Crypto is Not Perfect, but Neither is Fiat

Crypto is not perfect, but neither is fiat. This is the main argument that many crypto enthusiasts use to defend their preference for decentralized digital currencies over traditional government-issued money. But what does this argument really mean? And is it valid?

I will try to examine the pros and cons of both crypto and fiat and explain why I think neither of them is perfect, but both of them have their own advantages and disadvantages. I will also discuss some of the challenges and opportunities that crypto faces in the future, and how it can coexist with fiat in a more harmonious way.

First of all, let’s define what crypto and fiat are. Crypto, short for cryptocurrency, is a type of digital money that uses cryptography to secure its transactions and prevent counterfeiting. Crypto is not issued or controlled by any central authority, but rather by a network of computers that follow a set of rules and protocols. Some of the most popular examples of crypto are Bitcoin, Ethereum, and Dogecoin.

Fiat, on the other hand, is a type of money that is issued and regulated by a government or a central bank. Fiat derives its value from the trust and confidence that people have in the issuing authority, and not from any intrinsic or physical property. Some of the most widely used fiat currencies are the US dollar, the euro, and the yen.

Now that we have established what crypto and fiat are, let’s compare them on some key aspects:

Security: Crypto is generally considered to be more secure than fiat, because it relies on cryptography and mathematics to ensure its validity and integrity. Crypto transactions are recorded on a public ledger called a blockchain, which makes them transparent and immutable. Crypto also eliminates the need for intermediaries or third parties, such as banks or payment processors, which reduces the risk of fraud or theft.

Fiat, however, is vulnerable to counterfeiting, inflation, corruption, and manipulation by the issuing authorities. Fiat transactions are often opaque and subject to censorship or interference by intermediaries or regulators. Fiat also requires trust in the stability and solvency of the issuing institutions, which can be eroded by political or economic crises.

Accessibility: Crypto is more accessible than fiat, because it can be used by anyone who has access to the internet and a compatible device. Crypto does not require any identification or verification to use it, which makes it inclusive and empowering for people who are unbanked or underbanked. Crypto also enables cross-border transactions without any fees or restrictions.

Fiat, however, is less accessible than crypto, because it requires a bank account or a physical location to use it. Fiat often imposes barriers or limitations on who can use it, such as age, nationality, credit score, or income level. Fiat also charges fees or taxes for transactions, especially for international ones.

Volatility: Crypto is more volatile than fiat, because it is influenced by supply and demand dynamics in a relatively new and unregulated market. Crypto prices can fluctuate significantly in a short period of time, due to factors such as news events, market sentiment, innovation, adoption, speculation, or manipulation. Crypto also has a limited supply (in most cases), which makes it susceptible to scarcity or deflation.

Fiat, however, is less volatile than crypto, because it is backed by the authority and reputation of the issuing institutions. Fiat prices are usually stable and predictable in the short term, due to factors such as monetary policy, fiscal policy, inflation targeting, or exchange rate regimes. Fiat also has an unlimited supply (in most cases), which makes it prone to oversupply or inflation.

As you can see, crypto and fiat have their own strengths and weaknesses. Neither of them is perfect, but neither of them is worthless either. They both serve different purposes and cater to different needs in different contexts.

So, what can we do to make the best use of both systems?

One possible solution is to use crypto as a store of value and fiat as a medium of exchange. A store of value is something that can preserve its purchasing power over time. A medium of exchange is something that can facilitate trade and commerce.

By using crypto as a store of value, we can protect our wealth from inflation and devaluation caused by excessive money printing or currency manipulation by governments or central banks. By using fiat as a medium of exchange, we can enjoy the convenience and stability of transacting with a widely accepted and regulated form of money.

Another possible solution is to use crypto as a medium of exchange and fiat as a unit of account. A unit of account is something that can measure the value of goods and services. A medium of exchange is something that can facilitate trade and commerce. By using crypto as a medium of exchange, we can benefit from the speed, security and privacy.