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There’s much debate about whether cryptocurrency can ever take the place of fiat. Crypto-enthusiasts are adamant that it will dominate the financial landscape, solving all the problems of fiat and centralized banking. Fiat fanatics are equally adamant that crypto is a fad, or cannot become stable enough to present any kind of viable alternative.
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Cryptocurrency in 2021
Cryptocurrency is a digital or virtual asset that can function as a medium of exchange. It can be used to buy products and services or to exchange or trade on a platform. Its value increases and decreases depending on a variety of external factors and it exists solely in the digital domain. Records of each cryptocurrency transaction are stored on a decentralized and immutable ledger called a blockchain.
The first cryptocurrency was bitcoin, launched over 10 years ago. Today there are more than 4000 different crypto coins in existence. Some are valuable and widely used like bitcoin, ether, ripple, litecash, and bitcoin cash. Others have little in the way of following or trading volume.
It’s estimated that some 106 million people worldwide are using cryptocurrency on a regular basis. There are an estimated 70 million blockchain wallet users as of the first quarter of 2021. As for businesses that accept crypto payments, the figure is believed to be above 15,000 with more integrating crypto payment providers each day. You can now buy a house, pay for subscriptions, do your weekly grocery shopping, or pay for legal services with cryptocurrency.
Fiat currency in 2021
Fiat currency, aka money issued by a nation or jurisdiction’s central bank, is the conventional way of purchasing products. As of early 2021, there was around $37 trillion in circulation globally, but fiat currency tied up in investments, derivatives, and crypto, could see that number reach $1.2 quadrillion – a truly unimaginable figure.
Fiat currency is divided between physical cash such as notes and coins, and digital payments via card, wire, or payment provider. Over the last couple of years, there has been a concerted shift away from physical cash and towards digital payments. An increasing number of all global transitions are being conducted via digital methods, leading many to suggest that physical currencies could soon be phased out. Technologies such as contactless cards, wallets, and payments via VR code could soon replace us carrying around wallets full of coins and notes.
But it seems like fiat currency will remain strong for at least another decade. Currencies like the dollar, euro, sterling, and yen are extremely powerful and have huge impacts on global trade, politics, and economics. To phase them out completely is unlikely to happen in the near future, but the move to digital-based transactions seems likely.
What’s driving crypto forward?
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The popularity of cryptocurrency is due to a number of factors. Firstly, people’s trust in governments and banks has decreased significantly in the wake of various scandals and financial crises. This distrust of institutions and growing disestablishment mindset means that many are looking to conduct financial transactions without the need for a third-party intermediary.
Cryptocurrencies allow users to trade, sell, and make purchases without the approval of a bank or other authority. This gives them the freedom to use it as they wish, with privacy and confidentiality. The decentralized nature of crypto also means it’s incredibly secure. Blockchains cannot be hacked and transactions cannot be tampered with, amended, or reversed once they have been entered. This makes tracking transactions easier and can be helpful in cases of dispute.
Another reason for the interest in cryptocurrency is the way it also functions as an asset. It can be used for purchasing various things, but also to store value. Many cryptocurrencies are experiencing an increase in value and this means that some coins hold the potential to offer a significant return on investment. In other words, a cryptocurrency coin can be considered an asset as well as legal tender.
Crypto is also gaining traction with those not currently served by banking institutions. The World Bank states that almost 2 billion people do not have access to a bank account. This essentially excludes them from the digital economy, which is worth more than $11.5 trillion. They cannot shop online, enjoy online offers and discounts, trade currency, invest, or make any form of electronic payment. They also cannot save in a secure way as any savings would be kept physically – typically under a mattress or stashed in an attic.
The unbanked individuals of the world can greatly benefit from the use of cryptocurrency. It gives them access to the global marketplace as well as ways to invest or save. This has long been considered one of the key benefits of crypto.
What are the benefits of fiat?
As mentioned above, the benefits of fiat currency combined with their widespread use mean that they are a force to be reckoned with. In particular, the global forex exchange market is the largest and most liquid in the world. The thought that the crypto market might eclipse and render it obsolete is unthinkable.
In the forex market, the trading of global currencies on centralized exchanges tops $6.6 trillion a day. It remains one of the most popular and steadfast financial markets in the world. While the cryptocurrency trading market is also lucrative, it is a long way from enjoying the stable popularity of the forex market.
The forex market and forex exchange sites are also growing in popularity with regular, casual traders. Over the last 18 months, the number of new accounts that have been opened has surged, suggesting that more laymen are becoming keen to speculate on fiat price movements. This market has several benefits including the fact that it’s familiar and doesn’t require lots of research to understand which currency is which, and how each has performed and will continue to perform. Most trading sites will also provide significant information and tools allowing forecasting and predictions to take place.
Another plus point for fiat is the stability it enjoys. Of course, its value against other currencies varies and the market, especially recently, has been volatile, but not on the same level as cryptocurrency. Bitcoin for example is notorious for its big price drops and there is no guarantee that increases in value will last. Fiat provides more security for investors as they are unlikely to see their dollar or euro become worthless overnight.
While crypto is booming, it seems it will take a few more years for widespread adoption to take place. There are also various kinks that need to be fixed in order for it to become a truly viable option. In the meantime, it seems likely the two will coexist, serving different segments of the population and business, for more years to come.
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