Since the evolution of human life, our exchange mediums have also been evolved. From barter system to the fiat currency, many methods have been a part of our lives till now. Many factors gave the path to the evolution of the exchange system.
What Is Fiat Currency?
Fiat currency is the paper-based money that we use today. It completely works under government controls and regulations. Since it is the most convenient form of exchange, it became quite popular in the 20th century. It is a legal tender that is solely backed by the government. If the government somehow becomes corrupt, it may lead to inflation or even recession.
What Is Cryptocurrency?
The 21st century has not been less than a digital revolution. Digital payment has become the dire need of the world. In 2008 the blockchain founder, Satoshi Nakamoto introduced Bitcoin to the world. This cryptocurrency became the talk of the town soon after its invention.
Unlike fiat currency, cryptocurrency is a decentralized currency. Thus, there is no inclusion of third parties and banks. It is also a public ledger. That means, it is not created out of thin air, unlike fiat currency. The entire circulation is handled by a process called mining. It is a secure and transparent form of currency.
Can Cryptocurrency Ever Replace Fiat Currency?
It is faster, reliable, and transparent as compared to the fiat currency. To replace fiat currency, cryptocurrency may have to face many milestones. The following reasons explain why it is difficult for the system to completely adapt cryptocurrencies:
- Governments: Cryptocurrency does not rely on the government for its circulation. Being a decentralized ledger, it is also difficult to imply taxes on the cryptocurrency. Politicians and government can mold the economy the way they want through fiat currency circulation. This is the reason they don’t want to let go of fiat currency and allow cryptocurrency.
- The public is afraid of the attacks: Recently, a horrendous cyber-attack on Twitter has made everyone feel skeptical about cryptocurrency. The hackers were able to scam multiple billionaires, celebrities, and exchanges around $120,000 worth of Bitcoin. It has affected the safety perspective of the public around the use of cryptocurrencies.
- Energy consumption on mining: Bitcoin mining comprises of the transaction verification and storage of “blocks of information”. This process is performed by Bitcoin miners. However, this process is not an easy one. It consumes a lot of power and is difficult to sustain in the long run.
- Scalability: Blockchain can only process seven transactions per second but since now it is being globally used, this capacity is not scalable. Unless the size of the block is increased, it is difficult to say whether everyone can adapt cryptocurrency or not.
Since so many factors are pointing towards the global expansion of cryptocurrency. It is yet to see when cryptocurrency can replace the fiat currency.