Can Cryptocurrencies REALLY Replace FIAT Currencies?
It is all over the internet since the past couple of years. “Cryptocurrency is the new Money.”
Some notable personalities said it, social media are flooded with it and investors jump into the bandwagon to grab hold of the opportunity.
We understand that the current Financial System we are in is not the best. But is it wise to say that a very new stack of technologies could replace the currency that has been around for eons?
Can Cryptocurrency really replace FIAT Currency?
Let us take a look.
The Perception
When we talk about Cryptocurrency replacing the FIAT Currency, we are talking about MASS ADOPTION.
Many people mistakenly accept that just because Bitcoin got a significant rise over the past years, or just because their Technologies are cutting edge (although they are pretty old-school), they are ready to become the new-world currency.
Really?
For a Cryptocurrency, even Bitcoin, to replace the FIAT Money, it is more than just Technology and whether they are a good investment vehicle.
The question to ask is, “What would make COMMON PEOPLE and BUSINESSES want to use these bands of digital numbers as a means of payment and keep them?”
Interesting Finding
If you would pay attention to most people who are desperate to have Cryptocurrencies replace FIAT Currencies, you would notice an interesting pattern.
Most of them are people who have an interest or agenda. The list includes Holders, Traders, or “Miners”.
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In other words, they will benefit from the price rise of the Cryptocurrency and suffer when the price sinks. I am sure you know how much It costs them to buy the equipment to “Mine” the cryptocurrencies. They would do whatever it takes to profit.
Is it a bad thing? No it isn’t. People who believe in something will do what it takes to hold on to them and voice out their beliefs in hope other people would do the same.
But since the Majority of Cryptocurrencies have no subsequent Asset backing them up (Intrinsic Value) and are highly dependent on Market Value, and we know that those who are holding the goods AND money controls the market, AND there’s no central authority involved here…
Can we say that the value of these Cryptocurrencies are HIGHLY dependent on these entities? That they ARE actually the central authority?
And they would do what It takes to have more people use the currency?
Highly possible. Which now means we can be more objective in reading articles that advocate Cryptocurrencies as the next big thing.
Are we hinting that we do not believe it could happen?
That is also not true. We believe there are certain milestones Cryptocurrencies need to reach for them to be of more value in the future.
Money — Purposes and Characteristics
Money has 3 Main Purposes and 6 Main characteristics.
Money Purpose:
- Unit of Account: a means of keeping track of how much something is worth.
- Store of Value: it can be held and exchanged later for goods and services at an approximate value.
- Medium of Exchange: an object that is generally accepted as a form of payment.
Money Characteristics:
- Durability: Ability to stay intact for a longer period of time.
- Divisibility: Ability to be divided into smaller fractions.
- Resistant to counterfeiting: Cannot be multiplied easily.
- Portability: Easy to carry anywhere.
- Liquidity: Easily convertible to Cash.
- Legal tender: accepted if offered in payment of a debt.
How many of these have Cryptocurrencies thus far fulfilled?
They have an excellent unit of account, as each blocks of a Cryptocurrency can be accounted for in a Blockchain. They can be Durable (If we keep aside malware and hack threats), they are Divisible and also definitely portable.
What about the others?
Cryptocurrencies have a lot of homework to complete if they really want to be the next Currency of the people.
What does it boil down to?
So do we really believe Cryptocurrencies HAVE THE CHANCE of one day replacing FIAT Currencies Completely?
Yes, there is hope.
But there are several aspects developers need to keep in mind if they really are intending to completely replace the Current Financial System.
1. Stability
One of the reasons Cryptocurrency is still not a Viable Medium of Exchange is because they don’t fulfill the criteria of being a Store of Value.
Now let us take a very simple example, borrowing money.
If you are a lender and someone asks to borrow money from you in Cryptocurrencies, Bitcoin for example, would you take it?
What if tomorrow the value of the Bitcoin drops by 20%?
That is very possible keeping in mind the volatility of Cryptocurrencies today. This is good for Traders, people who live off volatility. But our real mission here is to bring Cryptocurrencies to Everyday people and businesses, right?
If we compare them to FIAT Money, there is central authority or government to ensure that their currency value remains stable. In a country, it isn’t healthy for a currency to become too strong or too weak.
For a Cryptocurrency to really gain people’s trust, they need to work on becoming more stable. How?
One way is to hedge each Cryptocurrency up with Viable Assets, Real Projects, and Transparency.
2. Mass Adoption
No matter what we say about FIAT Currencies, they are one of the very few means of payment accepted all over the nation, maybe worldwide, to buy and sell goods.
We could go to the most remote parts of the country and trade our paper money to buy a loaf of bread or a good bottle of water.
Could a Cryptocurrency do that in the future? If yes, what do they need?
One word, Trust.
People need to believe that this currency means something and is valuable enough for them to accept as a method of payment. They need to believe and be sure enough that they can use the currency again as method of payment with other parties in the future.
How can Cryptocurrency achieve that?
Simple. Back them up with assets that are acceptable worldwide. Something people would agree is an asset they are willing to trade for goods or services, and something they are willing to keep.
Unless any Cryptocurrency planning to “replace” FIAT Currency is backed by any sort of Asset which gives them an intrinsic value, it will remain a plan. Traders and Investors MAY buy them, but never business owners.
3. Responsibility
Now let us think of another scenario, like the hyperinflation that is happening in Venezuela.
Despite the horrific scene happening in the country there, does the Government elope and let the country burn to hell?
No, they stayed there.
Are they efficient? Do they really care about the people? Are they doing the BEST POSSIBLE THING to maintain the currency’s value? Nobody knows.
But for whoever’s interest, they stay. And they fix things, gradually or eventually, for the betterment of the country.
What would happen if a country’s currency loses massive value in a relatively short period of time?
The country tears apart; Riots everywhere, Citizens not able to eat, debts mounted, people fall sick, crime rate increases, foreign investors leave to mention a few.
What happens when a Cryptocurrency loses value?
Well, let’s go to CoinMarketCap and take a look for a while. 90% of Currencies are losing value, but what are the developers doing about it?
Almost nothing. In fact, some of them are out there creating new Cryptocurrencies.
We have heard a lot about this… Some developers even blame the Holders when their cryptocurrency market price drops.
They say things like “if you want the price to go up, DON’T sell them, hold them!”
Or “It all depends on the market; we can’t control the price”.
So the market (Exchange) is only a means for them to escape responsibility.
Is this what we want to see happen with our money?
A lot of Cryptocurrency developers today focus on how great and advanced their technology is but let us face it. Technology does not help a Currency in times of Crisis, a solid business concept does. More on that here.
Responsibility is a BIG factor for a Cryptocurrency to even qualify as money worldwide. And for that, they need to be able to answer these questions:
1. What is their risk-management strategy?
2. What is their business concept?
3. How is their profit allocation like?
4. How’s the company’s transparency?
5. How’s the company’s legality?
6. What are they doing when their currency loses value?
7. What are they doing in a worst-case scenario?
Look at the majority of Cryptocurrencies out there today. How many of them have answers to ALL these questions?
Cryptocurrency does have concepts that can revolutionize the financial system, but unless they are able to show responsibility, they are just used as a vehicle to gather money from people.
Conclusion
We do believe Cryptocurrencies can one day become the new world Currency.
The challenge is that for this to happen, it takes more than just technology, MORE than just what few “hard-coiners” believe in and more than how much profits it can generate. It is easy for Currencies to be lucrative to traders and miners, but we need the everyday people and businesses to also trust that this band of numbers on a screen could mean something and have value.
For that, Cryptocurrencies need to figure out a way to become more stable, gain more trust and have a more solid business plan. More on that here.
For more information regarding NAGAYA, a Gold-Backed Cryptocurrency with Subsidiary Projects, click here.
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