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Cryptocurrencies were designed to provide the world with an economic digital asset that is free from all the centralized financial issues. For nearly a decade these digital assets have been pitched up against fiat currencies. Many people even believe that cryptocurrencies are going to become globally accepted currencies. Debates surrounding the acceptance of cryptocurrency as real currency have been doing rounds for a while now.
In this article, let’s have a closer look at the factors which might result in cryptocurrencies being valued as real currency.
Comparable factors between fiat and cryptocurrencies:
In the words of Daniel Gorfine, the CTFC’s chief innovation officer, even though the relative economic value and interest rates might not exactly match with their crypto counterparts, there are a lot of striking similarities of fiat currencies.
Each and every country has its own currency for its region. The value of this currency increases whenever people invest in this particular currency and hope that its demand increases and consequently its value. The same happens with cryptocurrencies. As more and more people start investing in cryptocurrencies, the value of that crypto asset also goes up. Thus, this provides a great investment option.
As the centralized fiat currencies are controlled by the banks, their inflation rate also depends on the rate at which these banks print new notes. In the case of cryptocurrencies, there is a constant inflation rate which cannot be altered. Thus, no one will be able to have control over cryptocurrencies. This also reduces the risk of losing money due to excessive inflation of the currency.
Lastly, for several years, fiat currencies have always acted as a store of value. The amount of money that you would hold will not decrease no matter what happens. Cryptocurrencies also form an excellent store of value. Unlike the traditional fiat currencies which are subject to inflation, the price of cryptocurrencies usually increases due to its limited supply as well as the increasing demand. This is one of the main reasons why Gorfine believes these digital assets have gained so much popularity in recent times.
When the use cases of both fiat and cryptocurrencies are compared, both these assets are mainly used as a medium of transaction. Due to the rapid rise in popularity of cryptocurrencies, several merchants have started to accept this digital asset as a mode of transaction. For ages, even fiat currencies have been used as a mode of transaction. Thus, tge CTFC has deemed both to be similar.
As it is used as a mode of transaction, both these assets must abide by all the rules and regulations set by the government. Even though cryptocurrencies are not controlled by anyone, the exchanges that they are traded on are responsible for following all the rules. Thus, making sure that the decentralized crypto world is also kept under check.
How will the world benefit from this?
Cryptocurrencies have already proven several ways in which they are better than their traditional fiat currencies. However, many are still hesitant to use this as the government hardly recommends it. By accepting cryptocurrency as currency, we will have a global currency that can be used without anyone else controlling the network.
However, the crypto world is still not ready for a round of mass adoption as the existing technology will not be able to adopt such a large user base. The movement towards being valued as a currency is extremely long due to the various developments throughout the way, according to Daniel Gorfine, the CTFC’s CIO. In the near future, we might have a global digital currency that is better than the fiat currency.