| json_metadata | "{"app":"musing/1.1","appTags":["cryptocurrency","blockchain"],"appCategory":"cryptocurrency","appTitle":"Can a country's paper currency be completely replaced by cryptocurrency. Is it practically feasible?","appBody":"<p>Fiat money is fiat money whether it is in the form of bank notes or balances in a bank account. Fiat money is government backed in the sense that it is legal tender, that is, the police and the courts will not help enforce the repayment debt in case the debtor chooses not to accept legal tender as payment if not explicitly agreed otherwise beforehand. Also, if cryptocurrency were accepted as legal tender, taxes and fines could be paid in it and it could be used as a unit of account by those entities that have an accounting obligation under law. It is possible for cryptocurrency to be made legal tender. </p>\n<p>In principle, there is no reason why cryptocurrency could not completely replace conventional currencies used as fiat money because it is possible for cryptocurrency to be made fiat money. After all, the reason cryptocurrency is called cryptocurrency is because cryptocurrency transfers are recorded on a cryptographically secured distributed ledger. Fiat money is called fiat money because its value is not backed by anything universally recognized as having value such as a rare commodity such as gold or some other precious metal. Instead the value of fiat money is based on its status as legal tender. There is no reason why cryptocurrency could not be made legal tender, too. </p>\n<p>The practicality of making a cryptocurrency legal tender (= fiat money) is another matter. The volume of transactions in existing fiat currencies is enormous compared to even the most scalable of cryptocurrencies. A good cryptocurrency must be sufficiently 1) scalable, 2) secure, and, 3) decentralized. Sacrificing security would hardly be acceptable. Sacrificing scalability is out of the question if the goal is to replace conventional fiat money. If decentralization is sacrificed, then what we get is a version of conventional currency where instead of each of the tens of thousands of smaller or larger financial institutions having private ledgers of their own, each of them would be using a gigantic ledger whose immutability would be cryptographically secured in a network having a small number of full nodes. That would, paradoxically, be a more centralized version of money compared to what we have now. In fact, Christiane La Garde, the head of IMF, proposed creating a central bank controlled cryptocurrency where everyone, including private citizens could have an account. Some economists have supported giving everyone an account in a central bank because that would allow for negative interest rates for one thing. </p>\n<p>Of course, you could build a second tier network such as the Lightning Network on top of Bitcoin to implement scalability. But the problem is that the governments are trying to stop money laundering and tax evasion. Used together with privacy coins, Bitcoin + LN would probably make money laundering a bit too easy for most governments to want to grant BTC or any other crypto the status of legal tender. Whether or not it would be technically feasible to have crypto completely replace conventional fiat is a complex computer science problem but would be probably solvable through techniques like sharding. </p>\n<p>Rather than by the currency use case of blockchain, I'm far more optimistic about utility coins such as STEEM or security coins. Security coins have a security as their underlying asset. They are not trustless but have significant potential in adding liquidity to traditionally highly illiquid markets such as high-end real estate or extremely valuable works of art.</p>\n<p><br></p>","appDepth":2,"appParentPermlink":"f37q9n7l5","appParentAuthor":"milaan","musingAppId":"aU2p3C3a8N","musingAppVersion":"1.1","musingPostType":"answer"}" |
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