Will Bitcoin ever replace fiat? This question has made the rounds on more than just a few online forums, mostly cryptocurrency related, admittedly. The debate is real and the opponents are often programmers versus armchair economists.
Fiat, or government-backed currency, has been a feature of city-states, kingdoms, and countries now for over a thousand years. The battle is a truly epic showdown between the establishment and the relentless advancement of technology.
A comprehensive analysis of the pros and cons of each would probably take weeks to write. Instead, let’s take a look at a few fundamental differences between the two systems and see if any conclusions stand out.
The Inflationary Model
Most fiat-based systems today are built on the back of a potentially infinite money supply. Modern banks use a system known as fractional reserve banking. In this system, banks can lend actual client deposits to other clients up to a certain level. The remainder needs to be kept in the bank as reserves in case a depositor would like to…