Is Cryptocurrency an Alternative to Real Money?

Graphic depicting cryptocurrency

Тhe rise in prices of Bitcoin, Ethereum, USDT, Ripple, and other altcoins made many people go crazy about the world of cryptocurrency. However, one question remains unanswered and raises eyebrows - is crypto going to replace real money?

What is cryptocurrency?

Cryptocurrency is a peer-to-peer system of digital currency that exists because of the use of blockchain technology. There are many different kinds, but the ‘king’ is Bitcoin, which uses proof-of-work protocols to create more coins. Each transaction is stored in a public ledger and used to verify transactions on the network.

Cryptocurrency uses encryption techniques that are used to regulate the generation of units of currency and confirm the transfer of money, operating without the need of a central bank. 

Cryptocurrency benefits

Most people associate digital coins with the cryptocurrency market, which is volatile. Thus it brings millions to some and destruction to others. But this is untrue, as blockchain has so many benefits beyond price speculation. And even the volatility statement is not 100% accurate, since you can buy USDT, which is pegged to the US dollar.

Limited supply

Governments over time have been corrupted by the power of money printing. While many leaders have come and gone, their policy of infinite money printing has continued to devalue their currency to the point where inflation runs rampant. Every economist will study Venezuelan hyperinflation. This is a problem that people can rectify by using the blockchain as the tool for governance. For example, a total of 21 million Bitcoins will ever be in circulation, and nobody can change this number.

Security of investments

Bitcoin offers protection against expropriation, which means that unlike a bank account, the Bitcoin blockchain cannot be manipulated by any central authority, guaranteeing that no one will be able to take your money. Thus, it is often referred to as 'trustless' thanks to its ability to guarantee that a person's assets cannot be taken away from them. Cryptocurrencies are obviously the go-to choice for people living in countries with unstable banks. But we also remember how Bitcoin was born and its reason for its birth - the 2008 crisis in the US. 

Cryptocurrency disadvantages

Of course, we can't look at cryptocurrencies with rose-tinted glasses, and there are still few reasons why people can't start using them.

Volatility

Many people still have doubts about Bitcoin and other cryptocurrencies, but some of them are looking for a way to get the best of both worlds. Some investors like the volatility, while others want something more stable. Stablecoins, which are backed by something valuable, offer a way to find equilibrium between these two worlds.

Expensive transactions

While cryptocurrencies were once intended to make international transactions cheaper, Proof-of-Work algorithms are now dated, making traditional crypto transfers relatively expensive. Transferring funds via traditional crypto exchanges at peak times is even more expensive than the transfer costs of traditional companies.

Cryptocurrencies in real life

Crypto enthusiasts have claimed that fiat currency could be replaced entirely with digital coins for quite some time now. While we can agree that this may happen in the future, it's not possible right now. It will take generations for this to happen, as too many people are not familiar with digital currencies.

Will cryptocurrencies replace cash?

Of course, it is important to consider the risks of a cashless world. One of the biggest concerns that people have about adopting digital money is becoming victims of cybercrime. If electronic currency is not backed by real money in a bank, buyers could lose all their funds overnight through theft or fraud. While some institutions have safeguards put in place to protect against this type of thing, not everyone is privileged with these protections.

The first sign that cryptocurrencies are becoming more mainstream is efforts by authorities to regulate them.

As CNBC’s MacKenzie Sigalos recently reported: “The Biden White House has just released its first-ever framework on what crypto regulation in the U.S. should look like — including ways in which the financial services industry should evolve to make borderless transactions easier, and how to crack down on fraud in the digital asset space.”

This follows on from the statement last year by the US Securities and Exchange Commission Chair Gary Gensler that it was time to regulate cryptocurrency markets. Chair of the US Federal Reserve Jerome Powell also said regulation of stablecoins was overdue. 

Final thoughts

Cryptocurrencies could play a big role in both business and personal transactions in the future. They have the potential to make our lives easier, by eliminating many of the things we currently need central banks for, such as taxes and fees. However, for the time being, they should co-exist with fiat currencies, as most people don't know enough about them yet - and regulation efforts are still in their infancy.

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