There is no denying the irresistible hype surrounding cryptocurrencies. The digital currency has captured the imagination of investors, journalists and the general public alike, to the point that some even consider it a worthy pretender to the throne currently held by fiat money. So, what are the chances that the cryptographers will overthrow the fiduciary money and become the dominant currency system?
Almost 50 years have passed since the world economy shifted from the commodity-backed currencies to the fiduciary monetary system. Concerned about the diminishing economic influence of the United States and the rising costs of the Vietnam War, then-President Richard Nixon decoupled the dollar from the US gold reserves and ended the Bretton Woods Agreement. Crypto-enthusiasts make us believe that the stratospheric ascent of assets like Bitcoin, Ethereum and Ripple sounds like a resounding coup de grace for fiat money.
They argue that, after half a century of strict financial regulation by governments and central banks, it is time for individuals to regain full control of their money, a noble goal that can be achieved if the digital currency becomes the status economic quo.
So, what advantages do cryptocurrencies like Bitcoin offer over fiat currencies?
To begin with, they are convenient. Cryptocurrencies have the potential to save companies and financial services companies a significant amount of time and money by eliminating the transactions intermediaries; commissions for these transactions also tend to be significantly lower. And that’s not all: an important criticism of the fiat system is the way in which the value of a country’s currency can change beyond national borders. The Nigerian Naira is a good example of this: its value drops by 30% as soon as it is taken out of Nigeria. Digital currencies, for the most part, are not issued by any country or state and, therefore, are not subject to the same geographical fluctuations.
