Over the past 20 years the system of traditional currencies has undergone many changes, however none of them proved as significant as the appearance of Bitcoin on January 3, 2009. And that is why advocates of digital currencies firmly believe that Bitcoin will one day displace traditional money and become the world's means of payment.
Bitcoin was conceived as a direct competitor to the traditional monetary system, and this has led to numerous assumptions that it could replace fiat money. Although it is hard to imagine that in the future all existing currencies could be replaced exclusively by bitcoins or something similar, in reality that day may turn out to be much closer than we think.
The well-known investor, billionaire and bitcoin optimist Tim Draper believes that the widespread adoption of cryptocurrencies will lead to the circulation of fiat currencies declining significantly, and they will be replaced by digital currencies. Draper has now significantly raised his «bullish» forecast for Bitcoin, naming a price of $250,000 per coin within the next four years, and has also predicted that fiat money will disappear much faster than expected. He said: «In five years you will try to buy coffee with fiat money, and they will laugh at you for not using cryptocurrencies». His son Adam Draper, founder and CEO of Boost VC, also recently made similar statements, saying that in 10 years there will be more digital currencies in the world than fiat ones.
Most investors also believe that over time Bitcoin's share in money circulation will increase significantly compared to fiat money. According to US Global Investors, today in the USA the volume of fiat money in circulation amounts to $1.59 trillion, and according to the Chicago Fed, this figure could shrink to $501 billion within 10 years, as Bitcoin and cryptocurrencies in general have come to be more widely used for conducting transactions. The St. Louis Fed also makes similar forecasts, stating that a rapid transition from cash to cryptocurrencies may occur. «In the near future a substitute for cash funds will be developed that will quickly displace it and become a means of payment. This alternative could be bitcoin or some other cryptocurrency. Despite the fact that cryptocurrencies still have many shortcomings, such problems can be quickly solved — especially with the emergence of large off-blockchain payment networks and other scaling solutions», they state in St. Louis.
Researchers from Imperial College London and the trading platform eToro, having assessed the fundamental role of traditional currencies and compared them with cryptocurrencies, came to the conclusion that new payment systems do not appear overnight. At the same time, they noted that money payments have long since evolved from the cash form into digital or contactless ones. According to the London researchers, «the wider use of cryptocurrencies and digital assets is just the next natural step».
Each country reacts in its own way to the appearance of Bitcoin — in some countries it may completely overthrow fiat money, while in other countries cryptocurrencies and fiat money will apparently be able to coexist. And while the USA seeks to explore the prospects of Bitcoin as a leading world currency, countries such as China are showing concern over the decline in cash circulation, which in turn may also lead to the growth of alternative payment methods.
On the one hand, cryptocurrency enthusiasts are eagerly awaiting the moment when traditional fiat money completely disappears and they see bitcoin become the single currency of the world; but on the other hand, governments and central banks see many problems in this. If cryptocurrencies prevail over fiat money, then the latter may quickly lose its value without any hope of recovery. Such a transitional moment could cause significant problems for established governments, which will have to change their methods of operation in order to keep pace with the times.
Since cryptocurrencies are not under the control and censorship of governments, the latter will likely lose control over their traditional currencies, and they will no longer have to determine how much currency to print in response to external or internal pressure. The most fanatical bitcoin enthusiasts see this as a positive, however the general public may experience certain anxieties about such a scenario. Apparently the point is that not all people are ready to fully control their own finances.
Researchers from the St. Louis Fed, Aleksander Berentsen and his colleague Fabian Schär, believe that it is not difficult for central banks to create their own cryptocurrencies, but at the same time they state that the key characteristics of cryptocurrencies are something that is not compatible with central bank activity. «In general, a central bank should not be in the business of satisfying the demand for anonymous payments. We welcome anonymous cryptocurrencies, but we do not think the government should provide them» – the researchers say.
Many experts believe that Bitcoin does not satisfy the basic attributes of a currency, and for now, undoubtedly, the overwhelming majority of the world's governments use fiat money, and it is unlikely that Bitcoin will replace it any time soon. Thus, the president and CEO of the New York Fed, John Williams, is not worried that bitcoin might replace fiat currencies. According to him, bitcoin and other cryptocurrencies cannot replace the US dollar, because they do not pass the basic test of what a currency should be. According to him, «bitcoins have enough problems with fraud, money laundering and the financing of terrorism».
Perhaps Bitcoin needs some more time before we can use it as everyday money. At least that is what the CEO of Twitter and Square, Jack Dorsey, says: «Ultimately the world and the internet will have a single currency. I personally believe it will be bitcoin. Probably this will happen in ten years, but it could happen sooner too».
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