From Gold to Code: Could Cryptocurrencies Really Replace Fiat Money?

In 2009, a mysterious individual named ‘Satoshi Nakamoto’ propelled cryptocurrencies into the mainstream with the introduction of bitcoin and shook the world of finance to its core. Bitcoin was only the beginning of the world’s love affair with this novel form of currency. Now we have more than 1400 cryptocurrencies, each one with a different purpose or application. Some seek to raise the crypto bar even higher, others are looking for their own 15 minutes of fame and then, naturally, there are those looking to use the fad to scam money from the incautious.

Cryptocurrencies have accumulated a large fan base; November 2017 saw bitcoin capping close to $18,000 and selected financial institutions have begun accepting payments in cryptocurrencies without hesitation. So, is it time we start talking about whether or not cryptocurrencies represent the future of money? FXTM’s Senior Writer, Samantha Robb, weighs the pros and cons and looks at just how realistic a world without the jingling sound of coin-filled pockets really is.

Almost 50 years ago, the world transitioned from using money linked to the value of precious commodities to a centralized system of fiat money. Now, some would have us believe that we are facing the looming possibility of discarding fiat, breaking the status quo and shifting to digital currency altogether.

A large amount of the support for cryptocurrencies like Bitcoin stems from the speculative crypto craze that has trickled down to every home with access to the internet, tv or newspapers. One of the main reasons it has successfully captured the public’s imagination is the ‘stick-it-to-the-man’ attitude that cryptocurrencies represent. Since there isn’t any governmental body regulating digital coinage, government policy or financial institutions have no impact on their value whatsoever. In fact, not only are cryptocurrencies unaffected by any regulatory agenda, they are also immune to geography. The value of a crypto remains the same regardless of which side of the ocean you’re on, eliminating the need for third-party processors and other middlemen. This could be a huge advance in regards to saving time and money on overseas transactions. In addition, the blockchain technology on which bitcoin runs ensures a much higher degree of privacy when it comes to users’ transactions. In a world where concerns surrounding online privacy escalate daily, it’s no surprise that this is another point in favor of the cryptocurrency revolution.

On the other hand, we cannot avoid the simple fact that the utopian fantasy of people controlling their own money is a fallacy. The ugly truth is that this type of thinking stems from not taking into account the real implications that the shift from fiat to crypto could have. For one, introducing cryptocurrencies as the new economic system would mean rebuilding the system from the ground up. This type of fundamental restructure would cost a jaw-dropping amount of energy and money, particularly when we think about all the banks, governments, businesses and people that would have to make the switch.

---

Suggested Articles

• Vitalik Buterin Introduces DAICO, A New Fundraising Model: So What is DAICO?
• The Next Cryptocurrency Evolution: Countries Issue their Own Digital Currency

---

Furthermore, there is a sound reason why financial service regulators are tightening up compliance requirements. The second half of 2017 brought about a number of adjustments to the regulatory framework, such as MiFID II and the GDPR initiatives that are set to take effect in May this year. These regulatory initiatives are intended to help protect millions of traders and investors from the terrifying number of schemes that seek to part the unwary from their money, crypto scams included. Then, there’s money-laundering – banks and financial services firms already spend an enormous amount on anti-money laundering programmes; the introduction of cryptocurrency as the new norm poses an immense threat to any AML initiative. Finally, like anything that takes place online, there is always a chance of accounts being hacked, error messages cropping up and power cuts wiping out entire wallets.

Ultimately, the crypto-mania that has consumed the financial markets, investors and the imagination of the public is a powerful catalyst for change. It’s unclear what exact form this change will take, but one thing’s for certain: we have come a long way from counting gold.

This article is written by Lukman Otunuga, a senior analyst at FXTM