Financial Institutions’ Fiat money and Blockchain’s cryptocurrency. Allies or Foes?

The existence of certain notions against and for cryptocurrencies, when juxtaposed with fiat money, has proven that there are contentions surrounding the above question. From the IMF Director, Lagarde’s express statement this year that ‘cryptos are clearly shaking the system’ to the U.S congressman Sherman’s call for Crypto Ban as ‘It Threatens to Diminish American Power’, cryptocurrencies may be leaning more towards being an enemy of Fiat money.

Fiat money takes the stand- Fiat money or Traditional currency is the physical cash circulated in every nation’s economy used in day to day transactions or activities. Most modern paper currencies are fiat money like the Nigerian Naira or the U.S. dollar. It is government-issued currency and is not backed by a commodity such as gold. Governments’ central banks hold greater control over the economy through Fiat money being that they determine how much currency is printed for circulation or flushed out of circulation.

Cons

There are risks of value loss in fiat money due to inflation or even becoming worthless in the event of hyperinflation (where there’s too much in circulation) because Fiat money is not linked to physical reserves, like a national stockpile of gold or silver. The central banks can not necessarily prevent depressions or serious recessions by just regulating the money supply. A real-life instance, around the early 2000s, serious economic problems in Zimbabwe were availed with the solution of printing more money and pumping it into circulation, which only resulted in hyperinflation and a further decrease in value of the Zimbabwean dollar.

Pros

Unlike gold or other precious resources, Fiat money is not a scarce resource; the central banks have much greater control over its supply. For the regulators, there is the power to manage economic variables such as credit supply, liquidity, interest rates, and money velocity through. Fiat money is one major economy booster if it can fulfill its part, in terms of storing value, providing a numerical account, and facilitating exchange.

Cryptocurrency (cryptos) takes the stand- Digital or virtual currency that allows secure payments of online transactions that are denominated in terms of a virtual “token,” representing ledger entries internal to the system itself is cryptocurrency. The first cryptocurrency Bitcoin was launched in 2009 by an individual making fiat money to be a currency of long-standing existence before cryptocurrency emerged. Bitcoin’s success birthed ideas of many other cryptocurrencies since then and now there are thousands of cryptocurrencies with a total market value of over $120 billion.

Pros

Cryptos have offered an easier method to transfer funds, which is without the need for intermediaries like a bank and this saves time. With crypto transactions, there is direct contact between the two parties of a transaction and high security by use of public keys and private keys on its platform. Transactions with financial institutions usually require processing charges that are unnecessarily pricy but they are relatively lower than in the case of cryptocurrency exchanges.

Cons

But for the high volatility rate of cryptocurrencies and possible security in rare cases, the cryptocurrency phenomenon would have been flawless. Also, cryptos are low in supply, but this factor is highly dependent on demand and is hence fixable. If cryptos were the legal currency in a country, for instance, it would be regulated that there is enough in circulation for citizens to transact with.

The answer to the question

For the most part, whatever transactions fiat money is used for can be done with cryptos. The existence of cryptos is probably not borne as a supplementary initiative for the traditional money but a sufficient possible replacement. There are crypto enthusiasts that may deem cryptocurrency to be the hope that ‘a currency that preserves value can exist, facilitate exchange, be more transportable than hard metals, and is outside the influence of central banks and governments.’

There may not even be a need to answer such a question yet as these two kinds of currency have been sufficiently serving their purpose. Without cryptos, fiat money would have remained as it has to facilitate trade, transactions, transfer and the likes. The existence of cryptos now still avails many possibilities that may be more appealing than fiat money.

The two subjects in question are non-living; we clearly cannot get a definite answer from them. But the rulers, controllers, regulators or other deciding factors/personnel will in time, tell if one will outshine the other, or one will eliminate the other. What really matters is that the authorities whose jurisdiction this sort of contention falls within would take measures that in the best interest of the world economy. Before a tree falls, one can see it from afar. They will, therefore, know what choices will keep the financial system upright.

READ MORE-

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Gona, New technology of the Cashless System in Africa.

Another Delayed Decision by the SEC on Bitwise Bitcoin ETF Approval.

SEC Fines and sanctions Blockchain Author and his firm For Securities Violations.

 

 

Credits – James Chen, Jake Frankenfield

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