We live in a world that revolves around fiat currency, which can be strategically printed with no theoretical limits.
Since the 1940s, the US dollar has been the main reserve currency globally. It represents over 50% of all currency reserves on the planet. Naturally, it can heavily influence the value of other currencies.
Considering that global trade is usually in this currency, the United States has the convenient privilege to weaponize its fiat money to strengthen its geopolitical and economic position in different regions.
Without using anything to back its own currency, the American government can manipulate the dollar’s value through monetary policies like quantitative easing. When it chooses to, it could inflict economic harm to any other country through sanctions.
The rest of the world has played along for decades, but the status quo may change soon. De-dollarization has become a growing trend over the years as other nations try to wean themselves off the dollar. Cryptocurrency is a prime candidate to fill the void it might leave.
As you can see in this infographic by Raj Vardhman of Carsurance, Bitcoin has started the cryptocurrency craze in 2009. Using blockchain technology, it has introduced a fiscal concept that fundamentally opposes what fiat money is all about.
A decentralized digital currency is free from any bank or government influence and uses cryptography for reliable security and transparent record keeping.
Cryptocurrency is still far from perfect, but it’s not hard to imagine for it to replace the US dollar as the world’s standard money. However, many things have to happen first before most of the world goes crypto.
Here are the three prerequisites
Strong Government Support
No cryptocurrency can receive full mainstream status without any push from the government. Advocates must get politicians on board for virtual currency to eclipse the immense popularity of cash.
Some countries have already adopted crypto, albeit for different reasons. For instance, Venezuela had to turn to digital money to offset the sharp depreciation of its own currency, the Venezuelan bolívar.
The central banks of the European Union and Japan, among others, are also conducting research to see the viability of virtual currencies.
Although government initiative is a necessary step to promote the usage of cryptocurrency, strict regulation may stunt its growth.
Mass Consumer Acceptance
To convince most of the world to use cryptocurrency in trade, the value of dominant digital currencies must stabilize first. Price volatility would scare ordinary individuals from utilizing it as a means of exchange and deter investors.
Furthermore, crypto needs much impregnable security since it remains rather vulnerable to attacks. Security breaches are among the main forces behind sudden drops in cryptocurrency values.
Trust is a non-negotiable requirement for any money to gain universal acceptance. Without strong consumer confidence, people would rather hold onto their physical assets to preserve their wealth.
Widespread Merchant Adoption
Robust infrastructure must be present for cryptocurrency to become ubiquitous. Apart from pervasive consumer demand, established financial institutions should also join the party to make the transition from fiat money to cryptocurrency more smoothly—or at least more plausible.
Some partnerships between major banks and tech companies are already in place to explore the potential of dominant cryptocurrencies, such as Bitcoin and Ether.
Cryptocurrency might not push cash or fiat currency to extinction, but decentralized digital money would surely revolutionize the way we spend and save as it grows in popularity.