Will crypto currencies replace fiat currencies?

[Olivier96]

Hi guys,

I’m actually doing a bachelor in banking & finance. I have a project to do and wanted to ask you for your personal opinion on the possibility of replacing fiat currencies with crypto.

So here I am, what are your thoughts coming up ?

I have few questions that could be interesting :

• How informed are you about cryptos and the blockchain ?
• How do you feel about the security of it ?
• How do you feel about the decentralised money ?
• Do you have any experience with cryptos in real life (buying something with it for instance) ?
• What are your fears ?

Also, if you know a source of information, or think about something that could be interesting in that topic, do not hesitate to write it.

Thank you everyone for your help and for this interesting discussion we will have

[nabalzbhf]

Why oppose fiat and crypto? Can’t there be central bank controlled cryptocurrencies?

Maybe some food for thoughts: if uncontrolled cryptocurrencies start having major uses, which role do you see if any for government and central banking for the economy?

What would the world have looked like in the past 50 years with no economic intervention. Better? Worse? Same?

As I’m not a libertarian and I believe that we would have been worse off without intervention (or if the world had stayed on the gold standard), that would be my main fear.

Given those concerns, it seems unlikely any major economy would allow a massive adoption.

[Wolverine]

I’m probably not the right person to ask but my answers in italics, below:

• How informed are you about cryptos and the blockchain ?

I’d say mildly informed: I read about it on forums and have read a few pieces by crypto-enthusiasts but have never done any real research into it myself.

• How do you feel about the security of it ?

Two things:

First, I’m not fond of the concept of “loose your keys, loose your assets”. The thing I like in the concept of trust and third party is that if anything goes wrong, you have someone you can get to to solve it, and if they don’t want to, you have a legal system to resort to to make them. That, of course, works in a political system you can trust to treat people fairly, I can see how I’d think differently in an autocracy.

Second: my understanding is that the money is decentralized as long as there are enough miners and they share different objectives. This seems to be truer for some cryptos (bitcoin) and my understanding is that others have found ways to mitigate it or eliminate it completely. As of now, knowing that a specific group of interest could seize the money and be far away from my legal, political, economical and military reach does not reassure me about the use of cryptos as either a currency or a store of value.

• How do you feel about the decentralised money ?

See above: I think my assets are safer when the system relies on trust on a third party and that third party isn’t above my reach (by physical, legal and/or economical means, with other people that have been harmed if necessary). Currencies have the value we give them, I’m not sure I’d give real value to currencies I can loose in a heartbeat (see my security concerns above).

• Do you have any experience with cryptos in real life (buying something with it for instance) ?

No experience. I’ve been pondering adding a slice of them to my portfolio as a purely speculative play (I could do the same with beanie babies if they had the volativity bitcoin has). Some seem to show promising future uses (ethereum, for example), particularly linked with the internet of things. In that context, it could become an actual currency to handle exchanges between machines, though I don’t see it becoming a main mean of exchange between human beings in their current forms. Any real use they’ll develop will enter our life like any other new technology, so early adopters may be rewarded but the others won’t be shafted for not having adopted the system early so the safe play is to see how it goes and adopt the system when it’s out of the beta testing and widely adopted.

• What are your fears ?

I’m too dumb to remember all my keys, chinese or other numerous people with concentrated mining power could seize the system, people are jumping on the bandwagon for speculative reasons making it harder to discern real future uses from wishful thinking deployed to make you a greater fool and a bag holder.

ETA: Oh, and of course, that our energy consumption throws us into an ever burning gigantic forest fire year after year. Green energy could solve that but we’re not there yet.

[Neville]

A smart man (who might look like a cat) once wrote about this very topic in this forum: here.

He thinks no, but expects government-issued cryptocurrency to appear in the (near?) future. One reason might be the easy enforceability of a broad negative interest rate policy.

[Zerte2]

@Olivier96

• How informed are you about cryptos and the blockchain ?

I had a glimpse to the Bitcoin system documentation a few years ago: my impression was that I’d need one year full time to understand how it works in detail. My guess is that only a handful of people understand cryptos. Other people are just hoping someone else does.

@Olivier96

• How do you feel about the security of it ?

Seeing how subtle bugs pop up in complex software like operating systems, data compression, image encoding, etc. I’d wait 50 years before beginning to use a crypto for meaningful amounts. It’s perhaps OK as a substitute of Western Union or the like (sending money to/from another country).

@Olivier96

• How do you feel about the decentralised money ?

Why not? Central bankers are so busy for so long to undermine the credibility of their currencies (and their currencies’ bond market) that something has to emerge as an alternative.

[Double_A]

I think crypto will replace the banking infrastucture that banks use for local currencies.
E.g. If you want to send money to the US you don’t have to rely on slow, expensive SWIFT transactions… But the bank can just send crypto to another bank in the US, without the customer needing to know about it.

[Olivier96]

Ohhh I haven’t seen it. I’ll have a look, thanks !

[Olivier96]

Thank you so much for this full analysis. It’s very helpful and I actually forgot a very important fact : the impact on our ecology. It is indeed huge if we talk about the bitcoin for example, that works with a system which takes a lot of energy.

However, Ethereum has changed the basic software that spends way less energy.

[Oliv]

You need to think in terms of layer and network effect, the path to hyperbitcoinisation won’t be all of the sudden, it might take several decades if not more.

It could first replace big chunk of gold as a store of value or an edge to inflation (see Tesla), then it could be use as a remittance infrastructure for banks and individuals (see Paxful or Strike), then the lightning network could offer a payment infrastructure for everyone (see Umbrel), etc.

As for the network effect, the more people uses btc, the more incentive you have to use it. I give you a random example: if in Geneva everyone wants to pay in Euro for some reasons, you have de facto a secondary monetary system and you have an incentive to accept it as a merchant/restaurant/etc. the same could happen with BTC in the future.

Good news for you, it is the topic of yesterday’s “what bitcoin did?” podcast here. I am sure it will answer a lot of your questions.

[Zerte2]

@Oliv

It could first replace big chunk of gold as a store of value or an edge to inflation (see Tesla)

Tesla uses both (Bitcoin and gold) as a replacement for the US Bolivar.

[Wolverine]

@Olivier96

Thank you so much for this full analysis.

It’s really not an analysis, just personal beliefs. I’m convinced in the lot, there are some cryptocurrencies that show real future potential and also convinced that Bitcoin is not one of them, it seems heavy and its blockchain doesn’t seem to support many other uses but it’s the one that is the most publicized, so speculation money goes into it.

As written, I’ve done virtually no research to support my claim and don’t plan on doing more: believing a technology will change the world doesn’t mean you should invest into it early, especially if there are thousands of candidates and you have no clue which one(s) will be the winner(s). We’ll all get eased into it if it ever takes off and chances are, the end customer will not even realize they’re using blockchain when they’ll be using it.

[Bibi4]

If you want to understand crypto start there. It is simpler that it looks

But how does bitcoin actually work?