With the new crypto currency coming into the main stream, the traditional fiat currencies are about to face a tough competition. The crypto market sure has been down for a few years now. However, the whole concept and system of crypto currency and blockchains and very well replace the dollar in the future. Crypto currencies are virtual or digital currencies. Unlike your traditional ways of payments, crypto payments have certain advantages. These include transaction costing, speed, security and efficiency. However, if bitcoins want to take over the dollar, then it certainly needs to overcome a number of obstacles.
If you want to have a replacement for currencies it must be an effective medium of exchange. It means that individuals, companies and other organizations must be able to trade it for goods and services. Now, experimenting with currencies is not something any country is willing to do. This is because, if the currency fails and the prices drop, it can hamper the whole economy of the country. In this scenario, the US dollar has established itself. It is one of the most widely traded fiat currencies in the world whereas the newly introduced bitcoins is yet to reach that milestone.
Secondly, the Bitcoin’s use as a medium of exchange is its intense volatility. There are intense price fluctuations in bitcoins. The sharp climb in the tally is a great opportunity for the investors, but it cannot function effectively as a currency. Volatility is a self-correcting problem and it has certainly dropped in the last years for crypto currencies. Sharp price fluctuations remain the key challenge that crypto currencies have to overcome to become a widely used method of payment.
The positive side is that companies such as bitcoins use a blockchains as their foundation. These technologies are super secure and there are no chances of frauds being committed. However, they are not designed to handle the traffic of a high number of users. This may not be the case for all but certainly for some. It is also problematic that different nations have different views and regulations for crypto currencies.
Next, the crypto currency must it must function as a store of value. For bitcoins, they need to need to hold value over the long-term. Even though some believe that it’s effective in this particular capacity, it is not unanimous. Bill Gurley emphasizes that the digital currency can be a great store of value in parts of the world which suffers from significant geopolitical turmoil and disturbance. The native currencies experience substantial changes in value overnight in these regions. In this way crypto currencies have already established themselves in the present market. However, weather the crypto currency can serve as a store of value or not is questionable.
The final hurdle the crypto currency must overcome to potentially replace dollar is that is to function as a unit of account. It is a matter of debate the extent to which Bitcoin serves this purpose. To quantify the value of other goods and services the digital currencies function as stores of value as they can be used in this manner. It is true that Bitcoin is too volatile to be an effective unit of account, but it undermines its use as a store of value. However, the digital currency’s generalized lack of adoption is what set it back from being more widely accepted. The situation can change if more than one country with volatile fiat currency can link bitcoins to their currency instead of the US dollar.
The crypto currency can replace the US dollar but with several important progress.