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Bitcoin is the first cryptocurrency popularly known in the cryptocurrency literature as the flagship cryptocurrency. It is a proof-of-work-based digital asset with agreements on the network state reached through a Nakamoto consensus algorithm. There is a predefined number of Bitcoin that will ever exist, and miners who solve blocks where other nodes can record new states get rewarded with an amount of 6.5 Bitcoin, which is halved every four years. Bitcoin has grown thousands of percent since the first momentous bull run of 2017. The burning question about whether Bitcoin will replace the dollar has lingered from then on. While some think Bitcoin should be the new dollar, others believe it will never happen and will undermine the sovereignty of the US government. For one reason, Bitcoin is a better medium of exchange by design, but there are drawbacks on both sides of the argument. W3G Capital explored this debate and reached a fair conclusion in this article.
That Bitcoin Cannot Replace the Dollar
Bitcoin’s major argument has been the unreasonable increase in its price over the years by several thousand percent. Therefore, it is not surprising that those who have got rich from holding Bitcoin are preaching the inefficiency of fiat currencies like the US dollar. During the COVID-19 pandemic, for example, the United Stage government printed several billions of the world’s reserve currency, putting too much money in the form of relief in the hands of the average American. Bitcoin and other cryptocurrencies with fixed, unadjustable numbers in circulation are therefore considered a better option to sporadically printable fiat money. However, the point of this side of the argument is that Bitcoin is not money because it does not meet all the criteria that qualify an asset as money, including legal acceptability.
Even some of the basic functions of money, such as acceptability, do not quite apply to Bitcoin. You can’t walk into any supermarket near you to buy something in Bitcoin without considering whether it will be accepted. Fiat currencies, like the US dollar, are accepted and can be used for transactions anytime without thoughts about acceptability.
There is also the problem of the value store, an important function of any asset that would serve as a medium of exchange. If you took a loan in Bitcoin during a bear market or every other time, you would probably end up paying more in a short period or be unable to pay at all. Bitcoin and other cryptocurrencies are wildly volatile. You will be shooting yourself in the foot if you think you can use these assets as a deferred payment method. These problems combined take Bitcoin far from the money mark, which makes it hard to consider Bitcoin a currency like a fiat. From what we gathered so far at W3G Capital research, Bitcoin isn’t money yet and needs a lot more to be so if that would happen in the future.
That Bitcoin Will Replace The Dollar
Those who believe that Bitcoin will replace the dollar as a currency are considering the numbers. With over 73 million Americans owning crypto and the possibility that the next American president will own crypto, they predict an imminent shift initiated by a pro-crypto government. The government is the people, and as more people start to see Bitcoin as a way to ensure financial inclusion and distribution of wealth, there could be a central recognition of Bitcoin as the actual cash. Research as W3G Capital uncovered the deep feelings of value transfer which makes Bitcoin a bit ahead of gold and fiat in terms of security and ease of transfer. Since the people want to always have a say in how their governments treat them, they will tilt toward using an uncensorable form of cash.
Those who hold this view mostly believe in the Austrian school of economics, believing that money evolves in stages and that Bitcoin will eventually become cash. When enough people believe in an asset, it becomes a store of value and gradually becomes a medium exchange. Since people will want something more valuable in exchange for other forms of value they own, it becomes a unit of exchange since people will start seeing whatever they own in terms of that asset. As Bitcoin starts to be taken much more seriously, it will become the standard unit of exchange. As institutions start to keep their corporate balance sheet in Bitcoins and the adoption grows, other things will fall into place, and the asset will gain centralized adoption and become the global reserve currency.
Weighing in on Both Sides in Recent Developments
The most important point in the evolution of an asset into money is its stability, which brings about adoption. Even though those who think Bitcoin is not money yet are quite correct in their arguments if more money comes into the asset. The asset becomes the global savings of the world, becoming a store of value and a medium of exchange will be inevitable. With Bitcoin, people can send money to any part of the world without an intermediary, and there is less risk for both parties going through this route. Like the Austrian's focus on individual decisions, the growing devaluation of fiat currencies and increasing adoption of digital alternatives will mostly tilt the balance in favor of holding Bitcoins rather than fiat. Fiat will remain, of course, but the function may shift towards an asset for liquidation than exchange or store of value. So Bitcoin will play some functions of fiat money while fiat money will continue to serve the remaining purpose.
The outcome of the increased adoption of Bitcoin and the political need of the United States to remain the world reserve economy may fuel a faster adoption of Bitcoin as money than we all anticipate. The global population will follow suit when this happens since no one wants to keep holding an asset with an increasingly unstable value. The increase in technology adoption will also help popularize the adoption of Bitcoin. As workers keep working only to get paid less and are exposed to the possibility of getting more value for their money in these assets, there will be a shift and increased adoption of a digital currency like Bitcoin. If people are the ultimate determiner of the course of the economy, as Austrians believe, then Bitcoin may eventually become cash. A balanced summary, according to W3G Capital’s outlook on the issue, is a balanced rate of adoption in which Bitcoin and fiat play complementary roles in the short term with a possibility of Bitcoin becoming more widely adopted in the long term.
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.