cryptocurrency
Technology

Can cryptocurrency take the place of paper money?

Author : Yusha Rahman

Ever since cryptocurrency was introduced in 2009, many people speculated that it might soon replace the paper money we use daily. But before we look into the conflict of cryptocurrency vs paper money, let us see what cryptocurrency is.


What is cryptocurrency?

Cryptocurrency is a digital payment system that does not rely on banks to validate transactions. Instead, it relies on peer-to-peer technology to make it possible for anybody to send and receive payments. Payments made with cryptocurrencies only exist as digital entries in an online database that records specific transactions; they do not actually exist as physical coins that can be transported and exchanged. All transactions associated with bitcoin that involve money transfers are recorded in a public ledger. Cryptocurrency is stored in digital wallets.


Now, cryptocurrency has become the talk of the town as many retailers, merchants, and investors are trying to use it as a possible way to earn revenue and store value. At the same time, the government is trying to figure out how to put a tax on it and regulate it.


The idea that bitcoin will eventually replace fiat currency is one of the many discussions that have merit given the attention being paid to digital assets, cryptocurrencies, and the blending of realities. Find out the reasons for these arguments and how the change may affect the economies of the regions where it occurs.


What is fiat currency?


Many authorities and regulators describe money as anything that is commonly acknowledged as a means of trade, a store of value, and a unit of account. For more than a thousand years, fiat money, often known as real money or physical money, has satisfied all three criteria.


In the majority of developed nations, technologies have already started to lessen the need for actual money. In a system where governments, banks, enterprises, and individuals transfer money by having a third party update numbers on the equivalent of an electronic ledger, debit cards, and electronic transfers are replacing real money. These financial systems are expensive to run, and third parties are needed to ensure that transactions are legitimate.


These third parties force you to hand over your money to someone else. This trust has frequently been broken; in fact, shady behavior on the part of outside parties has even triggered global financial crises.


Using cryptocurrencies reduces the need for third parties to verify transactions and ensure their accuracy. Each party is correctly credited or debited as a result of the automatic consensus mechanisms and blockchain technology's check on transactions and permanent preservation of data.


Why can the future be held by cryptocurrencies?

Over time, money has changed and grown into what we know today. In reality, it wasn't until the 17th century that paper money started to gain acceptance. However, there are many obstacles that could prevent Bitcoin and other cryptocurrencies from replacing the US dollar and Indian rupee.


It's possible that the governments of various nations will reject cryptocurrencies as a form of payment. A number of them have already enacted prohibitions and limitations that restrict the trading of cryptocurrencies.


The Indian government itself announced its intention to outlaw cryptocurrencies completely at the start of this year and even put out a bill towards that purpose. It has now altered its stance and now considers the plan to be old, but it is still unwilling to recognize cryptocurrencies as legitimate forms of payment. As an alternative, it intends to designate cryptocurrencies as an asset class, which will bring them more on par with real estate than they do with genuine money.


Every economy depends on the government's ability to control its currency. This enables the government to choose how much money should be issued in response to pressures from inside and outside the country. That power is lost if cryptocurrencies take the place of the rupee or the dollar. The cap for Bitcoin, for instance, is 21 million. Because more cannot be created, there are only 21 million Bitcoins in existence today. even when a demand for more exists.


There are also other real worries. Decentralizing financial transactions was the whole point, and that's what makes Bitcoin and other cryptocurrencies problematic. These exchanges might help cover up or otherwise support criminal activity deals, money laundering, and tax avoidance.


It appears extremely unlikely that Bitcoin will ever wholly replace rupees, dollars, or any other kind of paper money. The coexistence of the two is more feasible, which is why restrictions become more essential. For the time being, cryptocurrencies are susceptible to tweets or responses from influential people, investors, stakeholders, observers, and even governmental decisions. Thus, it is difficult for them to replace fiat currency. However, a structured framework can help in embracing crypto. 


But this does not mean that digital currency won’t be the currency of the future. There is a good probability that traditional wallets will become extinct by the end of this decade, and you will store money on your cell phones, albeit it is unlikely that this money will be solely cryptocurrency. Governments, notably India, are attempting to develop their own digital currency. Rumour has it that the RBI will soon release a digital rupee with a better chance of outlasting cryptocurrencies.

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