What Would Happen if Cryptocurrency Became More Popular Than Cash

What Would Happen if Cryptocurrency Became More Popular Than Cash?

t's not outlandish to think that our current financial system will soon be replaced by cryptocurrency, and the shift will bring about some big changes to the global economy.

THE FLIPPENING

For a time, Bitcoin seemed unassailable in its dominance of the cryptocurrency market, being the first digital currency to really take root and establish itself in the mainstream. Since then, a host of worthy competitors have emerged, and there’s a real possibility that the balance of power could flip.

Many who have been regularly following developments in the cryptocurrency market refer to the tipping point where one digital currency supersedes another as “the flippening” We almost saw this occur in May 2017, when Ethereum’s market cap approached Bitcoin’s amid a surge in popularity.

When individuals have significant amounts of money invested in one cryptocurrency over another, it’s no surprise that tensions run high when they go head to head. However, these squabbles over which coin is best might be distracting us from a more pressing issue.

Some observers would argue that the true flippening isn’t a case of competition between two different forms of cryptocurrency at all. The sea of change yet to come could have more far reaching consequences, if and when digital currency as a whole becomes more popular than conventional fiat currency.

NEW MONEY

There would be some major advantages to an all-cryptocurrency future: its value can’t be manipulated as easy as fiat currency, and it lends itself to the concept of universal basic income. In fact, several different programs, such as uCoin and Cicada, are already using cryptocurrency to distribute UBI.

In a future where our transactions with shops and services are likely to be handled by automated systems, cryptocurrency removes many of the intermediaries that would take their own cut. There are many benefits for the individual, but the flippening stands to pose some major challenges for the global economy in its current form.

Should cryptocurrency manage to jump ahead of fiat money in terms of usage, cash won’t be able to close the gap. That’s the trick to the flippening — once changeover takes place, the losing party loses value and can’t do anything about it.

If everyone begins using cryptocurrency, infrastructure would need to be developed with that in mind. It might not take too long for cash to become incompatible. At this point, it remains to be seen whether established financial institutions could pivot to that new status quo in time.

At the highest level, governments will be hit hard, as they will no longer exercise the same level of control over the country’s currency. The idea of printing more money has been raised time and time again in response to financial turmoil, but that option disappears once currency has to be mined.

The flip from fiat money to cryptocurrency is a very real prospect, and it could well change the face of how our society spends and saves.

David Ogden
Entrepreneur

David Ogden Cryptocurrency Entrepreneur

Author: Brad Jones

David https://markethive.com/david-ogden

Cryptocurrency Costs Unlikely to Crowd Out Fiat Currencies in Korea

South Korea’s central bank has published a new working paper analyzing a dual-currency regime by pitting cryptocurrencies against traditional fiat currencies.

Penned by economists and academics from the Bank of Korea and Seoul’s Hongik University, the working paper, titled ‘Crowding out in a Dual Currency Regime? Digital versus Fiat Currency’, was published earlier this week.

“We examine the impact of a privately issued digital currency and fiat currency using the simplest framework, with which we may derive the most straightforward implications,” reads the introduction of the paper. “More specifically, we attempt to answer the question of whether digital currency will crowd out fiat currency.”

The authors claim their research employs the ‘simplest model of monetary economics’ to drive these straightforward implications with the minimum number of assumptions. The research considers dual currency regime, one which sees the coexistence of privately-issued digital currencies and fiat currencies issued by the government. Bitcoin is underlined is a notable example of a private digital currency.

Making note of a number of efforts with central banks exploring the possibility of issuing their own digital currencies, the researchers point to the example of the Bank of England which has publicly revealed its effort to do so. Such an attempt “could drastically change our monetary system” the authors write.

According to the researchers, the costs associated with both fiat and digital currencies will see both of them function together with each other’s drawbacks. High costs in using one could inturn spur demand for the other, and vice-versa, allowing both fiat and digital currencies to co-exist. They state:

“High costs of using fiat currency increase the demand for digital currency. Similarly, high costs of using digital currency relative to fiat currency raise the demand for fiat currency. In a world of imperfect currencies with uncertain costs associated with the use of a currency, it is unlikely that the relative costs of using digital currency will be low enough to drive out and accordingly crowd out fiat currency entirely. Our results rather suggest that the threshold of equating the demand for fiat currency with that for digital currency will allow the co-existence of both currencies.”

Fiat currencies have been historically known to decrease continuously, the authors confirm, due to inflation and the factor of new money pumped in to the supply by the central bank, also known as quantitative easing.

Bitcoin, in stark contrast, has a fixed supply which would imply a “deflationary bias”, the authors note.

“This could lead to a situation in which Bitcoin drives out fiat currency as a store of value,” the authors speculate, before quickly adding:

However, security or trust issues – the decentralization of digital currency and the absence of insurance provided by governmental authorities – may prevent digital currency from being used as a store of value. Instead, digital currency may be used as a medium of exchange dominantly.

The authors also point to future research possibilities, such as covering the topic of digital money appreciating due to ever-increasing demand and the possibility of a triple currency regime, one which would see private digital currencies like bitcoin, central bank digital currencies and fiat currencies operate together.

David Ogden
Entrepreneur

David https://markethive.com/david-ogden

Tag: fiat currency