Cryptocurrencies like Bitcoin, Ethereum, and many million others are a digital form of currencies. Whereas fiat currencies like the US dollar, Euro, Pounds, and many hundreds of currencies are a printable form of paper currencies.

Cryptocurrency vs Fiat currency:

So little background for people who are not aware of cryptocurrencies.

Cryptocurrency is a form of digital asset held digitally in wallets and transferred digitally to others, and each transaction is recorded in a block and added to the chain of ledger called the blockchain. So, we all know fiat currencies like USD are printed by the government and released to people in terms of loans or schemes through banks. Now people get that money spend it and pay taxes and that money somehow goes back to the government. Hence, we can say for sure fiat money is backed by the Government. The value of 1 USD against a product depends upon how much the government prints the money.

Now the obvious question arises, who generates the cryptocurrencies? Miners. Miners are the people who approve the transaction to be added to the blockchain ledger. So, person A transfers 1 bitcoin to person B, then that transaction has to be validated whether that person A has money or not and approve the transaction. This process of approval requires complex servers and CPU power. So, Miners who investing their money in server farms will be rewarded in bitcoins. Also, they earn through a transaction fee. Miners get new bitcoin minted and circulates it in the market.

These are not new; this complex operation of mining and approving is handled by the banks for fiat currencies. So, it’s centralized and controlled by banks and in turn by the government, whereas in cryptocurrencies it is managed by the people, and generated for the people. Maybe this is what we call TRUE democracy.

What happens if we get a paycheck in cryptocurrency today?

Say an organization decided to pay all of its employees in bitcoin. Employee A gets the bitcoin and decided to buy chocolate from a retail store. Today he can buy chocolate for 1 bitcoin, tomorrow he has to pay 1.5 bitcoin if the bitcoin price drops, and just 0.5 bitcoin if the bitcoin price increases against USD. Here we see the value of 1 bitcoin is not determined by the product/government. It is determined by the overall market demand for bitcoin among the people. Hence the fluctuation in the bitcoin market makes it difficult for it to use day today.

Whereas in fiat money the value of the chocolate increase cause of inflation, then the government involves and increases the interest rate of banks, thereby reducing the cash flow and reduce inflation. This constant involvement of the government makes the currency stable and helps the people to use it a day today instead of the barter system.

Problems around cryptocurrencies:

Instability and constant fluctuations of its price value against the stable currency. However, this problem will be solved if the entire world market starts accepting bitcoin for the exchange of goods. This requires immense trust in the bitcoin system and many miners who want to generate the bitcoin and make it in the market circulation. If this happens, then our fiat currencies will become devalued and there will not be any purpose for banks to operate. That’s the whole idea of cryptocurrencies.

Not regulated by any government, so anyone can involve in mining, and thereby obtain cryptos through reward or transaction fee. What If this currency is used for money laundering, terrorism, illegal operations; who monitors it and regulates it. No one. The whole idea of cryptos is its anonymity. The government cannot involve and track the money movement. They cannot manipulate the price and print more bitcoins.

Will cryptocurrency replace fiat money?

The answer is no, not in near future.

Currently, cryptocurrencies are considered a form of investment diversification, where many tech leaders diversified their portfolio by investing in cryptocurrencies (Elon Musk announced that he invested a 1.5 billion USD in bitcoin).

While others like Warren Buffet consider cryptocurrencies as a big bubble that will burst anytime. Maybe the idea of cryptocurrencies and their future is overhyped, or maybe not. Nobody knows. People thought the telephone will not replace the postal system, which proves no one can predict the future.