Yesterday, we looked at some of the many advantages there would be to a cryptocurrency economy. Among these were decentralization, no inflation, no production costs, no intermediaries, and more security. But there is also the other side of the coin to consider, so to speak. Today, we are going to look at some of the disadvantages of a cryptocurrency economy.
Fiat ‘hodlers’ would lose out
Fiat currency is still king, and many people are making a living off of trading in it. Depending on how the transition from fiat to crypto would look like, it could spell very bad news for those who rely on fiat money. Essentially every industry that deals with fiat money would lose a lot of assets during the transition. If a government transitions to cryptocurrency, it is easy to predict how fast the value of fiat money would plummet. This would not only be a domestic issue but a global issue, as all trade agreements would have to be renegotiated.
It would require a new infrastructure
Our society is set up to accommodate a system based on fiat money. Banks, ATMs, card readers, transport, online business, casinos, and the list goes on. In order to begin using cryptocurrency on a nationwide scale, all machines would have to be altered or exchanged for new ones, and all institutions would have to adapt. An entirely new infrastructure would be required in order for the system to work. Not only will this take time, energy, and resource to build, but it also has the potential to destabilize the economy during the transition period.
Entire industries would be in jeopardy
As with investors in fiat money, many other industries would have to change, if not disappear entirely. This means a lot of people would be out of jobs. All the middlemen and intermediaries would be made redundant, and all the transactions fees would be null and void. Given the decentralized nature of the system, many businesses would also feel like there were no longer in control of their own finances — or their clients’ finances.
Lack of control
In the previous article, we highlighted how decentralization would be safer and prevent manipulation that leads to inflation. However, depending on what the crypto-economy would look like, this could also be a bad thing. If a government-approved cryptocurrency did not have a limited supply, for example, then inflation is highly likely. Without someone who is in control of the economy, it would also be difficult to combat.
Lack of understanding
The world of cryptocurrencies can be confusing at times. Not only if there a lot of lingo one needs to learn in order to understand the discussions, but there are so many different kinds of tokens to keep track of. Which token should a nation-state go with? Bitcoin? Ethereum? Or one of the hundreds of other tokens out there? Maybe a combination? Who would dictate the exchange rates? While solving a lot of issues, a crypto-economy also has the potential to create many issues if these questions are not answered.