Aside from the temporary rise and fall of the price of cryptocurrencies, the more important question is, does the future of cryptocurrencies belong to the small circle or the public? Can cryptocurrencies really replace existing fiat currencies?
Inflation
A key point of modern fiat currency is moderate “inflation“. If the total amount of money remains unchanged, but the speed of currency circulation decreases, then there will be a shortage of currency in some areas, and the market will circulate recognized second currencies, such as gold coins and silver coins, There may even be bartering. This would erode the market value of fiat currencies, and the central bank would lose control of the currency. The control of fiat currency is fundamental to the normal functioning of a country.
Therefore, when the speed of currency circulation decreases, it is necessary to print more money, or increase the liquidity of currency through fiscal stimulus to stabilize the currency market of the entire society.
From another level, once the economy of many countries is in a downward channel, such as the shutdown of the real economy due to the impact of the new crown pneumonia epidemic, residents reducing consumption due to a decline in income or based on worries about the future, they will print fiat currency, i.e. The so-called currency “water injection” to stimulate the economy and consumption.
Economist Keynes once put forward a theory called the ” paradox of saving“, that is, the active consumption of residents can promote the sales of goods, so that economic prosperity can promote the increase of national income, while a large amount of savings will lead to economic recession, resulting in The consequences of a reduction in national income.
This is why, within the framework of the legal currency policy of various countries, there is always a tendency to increase the issuance at a certain stage.
However, compared with the “at any time increase” of the issuance of fiat currency by various governments, cryptocurrencies are severely restricted in this regard. After all, cryptocurrencies require “mining”, which consumes a lot of energy and other costs, making cryptocurrency incremental very limited.
This also means that cryptocurrencies cannot have the same scale and flexibility as fiat currencies, and achieve moderate “inflation” as needed, which does not conform to the issuance and circulation logic of fiat currencies of various governments.
Uniqueness
Cryptocurrency is a decentralized product. More and more market entities issue coins, and cryptocurrencies are in a competitive market. This also means that there is a mutual substitution relationship within the cryptocurrency, and users can choose any one. The legal tender must be unique and recognized by all citizens, otherwise it will not be able to be shared by the whole people. In this regard, the multi-supplier characteristics of cryptocurrencies are also inconsistent with the essence of a single supply entity of fiat currency.
From the above two key points, cryptocurrency cannot replace fiat currency, and its future belongs to small circles rather than the general public. After all, for most people, investing in a certain cryptocurrency may be like speculating in stock futures in the future, but it is never possible to use it as a market payment requirement.
