Vitalik: Cryptocurrency Will Not Replace Fiat

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(Edited)

Vitalik Buterin, one of the founders of Ethereum, certainly is causing a stir with this one.

Many in the world of cryptocurrency believe we are seeing the replacement for traditional currencies. Those who are holding onto the USD, EURO, and YEN are going to be losers is the mindset.

Of course, we have the Bitcoin Maximalists who believe that everything will be Bitcoin in the future. This is a notion that Buterin disputes.

His view is that fiat currencies are not going anywhere. Cryptocurrency is going to exist alongside them but they will not replace them.

It is a sentiment we touched upon in the past.

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Source

Understand Thy Enemy

The unfortunately reality is that most really do not understand how the traditional financial and monetary system operates. Instead, they form a viewpoint based upon what they believe to be true.

For example, how many know anything about the Repo market? You would think this a central premise of the framework in one's financial modeling. It is, after all, the largest source, by a wide margin, of lending.

Yet few pay any attention to it.

He opined that monetary policy is a complicated matter, hinting that one should not blast traditional currencies without first understanding how they work.

A lot base their view on the idea the US Dollar is going away. The reality is the USD is not likely to be destroyed. There are tens of trillions in transactions in that unit of account along with hundreds of trillions in holdings. When half the global debt is denominated in USD, that means a lot of payments creating a network effect for the currency.

That said, there is a place where all of this is going to have major impact.

The Digital World

Vitalik went on to state:

“I do not expect cryptocurrencies to take over the world. It’s about cryptos and digital and governments.”

Source

This actually makes a lot of sense.

Government are going to control what they can. Until they are replaced via the transformation to the decentralized network-state, we are still going to have their oversight. Fiat currency is what they spent decades regulating. They are not about to stop.

However, the digital world is a completely different animal. Governments really do not excel at this level. Instead, they try to apply outdated laws that were constructed when most of our lives were physical. We were not operating in the virtual realm when our government system was formed. Over the last 30 years, some of the flaws in that were brought to light.

Cryptocurrency is the monetary system for the digital realm. It was created in this environment. Therefore, the financial aspects will result in DeFi taking over everything. This does not mean that all is necessarily cryptocurrency.

It is common to think about currency from the viewpoint of payments. Certainly that is one attribute but a small portion overall. Throughout the last few months, we explored different portions of the wholesale banking system and how that actually operates. Here is where cryptocurrency is going to make an enormous impact.

Blockchain allows for a transformation in property rights. The immediate impact of that, which Buterin brought up, is with digital assets. These can instantly be collateralized, allowing for expansion of the global monetary system.

Stablecoins Extend Monetary Policy

Stablecoins are coming under a great deal of fire. For the moment, they are not very stable. However, as more is experimented with and the size of the market grows, these could end up being utility coins that allow for easy payments.

It is ironic but stablescoins can actually extend the monetary policy as it pertains to the traditional currencies. Even if they are only operating as a unit of account, the stability of the fiat currency is enhanced by the expansion of associated stablecoins.

In the past, we focused upon a few areas: collateralization, derivatives and funding/investing. These are the aspects where cryptocurrency can provide more stability, especially via stablecoins.

Since most are tied to the USD, this will further the depth of that currency.

Change In Distribution

The one area where we will see major change due to cryptocurrency is distribution. Probably the biggest challenge with fiat currency is the fact that it is poorly distributed. The mechanism utilized results in pooling of the money in the hands of a few.

With cryptocurrency, we have the ability to keep expanding which equates to furthering the distribution. While one could claim that Bitcoin or Ethereum is only in the hands of a few people (relatively speaking), the same is not true for all cryptocurrencies.

We also have to expand the focus to include all digital ownership. Here we see NFTs and, eventually, DAO tokens entering the picture. We could also see a massive shift once social tokens are introduced.

The problem with the existing system, for the major currencies, is new money is created by commercial banks making loans. Hence, an individual (or business) needs to take on a large debt burden to acquire some of the new money created. Since they are not able to engage in bonding as a means of raising money, we see how the system is quickly skewed.

Cryptocurrency changes this. We will see the point where most assets tied to a blockchain can be further capitalized. This will give the owners new means of capital formation which is presently excluded.

Therefore, while cryptocurrency will not likely replace fiat, we are going to see a massive expansion of the monetary and financial system outside of that. We are going to see more transactions done via cryptocurrency, even if through stablecoins. The wealth generated over time is going to end up being utilized for even greater wealth creation.

Cryptocurrency will not replace fiat. Instead, it will be orders of magnitude larger.

We already know that reserveless, bank money is much larger than fiat currencies. Cryptocurrency offers the same potential, this time without the banks.


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Everyone has an opinion they are entitled to, cryptocurrency would be out there in time but I think fiat would still exist to make spending interesting.

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My opinion won't change anything, lol, but. I absolutely agree with him. the crypt is regarded as the enemy of fiat, but, in fact, it is an excellent assistant, like a railing at the stairs, which makes it easier for us to communicate between floors.

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To me, cryptos biggest target should be the shadow money aka Eurodollar system.

That is where it can take over. And the numbers are much bigger.

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I don't know if it's okay to say everything out loud, lol, but this is the goal of many. Undoubtedly, however, this is a corridor for both interested parties, but also for those who want to nip it in the bud, which can jeopardize a lot.

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If we think of other variables than what Vitalik said, there are less upside to crypto completely replacing FIAT.

Singular govt and singular currency for entire world can be a threat for many religions and cultures. I mean we are already being under attacks from certain religions every now and then. And on the top of that if singular currency happens then attacks would be lot regular and brutal among the borders. World is definitely not going to be united under one govt and it's not a good sight either especially when we all know - china has the power to put down both US and Russia and they trying to sit on throne of the world is bad for the world.

My 2 cents.

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Money tends to pool, especially the more fixed it is. For that reason, crypto offers a solution since it can expand or contract as needed. We now have 20K cryptocurrencies out there. Granted most are worthless and have no utility. However, some of them can be ideal for collateralization along with payment systems.

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This is quite realistic. Cryptocurrency is digital money so it will be best used to power the digital world as a means of transactions.

The digital world is projected to be more expansive that the physical/traditional world, so cryptocurrencies will be much bigger than traditional currencies.

Cryptocurrency wouldn't replace fiat but it will break limits that fiat couldn't.

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I think collateralization is a much bigger use case for cryptocurrency. It is something that is desperately needed. Therefore, the platforms that can offer that will do very well.

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Cos too many people who control fiat, are probably sucking his D!cK so that he says stuff like this... I mean, when he cashes out his founders stake, he turns it into fiat.. sooo if I were him, I'd say that stuff too.

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Who controls fiat? Please share who is in control of the Eurodollar system?

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the banks, government, federal reserve, IMF, and organizations like that.

idk who controls the euro dollar, I assume its a similar situation.

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if a government or organization can barrow or lend money on a whim and without consent or recourse by the people, than I'd say they control it.

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Stable coins might have a considerable chance of at least trying to challenge the dollar and even the euro. Circle has already announced the creation of EUROC. It remains to be seen how much will crypto be able to disrupt the dollar. I personally wish we would rather have stablecoins than fiat currency but wishful thinking doesn't solve much in crypto.

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Stablecoins tied to USD are only going to enhance it, if for no other reason as a unit of account. This is going to continue for some time.

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Agreed that crypto "will be orders of magnitude larger."

There are many of us that want to live outside the control system but also take advantage of some of the conveniences or value the system offers. It appears obvious that CBDC or fiat will be needed to access these conveniences and valuable products/services.

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CBDC, in my view, is a bunch of hot air. Countries are going to realize they do not get much bang out of them. After all, most of the USD and EURO are already digital.

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They are not looking for a bang, they are looking for control. I listened to Agustín Carstens, from the Bank of International Settlements, and it is all about control. Controlling peoples spending.
How much you spend on food, alcohol, medication, etc.
They will come and they will tighten controls over time for our own good. LOL
This is why DAOs and privacy cryptos are vital to building an alternative or additional economy. IMHO

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I agree I don't see it replacing Fiat at least any time soon there are major issues with it still. That however doesn't make it any less valuable. There are still huge benefits with it over the fiat system which provide it's demand and wealth. Interested to see what triggers the next bull run this last one was focused on gaming, defi and NFTs

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Bull and bears do not really affect the utility or use case. So depending upon that to clarify the situation doesnt really amount to much in my opinion. The bear can clean out the excess and garbage but that is all.

In the end, it is the development of different systems that will provide the utility. Sadly, since most dont know how the monetary system truly operates, they really are left trying to figure something out without knowing what is going on.

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The thing is that fiat is already available in digital form (via credit cards, debit cards, etc.) and has been for quite a while now. Most fiat is just numbers in a computer. Sure, crypto may handle that a lot more elegantly but from an end users point of view that hardly matters (for most anyway). The other advantage of fiat is the ability to transact with physical money. I know a lot of people think that will go away and that seems to be in the direction we are ultimately headed but I think it will be a long time before the need and desire for physical money goes away completely. If governments yank physical money any time soon then people will be transacting in silver and gold again.

Crypto is incredibly useful and I don't think it is going anywhere but it has a very long and difficult road to travel to replace fiat completely.

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Most over looks checks which are still a sizeable portion of USD transactions.

That is nothing more than ledger technology ie digital.

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I like the fact that we have alternative form of money, even though cryptocurrency is unlikely to replace fiat, being able to transact with cryptocurrency in quicker manner and of course without middlemen will be appealing to some if not majority.

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That is one use case. The bigger is the collateralization. Just think about taking HBD and being able to collateralize that through a bond into a loan.

That could really alter things completely.

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I believe that cryptocurrency operations are a kind of complement for us, we can work and continue with our lives normally either with paper money or cards, but cryptos are here to stay and be more of an option.

I believe that in the future, physical money on paper, if we can summarize this way, will be discontinued, so we will be able to pay for everything like in fiction films: the money is kept in a bank or wallet and we will pay for everything with that money there, away from you, using cell phone apps, cards, smart watches, crypto, among others.

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Crypto can be fiat and issued by the government, if the system remains status quo. Fiat is here to stay.

Until the government as we know it evolves at some point and we could also be using a system that we have not yet conceived.

Decentralized crypto and fiat (crypto) can co-exist, but the power that wants to control everything will try to do something about crypto they can't control.

Control can simply be guarding the on and off ramps and impose restriction through laws and regulations.

But the outcome will still be an inconvenient parallel economies for quite some time. As long as people want to use it, there will always be a system whether it is the black market, barter system, or the innocent trading the brownie points among friends and those who have those points (crypto)

Value is just what people believe, and to control crypto, there are many vectors to attack to weaken those views. Like through market mechanisms (paper markets - futures and derivatives), as we have seen in gold and silver, and now Bitcoin and Ether.

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Well governments dont control fiat so I am not sure that people who believe this are on the right track. The USD is outside the central reserve or USG. It is in the hands of the banking system, and not just commercial. For this reason, it is internationally traded and amounts to hundreds of trillions in transactions.

That is not going to wane anytime soon.

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(Edited)

I don't get it... are not Govt.'s saying they don't want crypto coz its undermining financial stability, they kind of lose control, or power because people own a decentralised currency that they do not control.

Second, why won't USD decreapreciate, its happened with many fiat currencies?

First the Govt. has too much dept, defaults likely to happen...over printing, inflation everything is out of control!!

Fiat currency will fall... and fiat currency represents this power of Govt. and through CBDCs they want to survey our finances... track them... kill our privacy!!

USD's days are numbered... we have to watch!!

INR will fall... many other currencies will fall, starting with fiat currencies of countries that are meserable...economically, politically, socially...

Fiat currency is toilet paper, backed by nothing but trust in the Govt. that has too much power and misusing it... its absolutely sick!!

anyway... we really need a decentralised asset, like Monero more than Bitcoin to be safe from govt. control, and harassment...

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Sadly this narrative really doesnt grasp what the USD is.

The USD has nothing to do with the government. They do not create it nor do they expand or contract it. That is the role of the commercial banking system. Have you ever heard of fractional reserve lending? That is where the money supply comes from.

As for crypto, it is like the Eurodollar system. That is outside the reach of any government or central bank. They have no input into what goes on there. The Fed knew it lost control of money 50 years ago since the wholesale banking system took over.

People think they understand what the monetary system is which, sadly, is not the case. It is not the garbage that we were taught in Economics class or what is promoted on CNBC.

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I think most, if really honest, will agree with Vitalik Buterin.

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I would say most of crypto disagrees but that is okay. We will see how it all unfolds.

For now, the calls for the demise of the USD appear premature.

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I think the people who disagree here are fooling themselves... But time will tell =)

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Vitalik openly supports replacing Mothers with AI controlled artificial wombs. He is not grounded or balanced enough to guide humanity and should be avoided in every way possible.

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People didnt believe that we could do test tube babies or clone sheep and we did. Who knows what these transhumanists have in store for us?

Perhaps it wont matter since we will all be uploaded to the cloud and just surf there without bodies.

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That is a path driven by psychopathy, unconsciousness, denial and basically evil. Plenty of people will choose it and they will be destroyed as souls. They won't notice it though as they already deny that they are soul to begin with.

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FIAT digitalised alongside crypto is where we are heading and they will work alongside each other. I for one never expected to see FIAT disappear but it will only be used by those who have to stick by it. Things are changing at a hectic pace and this is good for everyone as this at least gives us choices.

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Fiat currency is a competitor to privatized, decentralized cryptocurrency. Competition is a good thing.

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Instead, they try to apply outdated laws that were constructed when most of our lives were physical.

Well, unfortunately, they are bringing new laws to regulate cryptocurrency with a goal to take profits in the name of tax, without contributing anything to it. Instead, if they allow it to be used as an alternative currency, it can change many lives.

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I completely agree with you. The USD isn't going anywhere and I believe it will still be around far into the future. It's the easiest way for people to value assets and the Fed/government has never defaulted or had rates go negative.

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Yeah I think that crypto is going to exist in tandem with fiat the way it does now. It’s going to be hard to let go of fiat and transform it into some type of crypto and certainly the old money doesn’t want that because their values are in the old way not the new, for the most part. Rightly so in many ways, because you don’t want to upend things that are highly fluctuating the way crypto is. Stablecoins are sort of stable but not as stable as something like USD looking at a 10 year window.

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I don't think it is possible to have fiat cease to exist. I think the same about crypto... certain projects for sure will cease to exist, but many are here to stay. I see many people "living" and working in a digital state as opposed to a geographical one. Full time Hiver's already exist. I expect to see more of that in the future.

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the stability of the fiat currency is enhanced by the expansion of associated stablecoins.
In the past, we focused upon a few areas: collateralization, derivatives and funding/investing. These are the aspects where cryptocurrency can provide more stability, especially via stablecoins.

This is very true. Though I would day that I'm kinda new to the Crypto and blockchain space, I would like to add that the government are well aware of the opportunities in the Crypto world that could lessen their influence and control over the economy of their nation and it's citizens, that's why they would want to do everything possible to hinder the complete dominance of Crypto over fiat unless they have a change of mind. If they were fully in support of it, Crypto would have dominated the traditional monetary system in most part of most countries. Thank you so much for sharing this with us 😊😊🙌🙌

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