Can crypto really replace government-issued money?
Today, almost everyone knows ssomething about cryptocurrency. Everyone has at least heard about it. In the fintech industry, cryptocurrency has a significant place and is constantly driving development of new services and solutions based on blockchain technology. Some are supporting this trend, while others are still trying to slow down its development of crypto companies.
Despite all this, everyone agrees that crypto is here to stay and is unlikely to disappear. As the market value of Trump coin fluctuates, we will discuss the basic concepts in crypto and understand its role in the modern financial system.
Fiat and Crypto: fundamental difference
Fiat money (or government currency) is a payment instrument issued by the government state, officially accepted as a means of payment, having value and an expression of that value. Money circulates within the country, fulfilling its primary function: purchase and sale of goods, and mutually beneficial exchange of value. Until recently, one of the most important features of money was its physical existence, i.e., banknotes or coins. You could touch money, store it in a "hard" form under your pillow or in a storage, and conduct transactions with paper money of any denomination.
Cryptocurrency, on the other hand, is a virtual asset that no one has ever seen. Crypto has no physical existence and cannot be touched or placed in a storage. This very feature often causes bewilderment and even some fear, as people wonder if such money has any value since we cannot see it. But that is not entirely true.
Is cryptocurrency can be considered as money? Yes, it can.
Although some countries try to deny this property, calling cryptocurrency securities or "digital investment assets," the ability to conduct transactions in crypto exists, and it can be used to purchase goods or services. And that is what makes something money. The presence of real value and an exchange rate relative to other stable values.
An important aspect of creating cryptocurrency was the principle of decentralization, which allowed for avoidance of total control over the issuance of coins and their free movement in the market. However, times of anonymity and decentralization are gradually becoming a thing of the past, and the world is increasingly moving towards regulation and full control of crypto.
The need for this arose naturally — interest in cryptocurrency among ordinary users is growing, so it is necessary to understand what it is and how it works. Most countries in the world have already taken a position in this regard, legally determining what crypto is for them. Some countries are more liberal; for example, El Salvador even keeps state funds in Bitcoin. However, a number of other countries, such as European Union, see cryptocurrency as a threat to concealing income and are trying to create regulations that will help track the owners and origins of cryptocurrency in the EU. Thus, anonymity will be minimized, and all transactions will be subject to verification and taxation.
MiCA and USDT: what's next?
Until recently, different local regulations on cryptocurrencies existed in Europe, and countries independently regulated this area, making decisions for themselves on whether to support or restrict the industry. However, new European crypto regulation MiCA (Markets in Crypto Assets) is designed to bring common order to crypto exchanges and, coming into force on December 30, 2024, immediately sparked controversy among industry representatives. Although the goal of introducing the new law sounds very positive — standardizing the rules for working with cryptocurrency, making industry more transparent and understandable, which should primarily protect individual users — some negative aspects were still identified. Europe plans to introduce a number of stricter requirements for businesses operating with cryptocurrency, which will entail significant costs and operational changes.
MiCA primarily requires crypto companies to:
- Have more transparent processes and comply with all requirements, which will be verified.
- Implement serious AML protection measures and KYC for users, without exception.
- Comply with standards for the issuance of stablecoins and their guarantees.
- Obtain a new MiCA license to conduct any activity related to cryptocurrency, even if it is consulting.
Companies will have to provide more detailed information about all their activities and sources of income. An important issue of interaction between European exchanges and USDT remains in the air, as the most popular stablecoin in the world, Tether, didn’t comply with requirements of European regulator and didn’t provide access to confidential data for verification. This means that European exchanges will have to delist token and not provide possibility of its purchase, sale, or exchange until the Tether issuing company complies with all the rules.
Although Tether's initial statements were quite strict om that, today company's position has softened, and it is quite likely that some agreement will be reached. If USDT becomes MiCA-compliant, this will allow transactions to be resumed on all EU exchanges.
In conclusion, loud statements that cryptocurrency will potentially replace fiat money are far from the truth for a number of reasons that we have discussed today. Cryptocurrency, being an anonymous means of payment and initially decentralized, attracted significant interest from users and saw an increase in its value. However, most states do not like this type of payment method because it is not subject to control and opens the door to fraud and tax evasion.
Therefore, cryptocurrency, while standing alongside fiat money, is an alternative payment method or even an investment value for many users. Although the regulation of cryptocurrency brings it closer to wider adoption, need for verification and risk of significant taxes (as in the EU) may reduce user interest in crypto and prevent it from becoming the number one payment method.
