Cryptocurrencies and Fiat Money
February 24, 2021
Since the beginning of Bitcoin in 2009, many people and governments have been contemplating the existence of a separate currency, one which they have no major control over. In this article, I will go over my own views on how cryptocurrency and fiat money can both coexist and how a semi-regulated system could be accomplished. Thus, allowing not only investors to have the peace of mind, but also allowing the inexperienced have peace of mind when using crypto.
To begin, with the recent, but sharp rise of interest and popularity in Bitcoin and other cryptocurrencies. Not only investors are partaking into the benefits of cryptocurrencies, but everyday people are also now getting involved. Yes, the involvement and media coverage are good for crypto enthusiasts like me, but it comes at a steep cost. That is, due to the rise of popularity, governments like the United States are at a loss when it comes to regulating crypto due to its goal of being private and global. The other loss is that fiat is slowly losing its value as more people get into crypto. What this means is that governments may try to completely stop or make even holding crypto illegal. That is unlikely and if that were to happen, crypto would still exist due to its decentralized nature and privacy hiding protocols and networks such as the Tor network.
On the contrary, what I am trying to say here is, the government can adapt to crypto with little need for regulation and have it work alongside fiat money. The idea is, Bitcoin is more of an asset, the IRS classifies cryptocurrencies as digital assets. There are two ways this could work, one of the ways is to start looking at Bitcoin as a globally accepted currency. In that scenario, things can be put into place to help control its volatility and allow for users to start using Bitcoin and other assets with peace of mind when it comes to the value of the assets. This would require little regulation and allow for more people to get access to crypto. That would of course make possible gains from trading go down, but the benefit would be the possibility of loss would be decreased and less regulation on buying and selling crypto would be needed assuming we incorporate a circuit breaker like system that is like the US stock market.
Finally, my second idea is to think of Bitcoin and use Bitcoin like gold, digital gold, but have other coins like Litecoin be used for more everyday purchases. This would allow users to use cryptocurrencies as not only a digital store of value, but also for purchases. Satoshi Nakamotos’ original vision of Bitcoin was to make a system to replace or be used alongside ecommerce payment providers such as PayPal and to allow people to have a more privatized way of moving their money without worrying or relying on a centralized entity, the banks that is as follows:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” (Nakamoto 1)This reference to the Bitcoin whitepaper by Satoshi Nakamoto exclaims that Bitcoin was originally created as a currency, more specifically, digital cash. Where this “digital cash” would be used in a decentralized manner, thus subtracting the need for the involvement of a third party, in this case, centralized banks, to verify transactions.