Can cryptocurrency replace fiat currency?

Ever since Bitcoin found its way into the mainstream trading floor, it was considered as a commodity. A risky investment that may get you huge returns. No one saw it as a currency. No one received their salaries in Bitcoin or any other cryptocurrency. Cryptocurrencies were set up to find their way to the mainstream and disrupt the present economic system that depends on fiat currency. Till this year the mainstream goal of crypto was something similar to a dream. But things that were once believed impossible are going to be possible.

Imagine you work for me for hourly pay say $10/hr. At the end of the day, I am supposed to pay you for 10hrs. That is $100. When you came for your money I transfer an equivalent amount of cryptocurrency to your wallet. Things are smooth till now but the problems will haunt you for sure.

You reach for your grocery store and took goods worth 15$, the cashier refuses to take anything other than the US dollar. Now desperately you borrowed say 100$ from your friend telling him that you will repay him when you sell your crypto. You paid your bills and tried to sell your Ethreum. But now it is valued at 90$. The next day you came to me and asked me to give you cash instead of crypto. Checking your wallet you saw your Ethreum was now valued at 80$. As I am not legally bound to pay you what you lost, you have only two options- one is to sell it at the current price and another to hold on to it and sell it at a higher price, this option might get riskier since there is no guarantee that the price will increase.

This is why the general public till now didn't welcome crypto as a currency. The only people to get them were investors. You cannot expect crypto to replace your paper notes until everyone is ready to accept them.

No seller or merchant can refuse when paid in Indian Rupee in India. In fact, all banknotes and are guaranteed by the central government. This is what crypto lacks. Let us examine the difference between these two.

Cryptocurrencies works on the technology of blockchain. It is not backed by any assets. As I have said they are being considered now as a commodity or share of a company that has high price volatility. The currency that is used by the government is not subjected to such large fluctuations in value. If the market conditions stand to fluctuate the value of fiat currency the respective regulatory authorities steps in and manages the situation. Another aspect is it is accepted by everyone, it is not a mere paper but a legal currency backed by an asset usually gold or forex. When it comes to crypto things are different there is no guarantee on its value, unlike the fiat currency.

But this is not the tomorrow of cryptocurrency. These issues are being solved.

You might have heard about stable coins, a class of cryptocurrency that is backed up by a valuable asset, which can be gold, oil, fiat currency, or even another cryptocurrency. If you are not familiar with the idea of stable coins you can get to know them by reading my post on stable coins. Just click the link below to find the post.

Everything you should know about stable coins

Now stable coins solved the issue of price fluctuations. With its induction solved the issue of huge price fluctuations. Now crypto can be considered as a currency- something that can be used as a medium of exchange. Now you have a currency and what good is it if no one wants to deal with it. Here the new concept comes in DeFi.

DeFi also is known as decentralized finance aim at a cryptocurrency alternative for all conventional financial services. This means you can now receive loans on crypto, pledge your crypto deposits, pay insurance with crypto, etc. Now, this is achieved by smart contracts.

It takes an entire blog post to explain DeFi, but don't worry its already done you can see it in my next post.

Now the answer to the question, Cryptocurrency is currently building up its potential and will replace Fiat currencies in the future.