You've likely heard a Bitcoin maximalist tell you that crypto is the future and will eventually replace fiat currencies. While that's unlikely to happen overnight or any time soon, we're exploring the question looking at many factors that will contribute to this tech-forward proposition.
While the attention of investors has undeniably seeped into popular culture, cryptocurrencies face a series of challenges before they can be seriously considered as potential replacements. These hurdles encompass aspects like practical implementation, merchant acceptance of digital currencies, the inherent market volatility, and the ease of use. Despite these considerations, notable developments suggest that the adoption of cryptocurrencies is gaining momentum.
El Salvador Legalises Bitcoin
In June 2021, the president of the small Central American country, Nayib Bukele, announced that Bitcoin would officially be accepted as legal tender. The president also announced plans to create a Bitcoin City with the intention of becoming "the financial centre of the world.".
Rolling out a number of services to support this concept, including a national wallet named Chivo, the endeavour cost a large amount of taxpayers' money, and not all were happy about this.
On the other hand, Bukele was praised for being a revolutionary in the tech field, and a pioneer in the movement to shift from fiat to crypto. It's worth noting that there were mixed reactions on both sides of the crypto fence, some favouring the movement while others expressed concern over it being too premature.
New York Mayor Accepts Salary In Crypto
In a move to make New York City the crypto capital of the world, the current mayor, Eric Adams, has stuck to his word and accepted his salary in crypto. As part of his campaign, the politician promised to accept his first three paychecks in cryptocurrency and received his first instalment in a combination of Bitcoin and Ethereum in January.
Adams has also been vocal about his support for the NYC Coin, a digital currency that would take on similar functions as the Miami Coin released in 2021. Adams confirmed in a statement:
"New York is the centre of the world, and we want it to be the centre of cryptocurrency and other financial innovations. Being on the forefront of such innovation will help us create jobs, improve our economy, and continue to be a magnet for talent from all over the globe."
Rise In CBDCs
Venezuela is another country to adopt a pro-crypto attitude albeit born from less savoury conditions. Following a bout of hyperinflation, many turned to cryptocurrency as an alternative store of value, and as an income source as mining in the area with such low electricity prices was very lucrative.
This eventually led to the country creating its own digital currency, the Petro, released in 2018. Cryptocurrencies released by the government in this nature are referred to as central bank digital currencies, CBDCs.
The Bahamas and Nigeria also recently released their pilot central bank digital currencies to test the functionality and national responsiveness of the people. The "Sand Dollar" in The Bahamas is believed to be born from a combination of centralized banks being destroyed by hurricanes and accessibility to money across the various islands.
Nigeria confirmed that the move was in line with needing a more digital approach to finances as the country has a considerably young population (in 2020, 43% of the population was aged 0 - 14 years).
A number of other countries have also announced plans to "explore" CBDcs, with China also currently rolling out a pilot program in several cities across the country. Decentralized digital currencies play an advantageous role over fiat currencies in countries affected by corruption and with largely remote areas.
The Future Of Crypto
The road ahead looks promising as cryptocurrencies gradually find their place alongside our established financial systems. While a complete replacement of fiat currencies by crypto isn't on the immediate horizon (or perhaps ever), a symbiotic relationship between the two is likely. With the increasing adoption of Central Bank Digital Currencies (CBDCs) worldwide and the growing integration of cryptocurrencies into everyday transactions, it's clear that the benefits of using cryptocurrencies and the constant innovation in this space are catching the world's attention. As we journey forward, the collaboration between cryptocurrencies and traditional financial systems holds exciting potential, promising fresh opportunities for financial growth and technological innovation.
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