Yes, early days. While I agree banks are behind, they will move very quickly and all at once, building on the trial and error of current crypto efforts.
My sense is that within 3 years, all fiat currencies will have an eFiat token that will be accepted as legal tender along with coins and notes.
Once fiat is on blockchain, it will no longer be at risk of a bank collapse. It will be easy and cheap to use eFiat to pay for goods and services anywhere using your smartphone. Most likely, the phone will have a security chip that monitors how you hold the phone and walk, that recognises your voice and face; perhaps linked to a wrist device that also monitors your vital signs like pulse. This will ensure no other person can use your phone, so payments can be authorised only by you. Trust networks will also help to ensure payments go to the intended person, and to ensure delivery at the agreed quality, place, time and cost by employing blockchains along the whole supply chain, limiting fraud.
As legal tender, fiat is backed by the whole of the natural, built, technological, organizational and human resources of the community(ies) that accepts it as legal tender. In the case of the US$ (as a reserve currency), it is backed by most of the world’s resources.
It is this backing that gives fiat its value. While speculation exits in all markets, ultimately, the forex market is driven by the underlying health and relative competitiveness of the economy that underpins the currency. It is the same with shares. Ultimately, its value is determined by the value of the goods and services provided by the enterprise.
The biggest risk is if fiat is issued at a much faster rate than the economy can draw in idle resources, leading to inflation, so the amount of goods and services that one unit buys falls over time.
In this case, the holder of money loses out over time, while the holder of real assets benefits.
For most, a small amount of annual inflation is irrelevant as they spend and/or invest as they earn. Few keep their money on deposit interest free for years on end.
The other problem is if wages fail to move in line with inflation. This problem cannot be counter-measured by crypto.
Unlike fiat, the price of BTC depends entirely on demand for the coin itself. It is not backed by any real resources, as (unlike fiat) it cannot be used to enforce settlement for goods and services.
If people no longer need BTC because there are better alternatives to buy, sell and exchange; BTC will revert to its ‘underlying value’ which is zero (at least for legal transactions). It may still be used for illegal transactions, but this will be made more difficult by laws that forbid exchanges to swap BTC for fiat (at least without reporting), in the same way banks now have to report cash transactions over a certain amount.
While BTC proponents use inflation as a major flaw in fiat, BTC has exactly the same problem, but in reverse, due to the (relatively) fixed amount on issue.
As demand for BTC has grown (or pushed by whales), it has led to an increase in price that bears no relation at all to growth in underlying economic activity (unlike changes in forex or share prices).
In this case, the holder of assets loses out, while the holder of BTC benefits (the reverse of inflation).
In a worst case scenario, if BTC was to be recognised as legal tender, it could go to $1 million a coin. This would result from no increase in economic activity at all. It would simply result in a transfer of wealth from the rest of the community to the holders of BTC.
The only fair result for both the holders of money and the holders of assets is for our units of money to be as stable as possible, so what you put in (as measured by the money you earn), you can take out the same amount (whenever you spend, even years later) — not more or less. In this case, neither the holder of money nor of assets wins or loses at the expense of the other.
Over recent decades, it seems the central banks are managing the system reasonably well, though there are ways to improve it. The use of AI to help regulate the supply of fiat will improve stability for all developed countries.
My sense is that BTC has a bit of a way to go yet, but will ultimately flame out,
