Impact of Cryptocurrency on Dollar

0
160
impact of cryptocurrency on dollar

In today’s world, when we are dependent on the internet for most things or almost everything, Currency cannot be left behind.

Paper currency is bound to be a thing of the past, as virtual currencies will start taking over and bitcoin is well poised to achieve this feat. Not only will it revolutionize the way payments are made, but also have the potential to impact the future of world currencies like USD.

The rise of cryptocurrencies will add a new dimension to this challenge for the US dollar.

What is a dollar?

The dollar is a medium of exchange that is an established or trustworthy option to receive or exchange goods and services.

In America, you can directly be paid in dollars for your work.

Currently, the US dollar dominates the world’s financial system.

The US dollar holds on the international market.

The dollar accounts for some 62% of the global central bank’s foreign exchange reserves.

Will cryptocurrencies affect the dollar?

While cryptocurrencies are used, they are not being completely used as a means of exchange. The daily volume is minor compared with their market cap.

The dollar’s decline after surging at the pandemic’s onset bolstered other reserves when measured in dollars.

The future of money might be a digital version of the cash that’s already in people’s wallets – potentially spending the currency system that the world has known for many decades.

Such a future of course might be a disappointment to many libertarians and tech-savvy investors who are pinning their hopes on private cryptocurrencies such as bitcoin.

Instead, central bankers and governments – the entities that cryptocurrency bankers hoped to render obsolete – are increasingly warming to the idea of “digitizing” their national currencies.

That is, they would issue money that would exist only virtually, without a paper or coin equivalent, and be universally accepted as a form of payment.

Central banks such as the federal reserve already issue digital money for those who have accounts with them.

Bitcoin is also starting to make progress.

Last year, after mounting for decades US debts to the rest of the world surpassed 50% of its economic output – a threshold that often signals a coming crisis.

The US and other governments show enthusiasm for reining in the mounting deficits.

Today, most Bitcoins are held as an investment not used to pay bills but that is changing.

Tech-savvy people are not likely to stop looking for alternatives until they find or invent one and stepping in to regulate the currency boom, as some governments are already considering, may only accelerate this populist revolt.

But without a centralized way to protect cryptocurrencies from being stolen or hacked, consumers will not have the confidence in exchanging the US dollar for bitcoin. There is no FDIC insurance for bitcoin and nothing that guarantees your bitcoin against theft.

Without the ability to see all transactions and where they are coming from, it creates a tremendous risk of money laundering as well.

This would allow for terrorist funding.

The block ledger uses “codes” to name buyers and sellers of cryptocurrencies. Many people believe that a huge amount of bitcoin transactions come from illegal money movement and the government’s inability to track money flows.

The IRS had a hard time collecting taxes on these gains as most of the cryptocurrency exchanges do not report cost basis.

The other thing to consider is the number of carbon emissions used in bitcoin mining is dramatic. So, there are a lot of hurdles in the way of this concept going mainstream, especially with a big push to stop carbon emissions.

Bitcoin is not a medium of exchange. It’s merely a new method for transacting in dollars, and we know this because bitcoin-dominated prices change based on the dollar price of bitcoin.

If the dollar falls, bitcoin will too lose its value.

A stable bitcoin price can only be obtained by a stable dollar price, and even then Bitcoin would still only be a way of transacting in those same dollars.

Though Bitcoin has the potential to satisfy all the functions of money, bitcoin users expect them to replace paper currency in the long run while Central banks and monetary authorities have been worried about the increasing adoption of cryptocurrencies.

Conclusion:

Although bitcoin is increasingly used as a medium of exchange, it is highly debatable whether it will ever function strongly enough as a store of value and unit of the account given its highly volatile nature.

Bitcoin also fears stiff competition from central banks and countries that would be highly reluctant to forgo their dominant positions as issuers of fiat money.

“Bitcoin will be pertinent as means of payment and an alternative asset, but it is improbable to displace the US dollar”.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.