With more than 4,000 cryptocurrencies on the market, from the biggest and best-known (Bitcoin and Ethereum) to the more obscure “meme” and “DeFi” coins (such as Shiba Inu and Pancake Swap), the possibilities can seem endless. But is it possible we ever start to use crypto as a form of everyday payment? Could cryptocurrencies replace fiat money?
It’s not an entirely far-fetched question and yet remains an open one. In tiny El Salvador, the first country to adopt Bitcoin as legal tender, there has been backlash, but also some encouraging signs. Likewise, in other Latin American countries, such as Venezuela, currently suffering from years of hyperinflation, cryptocurrency is finding its place in society. Venezuela even created their own crypto, the Petro. The Bahamas’ central bank, meanwhile, has rolled out a digital currency called the “sand dollar” born out of disaster relief efforts, and with the realization that sometimes physical banks are destroyed in hurricanes. Central banks around the world are experimenting with the concept of having their own digital currencies, based on the same blockchain technology that powers Bitcoin, but still fiat money. This opens the door to a digital dollar competition in the decades to come.
In the near-term, cryptocurrencies indeed could be a vital lifeline for some poorer economies that lack banking infrastructure and have volatile, or wildly inflated, currencies. Corruption is also an inescapable aspect of life in Less Economically Developed Countries (LEDCs), leaving some people distrustful of institutions, provided there is even an ample form of transportation or communications infrastructure to get to or interact with it in the first place.So then if keeping money in a bank account is neither feasible — nor safe — then this does open the door to the rise of digital money as an easy, practical means of conducting daily business, with such transactions, in turn, providing more incentives for local investment and trade. Remote areas, left behind and out of centralized finance in some countries, suddenly could find new opportunities to participate in their economy and lift their standard of living.
However, cryptocurrencies do require infrastructure and large amounts of energy in order to mine the coins. Without access to technology adoption is impossible, so it may be years before LEDC countries can use digital money. If they’re unable to afford the right infrastructure, then it will be impossible for cryptocurrencies to integrate.
At the moment, cryptocurrencies are mostly seen as an investment rather than a currency. Of course, there have been steps towards using these currencies for purchasing goods and services – such as the Uphold debit card – but this has been a very gradual process. It may be years before we begin to see significant adoption of digital currency as fiat replacement, especially whilst it remains highly volatile. However, the future looks promising for these coins and, with growing interest, great advancements could be seen within the next few years. While it may be several years before we see significant adoption of digital money as a replacement for traditional fiat currency — especially considering the volatility of the former versus the latter — there nevertheless seems to be a continuous stream of advancements signalling a promising future for an asset class that just a decade ago did not even exist.