Will Cryptocurrency Ever Take Over the World of Finance
In September 2021, El Salvador achieved the milestone of becoming the first country in the world to declare a cryptocurrency, namely Bitcoin (BTC), as legal tender. Though some experts are skeptical of this decision, the reasons behind it are quite interesting. The El Salvadoran government sees crypto as a means to shear down the cost of remittances from overseas workers and to give more options to the historically underbanked.
This development has inspired a number of conversations about cryptocurrency within the global financial sector as well as among avid followers of the crypto market. And there’s one question on everyone’s minds: is it only a matter of time before cryptocurrency takes over the world of finance and reigns over fiat and centralized currencies?
For those who are curious about the wider impact that cryptocurrency will have on the global financial sector, here’s a quick analysis of the situation. It may be of interest whether you follow a widely adopted coin like Bitcoin or an up-and-coming privacy coin like Monero (XMR) and maintain tokens in an XMR wallet.
Decentralized Finance: The World That Crypto Enthusiasts Dream of
Today’s global financial sector is driven mostly by fiat currencies, or currencies that have the backing of a government or central bank. What distinguishes these fiat currencies from cryptocurrencies is that the former are managed using a centralized system, and this system contributes to their stability and protection.
In recent years, cryptocurrency has begun to rock the boat and present a compelling alternative to this status quo. Much of the intrigue has to do with the idea of decentralized finance, or DeFi. In the DeFi world that many crypto enthusiasts want to imagine, there are fewer intermediaries in global transactions. As a consequence, these will become cheaper and faster to complete. Many crypto followers will advocate the widespread use of smart contracts, which automatically complete digital transactions when certain conditions are met, for both business and personal use.
The dream doesn’t stop there. Some proponents of cryptocurrency believe that it is the key to achieving universal basic income, thus surpassing the limit of what global citizens can receive from their own governments and improving their quality of life. And for some dollarized economies, this decentralized form of currency may allow them to be less reliant or beholden to a foreign and dollar-backed economy.
Indeed, these are lofty dreams for crypto supporters to dream. But how close are they to becoming reality, and what will happen if they do?
The Implications of Widespread Cryptocurrency Adoption in the Global Financial Sector
The ramifications of a cryptocurrency takeover are worth bracing for, especially because of the power struggle that will emerge between crypto and traditional currencies. If crypto were to dominate, fiat currencies may drop in value and traditional investors may endure heavy losses on their cash assets as a result. World governments may also scramble to craft appropriate financial policies in response to crypto. One example is the choice of how much of a fiat currency to print in response to greater reliance on independent cryptocurrency mines, which are responsible for minting crypto tokens. It will be harder for the former to achieve the delicate balance between having too much fiat currency in circulation versus too little of it.
In addition, the global financial sector may need to restructure itself to accommodate a world where just as many people are inclined to use crypto as well as cash or plastic payment cards. More establishments will need to add cryptocurrencies to their balance sheets and partner with crypto payment gateways to accept virtual tokens as compensation. Reception to this development will inevitably be varied; businesses will swing between enthusiasm and skepticism, depending on how powerful the crypto market is at any given time. If the market keeps up a bullish trend, businesses could be better than they ever were before. But if it were to suddenly become bearish, enterprises could stand to lose a lot of money.
The Bottom Line
So far, the general perception of crypto is still based on its extremes. If crypto succeeds, then it may usher in an era of financial and technological innovation that we can’t even fully comprehend yet. But its dominance may also cause fissures in the global financial sector that most stakeholders aren’t ready for yet.
Will crypto truly take over the financial world? Perhaps not anytime soon, like in the next few years. A large part of the population still balks at the volatility of the market and the major changes that crypto will warrant in everyday life. It is highly unlikely that crypto will suddenly begin to overtake fiat currencies and change the global financial sector overnight.
But major changes to the financial world may occur in the next two decades, and they may have something to do with cryptocurrency’s rise in popularity and legitimacy. There’s no way to predict the future, but we must have an awareness of how quickly it can change thanks to a powerful force like crypto.
If you’re interested in crypto trading, you should do two things: keep your eyes peeled about upcoming crypto developments, and stay cautiously optimistic about the future of world finance.
Related: How to Check Bitcoin (or any cryptocurrency) Price from Command Line
Cover Photo by Worldspectrum from Pexels
