The Crypto Bottom Line

It is unlikely that cryptocurrency will completely replace legal currency due to its inherent volatility and lack of widespread acceptance as a stable medium of exchange and store of value. While some countries have explored the idea of granting cryptocurrency legal tender status, the challenges associated with price instability and lack of universal acceptance make it improbable that it will fully supplant traditional currencies. 

Here's a more detailed explanation:

1. Volatility and Price Instability:

• Cryptocurrencies like Bitcoin are known for their price fluctuations, making them unreliable for daily transactions and long-term financial planning. 

• Unlike legal currencies, which are typically backed by governments and central banks, cryptocurrencies derive their value from market demand, making them susceptible to speculative bubbles and rapid price drops. 

• This volatility makes it difficult for businesses to price goods and services and for individuals to save and plan for the future using cryptocurrency. 

  
  

2. Limited Acceptance and Regulation:

• While some businesses and countries have experimented with accepting cryptocurrency as payment, it is not universally accepted or mandated as legal tender. 

• Traditional legal currencies are backed by governments and central banks, ensuring their stability and wide acceptance. 

• Cryptocurrencies, on the other hand, are decentralized and operate outside traditional banking systems, making them more susceptible to scams and illicit activities. 

  
  

3. Central Bank Digital Currencies (CBDCs): 

• Instead of replacing traditional currencies, some countries are exploring the possibility of Central Bank Digital Currencies (CBDCs), which would be digital versions of their existing currencies.

• CBDCs would offer the benefits of digital transactions while maintaining the stability and regulatory oversight of traditional currencies.

• These digital currencies would be issued and controlled by central banks, ensuring their reliability and usability.

  
  

4. Complementary Role:

• Cryptocurrencies may continue to play a role as an alternative investment asset or a niche payment method, but it is unlikely they will fully replace legal currencies in the near future. 

• Traditional currencies, backed by stable economies and regulated by central banks, will likely remain the primary medium of exchange for most transactions. 

  
  

While cryptocurrencies have gained popularity, their inherent volatility and lack of universal acceptance make it highly unlikely that they will replace legal currencies as the primary medium of exchange and store of value. Central Bank Digital Currencies (CBDCs) may offer a digital alternative while maintaining the stability and regulatory oversight of traditional currencies. 

A global monetary system has evolved over centuries, with various stages and agreements shaping its current form. The gold standard (1880-1914) and the Bretton Woods system (1944-1971) are key milestones in this evolution. The Bretton Woods system, established after World War II, involved 44 nations and aimed to create a stable international monetary order. It lasted until 1971 when the US ended dollar convertibility to gold, leading to the current floating exchange rate system. 

Compare cryptocurrency to debit and credit card transactions; both debit and credit cards are acceptable all over the place whereas cryptocurrency isn’t. Cryptocurrency isn’t credit, and as you should be aware credit card transactions are used all over the world for convenience. Nowadays, even banks are able to fast-track cash from one country to another.  

Yes, it is a means to make worldwide digital transactions but it isn’t tangible money because of its volatility meaning there are no guarantees to its value the day after, and that is concerning for receivers. Why else do you think so many people are not interested. It is just common sense that intangibility of your financial assets encourages caution.

In other words, don’t get illusioned that it is an answer to banking.  I used to play Monopoly fifty years ago, and realized then that tokens simply represent real money. In other words, if you are a cryptocurrency investor, your money is tied up in tokens. Yes, you could be lucky buying low and make an enormous profit, but the bottom line is there is huge risk. You only have to study the business ecology and there are too many downsides to consider.  

The board game Monopoly was first marketed on a large scale by Parker Brothers in 1935. However, its origins trace back to an earlier game called "The Landlord's Game," designed by Elizabeth Magie in 1904. While Magie's game is the precursor to Monopoly, the version we know today was popularized by Parker Brothers, who began selling it in 1935.

Why was Bitcoin invented. A Peer-to-Peer, Trustless Cash System. Nakamoto's idea was a 'trustless' cash system, meaning a store of value that works just like money but doesn't require anyone to place their trust in a third party to hold their money or manage transactions for them. 

Think of it in logical terms. Several large and prominent banks failed or were acquired due to the 2008 financial crisis, which was heavily influenced by the housing bubble and subprime mortgage crisis. Some notable examples include Bear Stearns, Lehman Brothers, and Wachovia. Additionally, several smaller banks failed, and some larger banks received government bailouts to prevent widespread collapse.

Bottom line is monopoly money was brought to next level fruition after such an event ripped the heart and soul out of some investors during the financial crisis, and consequently Nakamoto who no one knows came out with this wannabee solution, but the reality is another.

Nakamoto could have built within the Bitcoin’s mechanism (blockchain) a button that when pressed diverts all digital currency (Bitcoin) into his own account. A bit like the famous governments’ red button that unleashes nuclear warheads. Game over!

While blockchain technology is designed with security and immutability in mind, it is not entirely immune to corruption or manipulation. A blockchain's security depends on various factors, including the consensus mechanism used and the computational power of the network. While it is difficult to alter a well-established blockchain, it is not impossible, and certain types of attacks, like a 51% attack, can compromise its integrity. 

So now there are trillions of dollars in cryptocurrency, anything could happen. Watch out for the scam of the century!

All the best!

Prof. Carl Boniface

Vocabulary builder:

Supplant (v) = unseat, supersede, step into the shoes of, succeed, oust, displace, (ant) install

Tangible (adj) = solid, touchable, physical, real, definite, material, palpable, concrete

Intangibility (n) = imperceptibility, impalpability, immateriality, untouchability, insubstantiality, elusiveness, vagueness

Business ecology = also known as a business ecosystem, refers to the network of interconnected organizations (suppliers, distributors, customers, competitors, and even government agencies) that interact to deliver a specific product or service. This concept emphasizes the interdependent relationships within the business environment, where each entity influences and is influenced by the others. It's a dynamic system that constantly evolves, requiring adaptability and strategic thinking for survival and success. 

Blockchain = a system in which a record of transactions, especially those made in a cryptocurrency, is maintained across computers that are linked in a peer-to-peer network.