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Bitcoin Simply Cannot Replace Fiat

Published on November 9th, 2013 by johnd
By John Delono [caption id="attachment_1550" align="alignright" width="300"]Img credit: Flickr Img credit: Flickr[/caption] Bitcoin is an innovative idea that brings the concept of currency ownership to the peer-to-peer world. For many people, the idea behind it is to decentralize the financial system, allowing all of those who are holders to have full control over their finances. However, it's very unlikely that the world will ever fully switch from using government-issued money to using Bitcoin. Why Fiat Rules Fiat rules the world because it's what people are used to. Everyone has fiat in one way or another, whether it be in actual coins and dollar bills, or credit. After all, we all have bills that have to be paid, and essentials that are required in order to continue living in today's society, and all of these require payments to be made in fiat in one way or another.The financial system is an old one, and it has no real barrier to entry: there is no real technology required (aside from on the printing aspect, but we are dealing with transactions only) and it is completely anonymous. If you have cash and you buy something from another person, the only trails that lead back to you are those you leave on your own. I agree that Bitcoin is intrinsically valuable, and useful (for purposes such as online payments and provably fair gaming), but the chances of it taking over the fiat world are pretty much non-existent. Bitcoin is Technology-Based Bitcoin, unlike fiat, has a pretty big requirement: technology. Transactions are made via the network, which requires Internet connectivity, and it also requires many other computers to be willing to accept the transactions and put them into blocks. If either of these did not exist, the concept of Bitcoin would be gone. While the chances of this happening are pretty slim, that doesn't change a major fact: those that live in places without good networks and those that do not have the technological knowledge to handle their electronic currencies are not going to mesh well with the concept. While this is often attributed to just being third-world countries, it actually encompasses a lot places; even the United States. While technology is a great thing and it is moving fast, it doesn't change the view people have. For example, there are many that simply do not trust technology for fear of things like being spied on or identity theft. Others simply do not want to learn or are not at a point anymore where they are able to learn how to utilize it. To take it a step further, out of the people that do use technology on a regular basis, there are still some pretty big issues with the Bitcoin atmosphere. Many people who have lower skills and knowledge of the internet tend to have more negative perceptions about it. Bitcoin is Complex When looking at the complexity of Bitcoin, it is not really in the sense of how hard it is to send from one person to another. While this is considered as an issue, it is being resolved by working on new applications that are familiar to consumers (replicating the feel of other applications we already use with the fiat world). Instead, the complexity is in understanding how Bitcoin truly works. In this, there are essentially two groups of people: those who trust that it does work and therefore don't care how, and those who need to know exactly what's going on. After all, if we're dealing with currencies, it's important to know what is going on with your money, right? Even with the white papers and the source code to Bitcoin being open source, that isn't much help to the vast majority of the population. It is difficult for many people to grasp fundamental concepts, such as the blockchain, and mining. Reading and understanding what is going on are two very different things, and it ends up leading to confusion as to how things work. It can be difficult to explain how Bitcoin works to someone who is not familiar with it. This ends up leading to a lack of real understanding, whereas we don't face that with our fiat. With fiat, it's as simple as having something tangible that you are physically handing to another person. There are no digital wallets, or alphanumeric addresses. Bitcoin, being entirely online, is the opposite. Bitcoin holders do not physically have anything (even if they are holding one of the Casascius coins); the blockchain does. As such, it leads to its own issues, as many people like to think physical access to their holdings is more secure. Volatility and Finances Bitcoin is a very volatile currency. There are major price swings (whether it be up or down), and this can even happen on a day to day basis. While someone might hold $1,000 in Bitcoin right now, it could be worth $2,000 or $500 in a short amount of time. The Bitcoin market really is unpredictable, and unstable compared to most government-issued currency markets. So why is this important? Unless everyone changes over to Bitcoin, it still has to be tied to fiat in some way. If someone is running a store and they accept Bitcoin but their suppliers don't, they will have to exchange it to fiat at one point. The volatility is therefore a bad thing, because if the value were to go down, the store would not be able to sustain their orders and could go out of business. Furthermore, imagine saving up enough money to pay off your monthly mortgage. You send off the payment, only to find out that the price of Bitcoin went down, and you no longer have enough money to handle the costs. Many people I know have decided not to use Bitcoin, because of the volatility. It is things like this that are major barriers for moving to a Bitcoin-based world, especially for people who only want to use it as an alternative to cash. Conclusion While Bitcoin will not be able to compete with fiat on a direct level for world-wide currency usage, it is on the right track to becoming more viable. As time goes on, the infrastructure is being strengthened (by increasing hash rates, which increase the security of the network) and the adoption rate is slowly increasing. More people and businesses are joining the Bitcoin network daily, increasing both the spread of wealth and the uses that Bitcoin has. Along with this, new programs are continually being developed that work to make Bitcoin more user-friendly so that even those that are less technical are able to utilize them for both sending and receiving without too much of a hassle. All of these things working together are ensuring that Bitcoin is getting bigger and better every day, and new limits are constantly being reached (and passed). However, Bitcoin simply cannot sustain itself as the only currency that is used from day to day. There are just too many hurdles to cross and too many problems along the way. As a way to send money over the Internet quickly, and safely, though, Bitcoin is an excellent choice!

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