Traditional money that is issued by the governments is considered reliable and necessary to live our daily lives. It helps us buy daily essentials such as food, clothing, rent, transportation and other services.
We can’t dream of getting by without money whether it is in the form of cash or plastic cards. The main reason why we are so dependent on fiat money is because the government has a monopoly on it and they’ve ensured that any alternative form of tender is eliminated from the market. However the need for government money is being challenged by cryptocurrencies for the first time in our lives.
Traditional Money and Inflation
No matter where you live in the world, there is one thing that holds true for traditional fiat currency. The government issued money loses its value over time. This is because as the need arises, the government prints more money to go into circulation.
As the supply of money increases in the market, its price or value decreases. You cannot expect to buy the same amount of goods today for one dollar that you could have bought two or three years ago. This is one of the fundamental features of money. As money supply increases, its value decreases.
Individuals and people who want to save money cannot control the supply in the market. It is determined by the central banks, such as the Federal Reserve in the case of the U.S.
Imagine holding your savings in a currency that is going to decrease in value over time no matter what you do. People simply have no say in how much money can be printed by the government each year. Apart from the Fed, no one even knows for sure how much money gets printed and added to the market every year.
Cryptocurrency and Limited Supply
The erosion of currency value and inflation slowly keep chipping away at the value of money that people save in their accounts. This is why interest rates must be maintained above the rate of inflation.
After the 2008 crisis, the Feds dropped the interest rates to incredibly low level. Businesses and savers realized that it was no longer worth saving their wealth in dollars.
Many private Chinese businesses and the government of China held a large amount of dollar reserves through their trade surplus. Foreign governments, businesses and individuals turned to gold during 2011-2013 as it was less susceptible to inflation. As a result, the gold prices rose to phenomenal levels during this time due to high demand in the market.
The demand gradually shifted towards cryptocurrencies after 2013. The digital coins present a great way to save money and invest for a long term. They are also far more liquid than gold.
Cryptocurrencies completely remove the need for a banker or middleman to maintain accounts. There is no government involvement and inflation is capped to a maximum limit, such as 21 million coins for BTC.
Transactions can take place instantaneously and the P2P system is incredibly secure. The issue of high fee has also been resolved and transaction costs have been reduced to a mere fraction of a dollar.
A blockchain based payment system completely removes the need for government control and authority and gives us true freedom over our finances for the first time in history. It allows for building an open-source and transparent system that can be trusted by people in a mutually cooperative way instead of being forced upon people like the government fiat currency.