Will Crypto Replace Fiat Currency?

High Hopes for Crypto

In the Big Four accounting firms’ 2021 Global Blockchain Survey, Deloitte sought to uncover the expectations and attitudes towards the future of blockchain and digital assets. Their survey polled 1,280 senior executives and practitioners in the financial services industry across multiple different countries.

In the most profound result, 76% of respondents believed “digital assets will serve as a strong alternative to, or outright replacement for, fiat currencies in the next 5-10 years”. Whether digital assets replace fiat currencies in that time frame is yet to be seen, but this result indicates the increasing amount of positive sentiment for the future of digital assets in the commercial space.

But for crypto to surpass fiat currency, respondents recognized that it would have to overcome a few obstacles, mainly government regulation and interference.

As Brent Johnson points out in a panel at this year’s Rebel Capitalist Live, throughout history, currency and government have never separated from one another. To think that government would give up control of the money supply and the power that it wields is idealistic.

This is where conversations revolving around Central Bank Digital Currencies (CBDC) have erupted from. An unfortunate scenario could be that digital asset creators, in the spirit of decentralization, have handed the government the tools it needs to take even more control over the public’s lives.

But looking past the obstacles ahead, it cannot be understated how hopeful the public is for further implementation of cryptocurrency and blockchain technologies. Research conducted by crypto.com saw the number of crypto users double in the first half of 2021 to over 220 million users by the end of June.

This implies that not only are corporations and executives excited about the future of digital assets but so are everyday people.

Regulatory Obstacles

Even if the government does not institute a CBDC, regulators have recently laid out their intention to reign in the largely unregulated environment crypto users are currently operating in.

We recently discussed the proposed infrastructure bill that contained measures for more cryptocurrency regulation.

Of particular interest to government regulators are a variant of cryptocurrencies called “stable coins” that are pegged to a fiat currency, making them less volatile than traditional cryptos. The government has recently taken interest in stablecoins because it is their view that stablecoins have the greatest chance of market adoption in the payments universe and because they do not have much regulation surrounding them yet. In a July statement, Fed Chair Jerome Powell likened them to money market funds or banks deposits, so it would be reasonable to assume a similar regulatory framework as money market funds and bank deposits will be coming down the pipeline for stablecoins.

For other cryptocurrencies, the federal government currently views them as property, which only the states have the legal authority to tax. With the new proposed legislation, the government is hoping to establish cryptocurrency as income, which they can tax. Expect stiffer regulations and higher taxes down the road once crypto is established as income.

Other Uses for Blockchain and Digital Assets

Although cryptocurrency occupies most of the hype revolving around digital assets and blockchain, there are many other applications of the technology that the business world is looking forward to adopting.

According to the same Deloitte survey, financial services executives expect digital assets will play a role in revolutionizing payment channels, diversifying portfolios, tokenizing assets, and managing custody of digital assets.

Among other applications, blockchain will benefit individuals by providing more secure data sharing, international money transfers, fraud protection, data storage, and faster information analysis.

In her interview on the Rebel Capitalist Show, Caitlin Long shared that cryptocurrency is currently useful as base money for high-value transactions and that soon we will be purchasing products and services with the lightning network.

So even if crypto does not outright replace fiat currency, there are many more applications of digital assets and blockchain technology that society and the economy will benefit from in the future.

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