Some say that cryptocurrencies are replacing fiat, while others deny it, providing the power of fiat. But I’m not on any side of this discussion. I think that we will see a strange but productive combination of both payment options.
Fiat will stay as an option that you can quickly convert to cash and vice versa. Even with crypto cards that can withdraw cash there is still an exchange process that looks like this:
Crypto → fiat in dollars → currency of your region → cash from the ATM.
In this process, a cardholder will lose some money in the exchange process. So they will be looking for solutions to spend that money buying goods from sellers that support crypto. It will maximize its potential as one of the leading online payment options.
Even today you can find businesses that accept both payment options: Airbnb, airBaltic, BestBuy, BurgerKing, GAP, Home Depot, Hulu, Uber, and many more. And today, I want to show you a possible joint future of crypto and fiat.
Cryptocurrencies vs. Fiat Currencies: A Comparison
As long as there is humanity, fiat money co-exists with them. People use cash for 3000+ years and have had banks for 500+ years. Italian Banca Monte dei Paschi di Siena founded in 1472 still works in 2023! So lots of people are used to this type of currency:
- It’s centralized. Fiat is controlled by central banks and governments. They are the only ones accountable for printing more money.
- Legal Tender. They are official payment forms. Businesses are legally required to accept the fiat (cash or card) of their region.
- Stability. Fiat money has relatively stable prices which may fluctuate due to predictable inflation.
On the other hand, crypto is a more tech-savvy option that needs computers to operate. It is not issued or regulated by any central authority. There are thousands of various cryptocurrencies for any need. But you should be prepared for high volatility levels. Even stablecoins are more volatile than fiat that they are pegged to. Some see this as a disadvantage due to unpredictability in the long run. On the other hand, others may see it as a benefit for a chance to earn money by stacking promising digital coins.
But what about funds safety? Fiat is regulated by various laws that safes every investor's penny, even when someone hacked their account. Crypto doesn’t have that regulated safety. If for some reason person loses money from their wallet, they irreversibly lose that money.
There are various reasons for this: a sender confuses a number and sends coins to the wrong wallet, they share the password or private key with a hacker, their favorite exchange becomes scampish, etc. And it’s only a small part of the possible ways that you may lose your funds. With fiat money, you don’t need to worry about it because in most cases banks repay you. But with crypto, you are fully responsible for every penny.
But, speaking on the technical side, crypto is a more secure option than digital fiat. When you use a bank application, all your data is stored on predefined servers. And if hackers get access to it, they will get access to your account and your money. It’s impossible with crypto. All data here is distributed on the network of ledgers (independent computers), so it’s impossible to hack a cryptocurrency.
And the only way to hack your wallet is when you voluntarily give your public and private keys, login, and password. In other cases, it would be almost impossible to hack your wallet.
Crypto remains relatively anonymous. There is no need to share your name, address, or tax information. Other users can only track with which wallets you “communicate”. And if your wallet is regularly sending money to a person who publicly shares his wallet address, it’s relatively easy to identify you. In other cases, it’s a tough nut to crack. But in fiat, banks, sometimes the government, and police can see who you are, where you live, and to whom you send money.
With crypto, you can easily send money abroad. The recipient will get them in less than 2-4 hours. But with fiat, this process is far more sluggish. It may take at least 3-4 business days, sometimes even up to 7-10 days.
The Rise of Cryptocurrencies
Cryptocurrency is a relatively new technology. Its journey started in 2009 with Bitcoin which was a cheap experimental digital currency for the first 4-5 years of its existence. It was so cheap that user Hanyecz spent ten thousand Bitcoins to buy two pizzas in 2012. Today it is almost $280 million. From today’s perspective, this situation looks so ridiculous that this day is celebrated as Bitcoin Pizza Day every 16 May.
This day (May 16, 2012) is marked as the date which begins global crypto acceptance. People start to see that they can buy actual goods for some “weird digital coins”. In 2017-2018 people finally started to see cryptocurrency as a decent payment option, skyrocketing the Bitcoin and Ethereum prices. In less than a year they multiplied their prices: from $650 to $7000 with Bitcoin and from $30 to $600 with Ethereum.
The pandemic was a wild time for cryptocurrencies. People who were looking for additional income sources started to invest in crypto. And scammers took this as an opportunity to trick users who don’t have enough expertise in tech and finance aspects. So, many people began to perceive crypto as some big scam.
But it’s far from reality. Thousands of trustworthy crypto-projects changing the world for the better. There are even some governments that create their own stablecoins that would act as a mix of crypto and fiat money.
We already can see crypto as the payment option in B2B and B2C companies, on auctions and IPOs that use crypto equally as fiat money. We will see it even more due to the rise of layer-2 solutions allowing users to use crypto in different aspects of their life: from buying groceries to getting loans for a car or even a mortgage.
But we all should be prepared that this landscape will fluctuate for a few years, adding new regulations until it stabilizes and gets the user adoption crypto deserves.
The Challenges of Cryptocurrencies
As you can see, the main challenges for crypto will be user adoption and government regulation. Tech-savvy people already realized the power of crypto. But even today millions of general users are afraid to test new technologies. Overall management systems, cyber security, and transaction processes look complicated for basic users. So, they stick to old fiat solutions, even when they are less effective than crypto.
Regulatory uncertainty adds more fuel to the fire for some users. In many countries, crypto is still in the gray jurisdiction area: it’s not illegal, but it still lacks legal power. Unclear or inconsistent regulations can create uncertainty for businesses, which slows the overall adoption level. Thus, many people still see fiat as the “best option” simply due to its wider accessibility. Fiat is easy to convert into cash and to be used everywhere. Yet with crypto, you still need to have your phone with an active internet connection every time you need to make a transaction. So, each crypto-related business should improve accessibility to attract more potential clients.
At the same time, those businesses should monitor the project’s scalability. Some cryptocurrencies, like Ethereum, are more scalable yet eco-friendly. While others, like Bitcoin, need more energy to work and they lack scalability.
We, as a crypto community, need to bring standardization and interoperability to this industry, making crypto tools more understandable to the general audience. Once those tools become user-friendly, there will be even fewer illicit activities in the crypto world. We may see many educational projects from crypto businesses teaching users how to keep their money safe with crypto and fiat.
It raises adoption even more. And it helps to beat the last challenge of cryptocurrencies: high volatility. As for mid-2023, crypto is still a highly volatile asset. Some currencies may drastically change their exchange rate in a few hours, which is impossible with fiat currencies.
The Prospects of Cryptocurrencies
I see many opportunities for crypto in 2023. As more people from younger generations join the workforce, we see more digital payment solutions. We already witness QR codes and fast transactions between different financial institutions. And, eventually, we will start to see deeper crypto implementation in daily life.
Gen Z is the most tech-savvy generation ever. They constantly learn cyber security rules since kindergarten, so they will look for the most secure tools. And this helps to raise overall security levels in the crypto industry. Simply because only trustworthy and secure projects will survive. The more adoption it will get, the more regulations we’ll see. But it’s a good sign. It will help remove crypto from the gray area to the fully legal supplement to fiat money. So, we can use it in different aspects of daily and business life.
It lowers volatility for the most common currencies at this time. There will be many new digital coins with unpredictable prices, but popular options could achieve a fiat level of price stability.
Considering that Gen Z is the most sustainable generation, we will also see the rise of green cryptocurrencies. It may lead to financial inclusivity all around the world because people will be able to send and invest money whenever they want.
Crypto won’t replace fiat, as some crypto enthusiasts may tell you. But digital coins will surely complement fiat, giving more freedom to users all around the world. General users can buy their favorite goods with crypto, investors can lend it or buy an art/property, and businesses can use it as a payment option.
This technology will ease international payments, making them faster and more secure than before. Moreover, it will stimulate the classic finance industry for the user’s benefit. Bank management will be forced to ease the transaction system from one bank to another or from one region to another. Otherwise, crypto has every chance to replace traditional financial institutions.
The crypto industry also will face environmental challenges. As I said in our previous article, green cryptocurrencies will solve even this issue: they are more environmentally friendly and scalable at the same time.
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