Can Cryptocurrency replace Fiat currency

As per Tim Draper who made a prediction in 2014 that Bitcoin will hit $250,000 by the year 2022 is a well-known venture capitalist and an inspiring entrepreneur of United States.

The prediction turned to reality when Bitcoin was soaring above and beyond this amount to reach an all-time highest last December 2017 i.e. reached a price of $19,500.

Tim Draper thinks people are going to be able to spend cryptocurrencies like Bitcoin, in mainstream situations. Cryptocurrencies will be something people can access on their phone as it will eventually replace credit cards. He truly believes that cryptocurrency will replace fiat currencies entirely.

To support above statement let understand what is money & how it would be regularised in future.

Money & how fiat currency works

Money serves as a store of value, a means of exchange for goods and services, and a unit of account that measures value.

Before money, human societies exchanged goods and services directly—a bushel of grain for a pig, say. This was not very efficient.

As societies grew more complex, commodity monies were developed—from seashells to copper, silver, and gold. Some states introduced fiat money—which has no intrinsic value other than the promise to pay—such as paper money in eighth century China under the Tang dynasty.

Most early forms of fiat money were neither very stable nor widely accepted, as people did not believe the issuer would honor its commitment to redeem the money. Governments were tempted to print more money to buy goods or raise wages, which fueled inflation (think of people moving cash around in wheelbarrows in post–World War I Germany). Modern central banks seek to maintain price stability by regulating the supply of money on behalf of governments.

Problems in substituting the fiat currency

Cryptocurrency is very volatile in nature, to replace the fiat currency the important characteristics that require that such money should have stable in value so it is to be widely acceptable.

For example:

In 2018 the value of Bitcoin fall down drastically & unfortunately, it didn’t recover and things only got worse. Right now, BTC is hovering just above $4,000 and there is no saying when another bear grip will take the price below this level.

At the recent Crypto Invest Summit in Los Angeles, Draper stuck to his earlier prediction that Bitcoin will eventually strike the $250,000 mark in the year 2022, and that it could potentially change how governments do business and predict that Bitcoins may Hits & $20,000 by the end of 2019 & Other prediction that it may be as lower as &100 per coin by the end of 2019.

Above mentioned example shows that it is highly volatile in nature and cannot be stable, so it can’t be qualified as fiat currency.

Another way can also be taken that regularization of cryptocurrency may help in recover its value & so firstly I will be classified as a security. But there are many challenges in the regularization of cryptocurrency.

The Challenges of Cryptocurrency Regulation

Volatile cryptocurrencies require regulation, but regulators face many questions about how to do so.

A recent study suggests that the “vast majority” of initial coin offerings (ICOs) are in fact fraudulent schemes. But where stocks are regulated by the U.S. Securities and Exchange Commission (SEC), and commodities by the U.S. Commodity Futures Trading Commission (CFTC), cryptocurrencies lack an effective regulatory body. This absence suggests the need for new institutional governance that properly understands the technical and economic issues driving cryptocurrencies.

As the range of ICOs has broadened and deepened, many new and established companies have begun exploring opportunities for using ICOs as a means to fundraising. Indeed, the main driver of ICOs has been global access to investor funds. Consider,

for example, that the messaging app Telegram raised $1.7 billion in March of this year. The capacity to tap a liquid market without the need for intermediaries has provided a wide range of new and established companies with deep pools of capital.

Regulating ICOs. Market valuations of cryptocurrencies remain wildly erratic. With the rise of ICOs, the SEC has signalled its concern about the potential for fraud, a logical conclusion given the enormous growth of coin-related ICOs over the past two years. Five years since the very first ICO, coin offerings have raised close to $6 billion. In fact, the total market capitalization of crypto assets currently stands at about $221 billion.

The most pressing concern for the majority of regulators is eliminating the use of ICOs for money laundering and terrorism. Although critics debate the legitimacy of these concerns, governments nonetheless struggle to author guidelines for regulating the use of cryptocurrencies. Most government regulators are concerned about precisely how to classify ICOs and therefore how to govern and tax them.

On the enforcement side, there are an increasing number of class action lawsuits brought against companies involved in ICOs. Tezos, for example, raised $232 million last year only to face allegations of securities law violations and investor fraud. Selling unregistered securities can mean significant fines and even prison sentences leading some companies to bypass the U.S. market altogether.

One growing fear is that overregulation will undermine innovation by suppressing risk taking. The rapid ascendancy of ICOs and their ability to raise funds for budding start-ups has radically democratized access to capital in new and innovative ways.

This suggests the need for a different set of regulatory obligations specifically designed to allow smaller cash-poor companies to raise funds from a wide range of funders.

Currently, there are roughly three broad types of regulatory systems overseeing ICOs:

Closed, like in China;

Open and strict, like in the United States and;

Open and liberal, like in Switzerland.

For many governments around the world, the emphasis is on consumer protection while at the same time enabling legitimate businesses to flourish. Gibraltar, for example, licenses some crypto-companies, while France is working on a system of voluntary licensing.

Over regularisation results in fall down the values of cryptocurrency, At the recent Crypto Invest Summit in Los Angeles, Draper said that Bitcoin “lacks the political nature” of government-backed paper money, and is less susceptible to the rules of traditional finance. Which results in lower bitcoin values to $4,000.

Although various governments around the world hold widely divergent views on ICO regulation, the writing is on the wall: The broad shift from hard cash to digital currencies is a long-term global trend that neither financial institutions nor government regulators can simply ignore.

As cryptocurrencies could potentially transform how global government systems operate, Mr. draper in Crypto investment summit loss angles added that he think that government can be transformed in this big, huge way, which is you put all those technologies together. You have a token that’s global and decentralized. The token is now on a perfect ledger called the block chain, so you don’t require all this special accounting because the accounting is already done, and then you can build smart contracts so that all these contracts are built into the cloud so that whatever is supposed to happen in a contract happens, and then you have all that big data. You can take that data, add artificial intelligence to it, and make decisions. Think about what a bureaucrat does. You can replace the entire bureaucrat with artificial intelligence, a smart contract and the block chain.

Further Eric Voorhees – CEO of global exchange platform Shape Shift – echoed Draper’s bullish sentiment regarding Bitcoin in an online statement on October 28, 2018, saying:

“Bitcoin’s inflation schedule is set for the next 100 years: transparent, unwavering and known to all parties. U.S. dollar’s inflation schedule is unknown even one year out: opaque and manipulated quarterly. One model is mathematical and civilized; the other is political and antiquated”

Besides of all the above statements it can be said that in near future it not seemed that cryptocurrency going to replace the fiat currency as it requires a perfect regularization policy to curb out its volatility.