Over the past ten years, as the crypto industry has continued to evolve and mature, some proponents of the sector have said it could replace fiat currencies. However, many economic experts believe this is not possible.
The Growth of Crypto
Today, the crypto industry is worth hundreds of billions of dollars. That is significant growth compared to just a decade ago when it was worth close to nothing. Many people, especially Generation Z and Millennials have embraced the crypto sector. Despite this growth, some economic experts still doubt whether the sector has a future.
The Argument against Crypto as Legal Tender
Many economic experts argue that the entire cryptocurrency industry is driven by news and speculation. They argue that no fundamentals are underpinning the sector. According to these experts, crypto is minted via mining and is secured using mathematical algorithms. As such, there are no fundamentals attached to the sector. Consequently, they feel that the sector could come crashing at any time.
They point to the fact that some investors have seen their investment grow exponentially in just a few days. For instance, they point to the high volatility of Bitcoin, which can lose over 10% of its value in just a few days.
Bitcoin Cannot Be Used as Legal Tender
Economists argue that Bitcoin cannot be used as legal tender. The reason for this is that the monetary policy of a country is controlled by its central bank. As a solution to the continued use of crypto, central banks could launch their own digital currencies called Central Bank Digital Currencies. In fact, after outlawing crypto in China, the government has gone on to hold successful trials of a CBDC.
According to them, once CBDCs are launched, cryptocurrencies will become history. However, they note that the blockchain that secures crypto is good and could be used to secure the monetary system. These economists call for the regulation of the crypto sector to ensure that it is not used for nefarious purposes such as terror financing.
In some countries, severe measures are being considered for the crypto sector. For instance, India is planning to introduce a bill that will ban Indians from holding or dealing in cryptocurrencies. However, while such a bill would make it more difficult to transact in crypto to fiat, it would still be hard to ban the sector for those determined to use crypto.
However, India does not plan to ban all the technology associated with the sector. Instead, the government will still allow for certain use cases involving blockchain technology.
Can Bitcoin Be Used as Legal Tender?
While there is massive opposition to the use of Bitcoin as legal tender by governments, some governments have embraced BTC. One example of this is El Salvador. The nation plans to launch a Bitcoin City whose economy will run on crypto. The lessons learned from such a massive experiment could help to shape the view of others in the world regarding crypto and its feasibility as legal tender.