Can cryptocurrencies ever be an alternative to fiat? There are divided opinions on this interesting topic. Some are conservative and think that fiat money will dominate forever.

However, recent Deutsche Bank’s study brings positive news for cryptocurrencies. Jim Reid, Deutsche Bank’s analyst and principal investigator of the study titled ‘Imagine 2030’, indicated that digital currencies might eventually phase out fiat money to occupy the currency market by 2030. One of the main reasons that might allow cryptocurrencies to replace paper money is their simplicity in terms of regulation. The study admitted that digital currencies have always been “additions” rather than “replacements” to the conventional monetary system.

Although cryptocurrencies have several advantages over fiat money such as added safety, speed, low transaction costs, accessibility to digital devices, etc, they have not yet managed to familiarize themselves as a means of payment.

However, Jim pointed out that the confidence of people on the traditional payment system is falling. Some key forces that hold a fiat money system together including cheap labour now appear weak, which might place this system at risk and pave a way for crypto money.

Cryptocurrencies still have some issues

The study identifies three main obstacles to be overcome for the mass acceptance of digital currencies. Firstly, these must appear legitimate in the eyes of governments and financial regulators. Most of the popular cryptocurrencies failed to meet this requirement due to the highly volatile nature in the market.

Governments would not put citizens at financial risk by allowing transactions with an unstable currency. Secondly, key stakeholders including mobile apps (Apple Pay, Google Pay), card companies (Visa, Mastercard) and retail giants (Amazon, Walmart) should agree on accepting payments through some set cryptocurrencies to attract customers.

Lastly, crypto issuers and related authorities should keep in mind that the entire system is electronic and therefore the financial system must be prepared for any form of cyberattack or electricity interruption. The researcher believes that it would not be strange to see new and mainstream crypto just a decade ahead. Many first-world countries are still sceptical to cryptocurrencies which might be laying the ground for digital war. It is not clear which country will be the first to get licenses of digital currency and build trade unions based on such currency.

Can China become a pioneer?

Chinese President Xi Jinping has recently revealed the government’s interest in digital currencies tech and some efforts to implement plans are already visible that would ensure domestic and international transactions using this trending technology. However, being traditionally conservative, they are interested in directing the focus of crypto enthusiasts towards a central bank-backed cryptocurrency rather than investing in decentralized coins.

If the plan works smoothly, China would become the first nation to launch a national cryptocurrency. Local authorities have been working on this plan for some years and the People’s Bank of China (PoBC) has finished the prototype digital currency according to unofficial sources. Now that the government is offering support for the initiative, it has gained new momentum and the launch of the new crypto may happen anytime soon. Experts have talked about the Chinese intention of transitioning the economy to the blockchain platform. According to Gantig Bayarmagnai, CEO of Bitmonex LLC — a crypto exchange, 

“With the Chinese government taking the initiative by introducing their crypto Yuan early next year, we will most likely see other countries following suit. Countries like China, South Korea, and Japan will most likely see a quick transition to a crypto-based payment system because of their existing infrastructures and developed culture in accepting digital payments as the norm, as opposed to using cash for payments. It also gives the government full autonomy in monitoring all transactions with ease.”

As centralized currencies are more regulated, they are better trusted by the public and thus more likely to be accepted on a larger scale than decentralized currencies.