If so, how close is it from happening?
The irrepressible trade and exchange of cryptocurrencies have led to many concerns among governments. But despite such problems, many countries are on the verge of rendering a legal status to cryptos.
In 2018, the famous futurologist made a prediction that cryptocurrencies are to replace 25% of fiat assets by 2030. The Morgan Creek Capital Management and its analysts also stated that fiat would be replaced entirely by cryptocurrencies in the future. Simultaneously, Tim Draper, the venture investor in 2017, also made a statement that bitcoin and its counterparts will replace feist currencies in five years.
However, at current times, we can see a tight linkage between the crypto and fiat exchange. The worth and market cap of crypto is taken in terms of fiat currencies. And many fiat currencies are embracing digitisation.
Even though cryptos had a lazy start, they are being adopted by governments and people around the world much quicker as compared to bank cards or wire transfers.
What gives crypto the edge over digital fiat? The decentralisation and transparency, transaction time and fees, and absenteeism of geographical hindrances.
According to the Coinmarketcap, in 2019, the total market cap of 2420 cryptocurrencies amounted to 302.7 billion dollars. However, the fiat market stood at 81 trillion dollars, with all 15 fiat currencies acknowledged by the UN.
As of 2021, Bitcoin holds a market cap of 647.2 billion dollars, followed by Ethereum (122.6), Tether (24.2), and Litecoin (9.2). The total market cap of all cryptocurrencies amounted to 950 billion dollars.
We can see how the numbers have risen, and this just infers how fairly crypto has been performing in the market.
Cheaper services with cryptocurrencies
Even though the cryptos are in their development and growth stages at the moment, the potential they hold can be thoroughly witnessed. According to a study conducted by Blockchain CloVR, 112 out of 707 participants said they use cryptocurrencies to send money to their family and home. This figure is bound to rise further. Let us look at the findings of this survey conducted by CloVR in detail.
Percentage of participants using various payment methods:
About 1.8% of the total of 707 people who participated in the survey were dissatisfied with online services. However, 10.4% were dissatisfied with Money Transfer Service, and 15.1% with the traditional wire transfer.
Rise of cryptocurrency trading
Crypto not only rising in the transactional and payment spaces but in the trading world too. Most of the investors are including cryptos in their portfolios. They help in diversification and utter mitigation of risks. According to Chappuis Halder, there were about 35 million verified crypto accounts in 2017. This number has doubled since then. In 2018, there were 17 million additions to this number.
This depicts that the traders are joining the crypto trades, and the numbers are only rising. Financial service providers and online brokers play a significant part here. Many top-rated brokers like ETFinance have been rendering customisable and flexible crypto trading services. These financial service providers are generating trade in multiple cryptos with low charges.
These kinds of services have led to a rise in crypto in the trading world.
Crypto payment mechanism: Cutting the middlemen
Bitcoin facilitates payment and exchange transactions between two parties without any involvement of a third party. When any transaction is done processing, the computer "nodes" process that transaction and record it in the "blockchain," which acts as a ledger. After the verification of the transaction, a unique address is assigned to that transaction. The linkage and connections of such transactions form a blockchain.
One of the significant advantages here is that even though the transactions are recorded, no personal information can be leaked or is revealed. In this way, the crypto payment mechanism leads to utter transparency and, at the same time, safeguards the transactions. Unlike fiat currency payment methods, the costs are reduced as no intermediary is involved.
According to research done by McKinsey, 2.5 million people around the world are underserved by the ongoing financial system structure. Many people can encounter huge costs while facilitating transactions. For instance, sending 200 dollars to the Philippines will imbibe a transaction cost of 12 dollars through traditional payment methods. But if such a transaction is facilitated via bitcoin, the transaction fee cannot be more than a few pennies.
The new positioning of crypto in significant countries
Cryptocurrencies facilitate cashless transactions in a decentralised manner. This changes the whole of international trading as transactions can occur without the utilisation of the US dollar. Any nation facing the challenges of international economic sanctions can use crypto the most.
- In 2016, Venezuela's President Nicolas Maduro announced 100 lion units of "petro," an oil-backed cryptocurrency. The cryptocurrency is used to let the country challenge the "autocracy of the US dollar" and US-led economic sanctions.
- China has also announced the launch of the "petro-yuan" to come over the greenback in oil transactions.
- Alibaba's Payment Ant Financial has confirmed that they are looking for blockchain technology and AI to make several rapid and cheaper financial functionalities.
- In the UK, Blockchain Tech Limited uses blockchain technology to cut back the plastic and fake in the arena of luxurious commerce.
But still, most countries are not yet ready to embrace the digitisation or crypto payment mechanism. Many countries, like Japan and India, are still very cash-centred.
Conclusion: Is there a need for fiat alternatives yet?
Despite the immense opportunities and efficiency that cryptocurrencies and their impressive blockchain technology renders, many countries are apprehensive about crypto replacing and taking over the fiat currencies in aspects of traditional bank coins and notes.
No matter what, one can see cryptocurrencies forming their base in transactions, payments, and trading very firmly and rapidly. As of May 2020, the market cap of crypto was $265.545 billion. Bitcoin alone accounts for $6 billion of daily online transactions. All over the world, crypto users have exceeded 40 million.
It is estimated that by 2023, the global blockchain market will go up to 23.3 billion.
These figures are
jawbreaking and suggest that crypto is here to stay and may wilfully replace
fiat in the future.