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Can cryptocurrencies replace fiat money?

We spend much of our lives chasing money to make a living and accomplish our dreams. Money is so integral to our society and our global economy that it’s true nature remains the mystery to most. If you trust your money just as it is, we have a lot of stories to share. 

For something to be considered as money, it has to be:

1) Store of value

If the ‘value’ of money changes drastically from one day to the next, people will stop using that money and turn to other types of stores of value. Such an example happened in the Weimer Republic (Germany) in the 1920s when its currency due to hyperinflation lost its value and people used cigarettes as a means of payment. It is essential for any currency to be stable so people can consider it as a store of value.

2) Unit of account

You need to be able to relate the “value” of money to the value of something else, say 10 cowry shells for a bowl of noodles or one gold ingot for a horse.

3) Medium of exchange

You cannot be the only one trading in cowry shells.

Everyone else must be ready to accept them as a means of payment.

If you go from the landlocked areas where cowry shells are rare to the seaside towns where cowry shells are plentiful, it may not be recognized.

The same thing happens when you travel to a different country today.

Characteristics of money:

What is durability?

Crypto isn’t even physical!

It’s definitely durable compared to a physical product.

But wait, isn’t it just data?

Can’t it be destroyed like hard disks and thumb drives?

Technically it could, but the blockchain which record every individual fraction of crypto is distributed across millions of nodes (powerful computers).

You can’t destroy 1 node to wipe that record, you would need to destroy all of them.

Destroying millions of nodes is practically almost impossible because it would be equal to hacking millions of computers at the same time. 

What is portability?

Due to its electronic nature, crypto is stored “in the cloud” similar to dollars in your bank account.

All you need is a phone application and wifi or a mobile data connection to send value globally without any barrier.

What is divisibility?

While you can break dollars into cents and think that’s very divisible, crypto goes up to 18 decimal places.

Not only that, every time you break a dollar into cents, you actually decrease the portability of money per person as weight and space go up but the value of money goes down.

Fortunately, we will never have this issue with non-physical cryptocurrencies and be able to divide as much as we choose.

What is uniformity?

Each unit of cryptocurrency is indistinguishable from the next.

While even some notes have serial numbers to indicate authenticity or minting order, if you transfer 1 Bitcoin to a wallet with 9 bitcoins, even the owner is not able to recognize which of the Bitcoins he received; they are perfectly identical and fungible.

What is limited supply (or rarity)?

As we mentioned before, governments are printing more and more money and the total supply is growing endlessly. Just in 2020, more than $6 trillion were printed in the US alone. 

It is increasing supply while the demand is not growing.

All that is going to decrease the value of money.

Cryptocurrencies like Bitcoin, however, have a hard limit as determined by software: no one can ever create more Bitcoins.

It misdefined by protocol and every single day less and fewer Bitcoins are going to be printed until hardtop is reached.

Once it happens, there will be no new coins created.

It will cause the supply to stop growing and if we see an increase in demand, it is going to cause an increase in the price of Bitcoin. 

What is acceptability?

Probably the only aspect the crypto currently loses out to fiat from is in its acceptability as a medium of exchange.

However, the situation is quickly changing and the more cryptocurrencies get exposure, the greater the rate of public adoption of crypto as payments and transactions.

Next Lesson

Free complete cryptocurrency course

Banking system

The problem of banking system

What is money in simple words?

What is supply and demand?

What is the "Gold Standard"?

Introduction to Cryptocurrencies

Is there a solution?

What are the advantages of cryptocurrencies?

Can cryptocurrencies replace fiat money?

What is the market size of the cryptocurrency?

Blockchain

What is blockchain and how it works? (Simplified)

Introduction to Blockchain

What are the advantages of Blockchain technology?

What is mining and how it works?

How to start investing in Crypto

The biggest mistakes in crypto to avoid

What is a cryptocurrency wallet?

How to open a cryptocurrency wallet? (Guide)

How to use cryptocurrency wallet? (Step by step)

How to buy any cryptocurrency?

Conclusion

Congratulations on becoming a Crypto investor