Can bitcoin replace fiat currency?
June 9, 2021, El Salvador became the first country to regard bitcoin as an official legal tender. With the mass adoption of cryptocurrencies going on around the world, people have been wondering if Bitcoin will ever replace fiat currency.
My answer is No. I don’t think so yet.
I love the decentralization and transparency that comes with cryptocurrencies, but I feel it’s not yet at that stage to take over fiat currency. Before I give my reasons I will define what fiat currency and cryptocurrency mean.
A fiat currency is government issued currency e.g Dollar, Naira, Euros e.t.c
A cryptocurrency is a virtual currency that’s secured by cryptography. e.g Bitcoin ,Litecoin.
Bitcoin is a deflationary currency. As more people use bitcoin, the demand for it increases thereby, increasing the value of goods a unit can purchase. For example, a bitcoin purchased at the value of $500 can buy 10 shoes worth $50 each. If the value of bitcoin increases next week to $1000, the number of shoes purchased will be 20.
This might seem like a good thing, but looking at the economic system. A little inflation is needed for economic growth, especially one which relies on the consumption of goods and services.
Deflation leads to economic stagnation as people tend to save money in order to increase its value.
It’s also a volatile currency; The reason is that it’s not backed by any governed entity or authorities. It’s based on the speculative nature and majorly driven by news and perceived value by its users.
I believe that for bitcoin to replace fiat money it must undergo regulation to reduce its volatility and make more people accept it widely as currency (which is a means of exchange, store of value, and unit of an account).
Most people would rather invest in a currency that’s protected by an economy.
Transactions speed has also stood in the way of blockchain transactions being widely accepted. The highest number of transactions bitcoin can deploy is about 200,000 per day.
Financial corporations like Visa handle about 100,000,000 transactions every day. This shows that bitcoin blockchain still needs a lot of improvement to be able to compete with centralized networks.
It works fine for a small number of users but here we are talking about hundreds of millions of people using the blockchain at the same time might cause a breakdown and slow transactions.
Conclusion.
I think bitcoin should just stick to the purpose of being a store of value for the people. It won’t be easy to replace fiat money completely.
These are just my thoughts on the question. I can never really tell what will happen in the next decade. Developers might come up with the technology needed to overcome its current challenges.
Let me know what your thoughts are. Do you think Bitcoin can replace fiat currency?
