Will Cryptocurrency Ever Compete with Fiat Currency?
Since its inception in 2009, Bitcoin and many other cryptocurrencies have entered the market and captivated the imaginations of both the public and corporate sectors. Its initial inception brought with it some negative associations, though, with Bitcoin being associated with the dark web and black market purchases of drugs and other illicit items and services.
What many failed to see in these early days was the introduction of the blockchain – the key innovation that Satoshi Nakamoto invented when Bitcoin was unleashed to the world. The blockchain is the infrastructure that gives Bitcoin and other digital currencies their ability to be privately sent and received, as well as permanently recorded in the ledger. More easily understood as a “public ledger”, the blockchain has since sparked curiosity among tech entrepreneurs in many industries, as its use cases promise innovation to nearly all facets of modern society.
At its core, a blockchain is a data structure that’s used to create a digital distributed transaction ledger that, instead of resting with a single provider, is shared among a distributed network of computers. The result is a more open, transparent, and publically verifiable system that will fundamentally change the way we think about exchanging value and assets, enforcing contracts, and sharing data across platforms.
The blockchain does all of this by providing a verifiable, open ledger that can be accessed or viewed at anytime, by anyone with access. The blockchain eliminates the need for value-leaching third parties such as ad machines and centralized banks, and allows for the power to be put in the hands of the user, allowing for them to have more control of their data, identity, and digital content than ever before.
Public Vs. Consortium Blockchains
In order to understand the diverse nature of blockchains, it is important to understand its different forms. The blockchain can either be public or consortium, each of which has its own benefits based on the planned use of said blockchain.
A consortium platform allows for the same benefits of a public blockchain- efficiency and transaction privacy, for example — without consolidating the power of a company. It allows for a publicly-lead leadership group to contribute to the governance of the network, and remains in line with the mission of blockchain – decentralization. Furthermore, this form of blockchain will also remove strain to the network, allowing for increased speed and transaction volume across the platform.
“So far there has been little emphasis on the distinction between consortium blockchains and fully private blockchains, although it is important: the former provides a hybrid between the ‘low-trust’ provided by public blockchains and the ‘single highly-trusted entity’ model of private blockchains, whereas the latter can be more accurately described as a traditional centralized system with a degree of cryptographic auditability attached.” ~ Vitalik Buterin
The Value of Cryptocurrency
For most people, cryptocurrency could never replace the stability and physically-verifiable nature of fiat currencies currently in use today. These same people most likely do not understand the mass use cases for the blockchain, smart contracts, proof of work, and trustless, P2P business transactions. While fiat currency is physically available and can be touched, it does not protect against fraud as efficiently as cryptocurrencies, and it also requires much more documentation and third-party interference to complete business transactions and larger purchases for corporations.
Cryptocurrency, smart contract technology, and the blockchain offer value to more than just the simple advantage of exchanging money digitally. They offer a fundamentally new way to approach business transactions, and they completely remove the need for third parties to oversee and leech value from deals they have no business being involved in. It offers:
- Faster, more efficient settlement and negotiation times due to elimination of third parties
- Lower operational overheads to implement changes
- Automation and ease of compliance and reporting data reduces administration and service costs.
- Smart contracts allow for sensors and legally-binding digital contracts to be implemented into multiple industries
While major cryptocurrency platforms such as Ethereum will need to scale their technology and prove it can handle the massive adoption, the ideas and potential applications to multiple sectors of the economy make it a direct competitor to fiat currency.
Fiat currency is a tradition, one that people are comfortable with, and one that may never be completely replaced, but cryptocurrency is a future-minded proposition, and society seems to be warming up to it much faster than experts predicted.
2018 is shaping up to be the year that brings cryptocurrency to mainstream attention. With corporate giants such as Amazon, Target, McDonalds, CashApp, and more preparing to integrate crypto payments, its ease of use and secure and fraud-free characteristics are helping it to become a true alternative to fiat currency for anyone who is interested.
Will Cryptocurrency Compete With, or Complement Fiat?
While the debate seems to always center around whether or not fiat will be pushed out of use by cryptocurrency, the real question is how well can cryptocurrency supplement fiat currency? Physical money has been in use for thousands of years, and there will always be segments of the population that utilize physical money. While cryptocurrency offers speed, efficiency, and security, the fiat dollar is cemented too deeply into society to be removed anytime soon.
The realistic path from here for cryptocurrency will be to complement and add to the value and use of the fiat dollar. Bitcoin, Ethereum, and other digital currencies are “alternatives” to the fiat dollar, and it is unlikely you will only have to use one of these options in the near future. Digital currency is a concept that was inevitably going to be invented, and because of its introduction along with the blockchain, the use cases and evolution of cryptocurrency has been exponential.
Entities such as Ethereum and IOTA have shown that cryptocurrency does not end with simply exchanging value, but it offers a solution to the global fraud and lack of security epidemic. Smart contracts will provide businesses with a means of easily obtained, legally binding digital contracts that will reduce the cost of business deals across the world, as well as prevent fraud in a multitude of IoT projects currently in the works.
While fiat currency will be the physical representation of value, cryptocurrency will augment and enhance the way we as a society are able to exchange value between parties, and ensure that we continue to move forward technologically as a species.