Cryptocurrencies have gained massive popularity and interest since their introduction in early 2009. It has also seen significant value growth, leading to investors eyeing them as a portable commodity and a way to earn returns. Most governments across the world are still trying to figure out the right way to tax and regulate cryptos. While the new technology can greatly benefit businesses and services, it could also transform our physical and digital lives. Out of all the cryptocurrencies, one of the most popular is bitcoin and there is a lot of concern about whether it will replace traditional currencies.
Cash is a form of traditional currency and it has been replaced with debit and credit cards for a while now. With time, the way people use currency changes and it evolves into a convenient and easily accessible means of exchange. If you follow cryptocurrency, you will be aware that El Salvador was the first country to use Bitcoin as a legal tender two years ago. The dollar will also continue as a legal currency in the nation. Will other countries follow suit?
Will Bitcoin replace traditional currencies?
Well, the answer is no. It is too early for Bitcoin to replace traditional currencies since crypto is still being researched, and explored while there is a lot of uncertainty about its regulations across the world. Discussions about the regulations are already happening at a higher level and there will be more focus on increased transparency, but it will take time. Enthusiasts think that bitcoin will replace fiat currencies and it could make the global financial system accessible for everyone. However, this is not the case.
Even today, bitcoin wallets have not been able to replace bank accounts since the transactions over blockchain are inefficient and very slow. If investors try to cash in on the Bitcoin craze, they might end up losing money. Since 2021, only about 0.1% of the Bitcoin holders have managed to become wealthy since the 2022 crash already wiped out a lot of money for them. Bitcoin has only managed to benefit a small fraction of investors, so it might not appeal to the masses. According to the World Economic Forum, there was a loss of $2 trillion in cryptocurrencies in 2022. This is a sign that there is a lot of speculation when it comes to cryptos.
Another reason cryptocurrency might not replace traditional currency anytime soon is that it is not regulated. Hence, they transcend borders in their current form, which can have positive and negative effects. Since they are not controlled by the central banks, it would lead to complexities for the users. An experienced crypto recovery lawyer at Silver Miller explains,“When it comes to business adoption, there is also a very small fraction that is willing to accept Bitcoin as a form of payment as compared to the millions of companies existing and operating globally.”
Cryptocurrency has evolved in an environment designed to avoid the requirement of regulatory oversight and cannot replace the traditional currency in this form. The impact of a complete replacement could be massive and it could also lead to significant adverse impacts on the financial stability of an economy or it could bring in an era of global stability.
Another aspect to consider is that whenever it comes to money, the focus will have to be on the supply or the price stability, it is not possible to achieve both at the same time. Bitcoin creators know that the supply will not be elastic, meaning the price will be elastic. With Bitcoin being limited in supply, it cannot exist as money. It is considered to be volatile and speculative which cannot take over the government money. This does not mean it will never happen, but the government isn’t prepared for it right now.
There might not be a complete replacement of traditional currency anytime soon, but it is an option that can be explored and evaluated. Not all consumers will have financial recourse even if it replaces traditional currency. There could be a scenario where a hybrid of digital assets as well as fiat currency could exist. We have both in existence today but cannot use Bitcoin as our fiat currency. However, in the future, this could be a possibility. Governments could recognize both and be able to generate tax revenue as well as fund their programs through both while consumers get to choose what they want to use.
Governments are working on crafting rules for the sector, they are also trying to establish policies for the use and adoption of Bitcoin. But for now, bitcoin will not replace the traditional forms of currency across any nation. However, the tables could turn in the future.