Fiat money and cryptocurrencies - history, problems and solutions
Fiat money and cryptocurrencies – what is the future behind, what problems may arise, and what is being said about it globally.
"Fiat" and "crypto" – how it was started
Our world is changing and developing, doing it quickly and dynamically. This affects all areas of activity, especially the one we use every day – the financial system. In this article, I will consider the modern monetary system: fiat money and cryptocurrencies, what problems they face, and how they can coexist.
Fiat money – what's wrong with it?
As children, we asked adults: "Why can't we print a lot of money so that everyone is rich?". And the adults tried to explain to us that money is secured and limited by gold reserves. Today, the situation is different, and fiat currencies are backed by countries' economic importance and authority, which directly affects their exchange rate. Roughly speaking, the value of fiat money (the term "fiat currency" itself came from the Latin word fiat – trust, which in this case is symbolic) is determined by the level of public confidence.
Today, the fiat currency seems to be the only monetary authority understandable to the state. Payment of taxes, payment of goods and services, bills, etc.– - these interactions with the condition are possible only when using fiat money. The legitimacy of cryptocurrencies today remains impossible, even though many states are already ready to accept digital versions of national currencies. At the same time, many financial analysts note that due to the population's low financial and IT literacy, the transition to the "crypt" will not be possible soon.
At the moment, it is much calmer to have fiat money because many national currencies are stable. The States undertake to accept them on the territory of the country, they are cheaper to produce (there is also an opinion that they are more environmentally friendly, since, for example, in China mining is the third-largest carbon dioxide emissions by industrial production) and are exceptionally rare in short supply. At the same time, among the disadvantages are lack of anonymity, transaction tracking, the likelihood of freezing bank accounts, and exposure to inflation.
Cryptocurrencies - better or worse?
Crypto enthusiasts, in turn, argue that the usual financial system requires improvement. Among the advantages of cryptocurrencies, they note anonymity, speed, and cheapness of transactions, cross-border transfers that are not limited by barriers, full ownership of assets, lack of government regulation, and payment of taxes. Many financiers note that cryptocurrencies can set new financial models – more advanced, simplified, and modern.
How did the world find out about "crypto"?
In 2009, a certain Satoshi Nakamoto published a "white paper" of a fundamentally new type of currency called Bitcoin. The article was about a peer-to-peer payment system and its principle of operation. So the whole world learned about the "cue ball" as a possible alternative to fiat money.
Satoshi Nakamoto identified the main goal of bitcoin – the creation of an alternative financial system, more perfect, excluding financial transactions of intermediaries (banks, payment systems, etc.). The main task is the ease of use, security, the ability to send digital money to another user quickly and anonymously. And if in 2009 this idea seemed to be something dangerous, illegal, unreliable, and having no future, today even the most remote people from this topic know about bitcoin. In addition to the "cue ball", other cryptocurrencies are also represented on the market, which is perfectly "squeezed" into our normal life. Today, most cryptocurrencies are used for passive income (sale and purchase), trading on the stock exchange, storage, and transactions (among which salary ones are also noted).
Many celebrities and opinion leaders often and loudly mention cryptocurrencies. Elon Musk likes to "speculate" on the DogeCoin cryptocurrency, forming the price on the market. He also called cryptocurrencies the best way to transfer value "as opposed to a "piece of paper"." Former Twitter CEO Jack Dorsey has declared his faith in bitcoin, saying that this coin will become the only global currency in the future. Rapper Jay-Z has allocated 500 bitcoins to create a fund exploring the possibilities of expanding the scope of this cryptocurrency.
Today, owning a crypt is prestigious and modern. People create thematic channels and chats, communicate in the appropriate communities, and see the future behind it. Many see the most promising industry as DeFi, which has absorbed all the "classic crypt" advantages. But is DeFi so flawed?
Problems of the DeFi world
Cryptocurrency and the world of decentralized finance, based on the above, have a number of advantages. Still, it should be noted that there are some difficulties that determine even more disadvantages. The high volatility of cryptocurrencies, the complexity of scaling, insufficient decentralization, and poor user experience - all these problems stand in the way of the adoption of cryptocurrencies by the world like a high stone fence.
The number of blockchain networks is growing along with the development of cryptocurrencies – which is good and bad at the same time. Each new project creates its ecosystem – one of the pieces of a vast DeFi puzzle. It's almost impossible to put all these many pieces of the puzzle together – they don't fit together. This is precisely the problem of using decentralized finance.
To solve this problem, developers are creating platforms that should ensure the compatibility and interaction of blockchain networks. One of such supra system projects is EYWA, which differs from the rest in the perfection and simplicity of the developed protocols using liquidity hub chains. The main goal of the EYWA project is to unite all blockchains based on smart contracts into a single ecosystem. The developed protocols will allow blockchains to interact seamlessly with each other in the field of liquidity distribution, community formation, development, and technical integration of various DeFi protocols. These solutions, despite the possible complexity in explanations, are designed to ensure the ease of use of cryptocurrencies, which will make the world of DeFi more accessible to the entire population.
Central banks in most countries consider cryptocurrencies the next step in the evolution of money. And despite the fact that cryptocurrencies themselves exist in semi-legal status (except adoption in countries such as El Salvador), CBDC (such as digital yuan or ruble) is actively developing. This means that the adoption of cryptocurrencies and a paradigm shift await the economy not just in the foreseeable future but until 2030. In turn, considering the EYWA platform, we conclude that this approach will allow developers and users to fully integrate cryptocurrencies into everyday life and simplify their movement between blockchains.