What will happen to fiat as cryptocurrency grows in popularity?
Fiat – money issued by governing powers – has been around for centuries. Originally conceived in China around 1000 AD, fiat has been the most convenient way to transfer and store value for centuries.
Fiat is convenient, but when you stop to think about it, is it really worth anything? Decades ago, the United States moved away from the “gold standard”. At the time, the dollar was coupled with the value of gold, giving it a less arbitrary value (even the value of gold itself can be debated as somewhat arbitrary). Since then, its value is merely an agreed-upon quantity, which can vary in relation to other fiat currencies.
Fiat inevitably decreases in value to the point of being worthless due to the freedom of governing powers to print money as needed. This has happened time and time again with fiat currencies. The most dramatic examples of this would be the collapse of the German mark prior to World War I and, more recently, the Zimbabwean dollar – whereupon a trillion dollar bill would barely be enough to purchase a loaf of bread. This hyper-inflation is the end destination of all fiat. It is just a matter of time.
So, could this happen with fiat soon in places such as the United States or Europe? The U.S. dollar, the Euro… these currencies are constantly printed into circulation, increasing spiralling debt that only serves to reduce the value of the fiat and end with hyper-inflation into oblivion. It seems at least to be mathematically possible that this could happen within decades in some economic regions of the world.
Owners of cryptocurrencies have seen values of their currencies rise steadily against this deflation of value in fiat. While it is true that cryptocurrency is gaining value with more investment, much of the gain is because fiat currencies are losing value relative to cryptocurrency. If we again consider the situation in Zimbabwe, Bitcoin is trading at a premium in this region, often selling at 50% higher prices than other regions. In Zimbabwe, faith in fiat has diminished because of their experience with hyper-inflation. What if the people of Zimbabwe eventually refused to accept fiat there?
Many investors will buy gold and silver to protect themselves from this doomsday scenario. Cryptocurrency is also a useful asset because it is a more “portable” means of transacting value. Gold and silver are great, but are you really going to use this to buy and sell goods in a convenient manner some day? You would likely sell the gold or silver for fiat, and then in turn use the fiat to purchase goods. This might not be such a great solution if that fiat then becomes worthless.
Bitcoin and other cryptocurrencies have the advantage of being transferable directly without the need to convert to fiat. When the day comes that fiat is no longer usable, cryptocurrency may be the solution to serve the needs of trade.
Which cryptocurrencies will become the standard currency of trade in the future? Who knows? Choose with research and take time to get to know about the currencies that interest you.