With the rise of Bitcoin as a payment option for more and more merchants online, some are wondering if there will be a day when Bitcoin will replace fiat currencies (such as the dollar, pound, Euro, and yen, amongst others) across the world.
While anything is a possibility, especially in this day and age when million- and even billion-dollar businesses have been created from garages and are household names, most economists are not convinced that Bitcoin could ever do that.
Yet, in Bitcoin’s short history, value fluctuations have been almost the norm with this cryptocurrency. This is why economists are very skeptical and even leery of trusting a type of “currency” that can fluctuate so rapidly, to where businesses and people can gain and lose considerable amounts of money over a short period of time by investing in it.
While most think that the currency’s value will stabilize over time after more merchants adopt it, it still could be prone to valuation fluctuations that are greater than fiat currencies. Especially since there is no central agency to regulate it or adjust its valuation by adding more or less of the “currency” into circulation.
Bitcoin is operated by a system of computers that have been programmed to release a specific rate of Bitcoins over time until the year 2040. At which time those computers will no longer produce Bitcoins to be mined.
The specific algorithm that determines that 2040 is the cutoff date and the predetermined rate at which Bitcoins are produced was created by a software developer named Satoshi Nakamoto, who is considered to be the founder of Bitcoin.
Most economists think that Bitcoin will gain popularity among more people and will be used often for specific types of purchases and payments. They also think that it could be useful for transferring money across borders without dealing with red tape and transaction fees.
However, they see little chance of it replacing fiat currencies because the level of inflation doesn’t rise fast enough for most of us to really worry about it. In addition, there are other investments that people can use to store their money, if they really feel inflation or value fluctuations are a threat to their wealth (such as government debt and real estate).
Plus, economists don’t see governments around the world accepting Bitcoins as payments for taxes any time in the near future. Governments expect payment of taxes in their local currencies. With Bitcoin being a decentralized payment system, it’s doubtful governments would trust the security and valuation of a currency, that they cannot control, as payment for funds that help to operate the governments and the services they provide to their citizens.
Thus, while Bitcoin will become a more prominent part of our ecommerce world in the near future, the chances of it totally replacing fiat currencies are very slim. There is still too much value fluctuation in the currency for people to invest significant amounts in it. Too few merchants allow it as a payment method, there are security concerns in regards to it, and governments aren’t eager to change over to a currency that can’t be regulated in terms of its value or security.