that the role of the central bank as a controller of the formation of electronic money in the future is very much needed so that business competition in the field remains healthy.
One solution is to offer selected new e-money providers access to central bank reserves. Even under strict conditions. Doing so carries risks, but also has various advantages.
Equally important, central banks in some countries can partner with electronic money providers to effectively provide the central bank’s digital currency (CBDC) or digital version of cash.
The paper also proposes a different solution, namely synthetic CBDC. In which the central bank will offer settlement services to electronic money providers. Including access to central bank reserves. However, all other functions will be the responsibility of the private electronic money provider under the regulations.
Synthetic CBDC will be a cheaper and less risky model. With this concept, the private sector still allows innovation and interaction with customers. While the central bank provides a sense of trust and efficiency to customers at the same time.
Deutsche Bank predicts cryptocurrency will replace cash by 2030
Deutsche Bank, which is the largest lender in Germany, suggested that Cryptocurrency will replace flat money in the next decade. In a report entitled Imagine 2030, Jim Reid’s research team summarizes in a journal article about a picture of global conditions in the world in the coming decades from now.
The Report contains topics in various groups, however, the most interesting chapter of the report is entitled “The end of fiat money?” and “Cryptocurrency: 21st-century cash.”
The end of fiat money? cryptocurrency replace fiat currency
In the years before the early 1970s money was always supported by several types of commodities. Especially in backup with gold. But now money is only supported by trust, money is actually not valuable but is believed to be very valuable.
According to Reid’s research, the current fiat currency system looks more threatened than ever. According to researchers, the current 2020 flat currency strength looks fragile. And it can cause a surge in demand for alternative currencies, such as gold or cryptocurrency.
Deutsche Bank researchers are skeptical of the current fiat currency-based currency system. And they suggest that fiat money could become redundant in the coming decades. This condition can cause hyperinflation. So they suggest cryptocurrency can play a big role in the digital world in the near future.
China as a global economic superpower will become a new power in the next 40 years. This country is predicted to contribute strongly to the suppression of the inflation rate due to the massive increase in the global labor supply.
In the last four decades, wages, prices, and inflation have come under pressure. Under these conditions, it can still help maintain high inflation rates and help the fiat currency-based monetary system continue to function.
Senior Economist Marion Laboure predicts that 2030 flat currencies will be replaced by cryptocurrencies as an alternative to payment.
Can the dinar gold replace global currency? cryptocurrency replace fiat currency
Since the collapse of the gold standard that backed up the US dollar. Global finance has relied on the US dollar as the standard of international exchange. Many countries hold foreign exchange reserves in USD. Although currently USD is no longer backed up with gold. However, the world still confident to recognizes USD as a standard exchange.
In fact, all international transactions such as export and import, oil trade, and financial services use the US Dollar as a transaction currency. As a result, there is an indirect correlation between all these countries and the stability of the dollar.
This concern arises because the instability of the dollar will drive currency instability around the world. And also export inflation around the world, and the economic burden that occurs in the US will be paid by billions of the world’s population.
Basic criteria for money, cryptocurrency replace fiat currency
In response to this injustice, many economic researchers try to find a global monetary system that is relatively stable as a measure of value and a store of value.
According to Meera (2002) in her book “The Theft of Nation. States that there are at least five criteria that should be owned in order for a commodity to function effectively as money:
- Standardized, it means that the value can be found easily.
- Accepted by the public.
- Easy to fracted the value.
- Easy to carry.
- The value is not easily eroded quickly.
There are arguments for dinar gold replace USD, cryptocurrency replace fiat currency
At the Summit Conference of World Islamic Countries. Malaysian Prime Minister Dr. Mahathir Muhamad suggested the trade uses gold. It’s a weapon to withstand the economic embargo imposed by western countries. This is in line with the increasing enthusiasm of several Muslim countries such as Malaysia, Iran, and Qatar in making the dinar an international currency.
The Gold Dinar is very possible to be realized as a substitute currency for the US Dollar or Euro. Which is a fiat currency by analyzing and comparing the advantages of ‘Gold Dinar’ and the weaknesses of fiat money.
Historically, fiat money is paper money and coins minted by the central bank without being backed up by anything. Its means money creating out without anything. Every fiat money printed by the central bank is actually a burden (debt) for the economy.
The transmission of this debt creation is through a monetary instrument called the Reserve Requirement Policy.
The weakness of fiat money, cryptocurrency replace fiat currency
Reserve Requirement Policy indirectly forces banks to release new money beyond the capacity of the economy. In fact, the economy’s capacity is limited to producing goods and services.
Even worse, the printing of money can also be done by banks through the provision of credit services. So, automatically an economy that has reached full employment capacity cannot absorb the excess liquidity.
Thus, inflation and asset bubbles will automatically occur. High inflation can create panic and failure of the economic system. As a result, unemployment and layoffs are options as a side effect of the economy’s inability to absorb shocks.
Will bitcoin replace fiat currency?
Cryptocurrency is also a public discourse as a substitute for flat money, besides the gold dinar. It turns out that the biggest lender Jerma Deutsche bank advises the world to use cryptocurrency to replace flat money by 2030. They predicted cryptocurrency replace fiat currency.
However, it was not without obstacles, from the quora forum start question. And someone gave the answer that cryptocurrency cannot replace fiat money because it is the responsibility of the government.
The government will not be able to control the economy and will not accept cryptocurrency taxes. Because it is decentralized and different from the centralized banking system.
However, it is possible that the use of digital currencies will increasingly develop in many countries amid the coronavirus condition to minimize physical contact with money users.
China is the first to develop a currency digital yuan. And several countries have researched the use of digital currency as cashless payments. So if many countries already use digital money, it’s possible flat money will be replaced little by little.
Flat money may be considered to give injustice. Because money has no backup with anything and is only a digit number issued by the government’s central bank. But it will still be difficult to replace flat money with gold dinars or cryptocurrencies.
But it does not rule out the growth of gold dinar and cryptocurrency users have increased. For users with the aim of saving, the Dinar Gold is considered better and safer in the long run.
However, for users who want to use it for transactions, cryptocurrencies provide easy cross-border transfers at a low cost.
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