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Will Cryptocurrency ever replace fiat money?

The cryptocurrency transactions are secured and it's not possible to track down the involved parties as the system is decentralized

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DQINDIA Online
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Cryptocurrency are not the future, but it is in fact the present. Cryptos and blockchain technology have taken the world by the wave. But can they replace the Dollars, Euros, Rupees and other fiat money? This is a question that may have crossed our brains at least once. Well, it’s interesting and complicated at the same time!

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Firstly, anything that a buyer and seller agree upon as a tender of exchange can be called money. This is how commodities have been exchanged for centuries. Similarly, today every country has its own regulatory body and its currency, widely accepted in its territories. All the fiat currencies are highly regulated and centralized by financial institutions and governments. Bitcoin, one of the first cryptocurrencies emerged in the year 2008, and thereafter it has been creating ripples and waves in the financial markets. Recently El Salvador has legalized Bitcoin as an official tender and set an example for the world to follow. But the bigger question is still the feasibility and acceptance by various governments across the globe.

Many big firms like Deloitte have done extensive research and study in the field of legalization of cryptocurrencies as official tenders. Some have even predicted that 2 | P a g e this revolutionization of the whole financial system that we know can be possible within the coming decade and some argue that it may take as long as 25-30 years also. Let’s explore a bit more and try to understand cryptocurrency and its ecosystem before we can comment on it.

Firstly, there are many types of cryptocurrencies present in the market like Bitcoin, Ethereum, Litecoin, Bitcoin Cash and many more and each one has its operational network and market valuation. These cryptocurrencies are not regulated by any agencies which happen to be the backbone of decentralized currency and are the reason for not having credibility for being called legal tender. Cryptocurrencies are very volatile in nature and their value is not backed by any tangible source. The only thing that one knows is that there will only be 21 million bitcoins and mining them will get harder as the number of bitcoins decreases. But other cryptocurrencies have a varied number of quantities. The number of currencies to be printed in a country is regulated by the central agencies as per the internal and external factors whereas none have the same regulating powers in the case of cryptocurrencies. By legalizing cryptocurrencies, the governments and financial agencies will lose control over the economy.

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The cryptocurrency transactions are secured and it's not possible to track down the involved parties as the system is decentralized and the same is exploited by money launderers, black market dealers and it is the biggest concern of governments across the globe. Not only this, for running and sustaining the Bitcoin network alone the consumption of electricity is equivalent to the power consumption of Argentina. Again, a red flag towards the acceptance of cryptocurrency as a legal tender.

The challenges are not just these, many other unsaid technical feasibility issues cannot be ignored. Whenever a bitcoin transaction takes place, the transaction gets recorded at every server on the network on bitcoin and it is very time consuming, a transaction done can take somewhere 30-40 minutes to get completed and get reflected in the beneficiary’s account. Thus, speed is also one concern as of now and may get resolved as the technology evolves.

Let’s say that in the next 5-6 years we have enhanced our technology to meet all the technical feasibility of sustaining a cryptocurrency as a legal tender, then the acceptance of the same by various governments across the globe will be an issue as any nation have already banned cryptocurrencies and in a world full of different type of governments and ideologies its practically difficult to bring all the nations on the same pages. Let’s say one fine day, every nation accepts it as the legal tendency across the globe, it sounds amazing for the tech lovers. But hold your horses, we have not yet considered the difference of exchange rates existing across the globe, accepting the same currency means nullifying all the exchange rates, no dollar, no euro only crypto. Will the nations agree to it as their GDPs and economies will be impacted on a very large scale. And allowing different cryptocurrencies for every nation will not only complicate the issue but will again bring in more problems than solutions.

So, in short, we can say that cryptos getting accepted as legal tenders will be a revolutionary path breaker for the world, but before it happens there is a way to go and it will be in near future but not soon.

The article has been written by Vivek Kumar- PGPM- Fintech, student at Great Lakes Institute of Management, Gurgaon

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