Do cryptocurrencies fulfill the properties of cash?

Hello Jovan,

The question of whether cryptocurrencies fulfill the properties of cash has been a heated debate globally, raising all sorts of responses. Some may say that they meet the properties of money, but to come up with an answer, you need to look at the taxonomy of money and identify the category of cryptocurrencies. You also need to look at the three traditional functions of money and see if cryptocurrencies meet these functions.

Taxonomy

The criteria of classifying money are based on three key aspects;

·         Issuer. Government or private

·         Form. Physical or digital

·         Settlement of transactions. Centralized or decentralized

Cryptocurrency provided by the government is digital and decentralized. They are usually in Cb reserves or CBDC. The private sources also offer digital and decentralized currencies, which is the known cryptocurrency.

But does this mean that cryptocurrencies can replace the cash we use? To judge, we should look into the three traditional functions of money and see if cryptos meet the features fully or to which extent.

Traditional functions of money

The three primary features of money are;

·         Medium of exchange

·         Measure of value

·         Store of value

When money was created, it came to serve as a solution when trades lacked a double coincidence of wants. So it is a medium of exchange that is recognized and accepted globally. Cryptocurrencies easily meet this condition, but it is another thing to meet the requirement technically. Though they are readily available, cryptocurrencies cannot replace the money. To see things clearly, let's look at the attractiveness of a currency.

The attractiveness of a currency is based on two factors;

·         Stability

·         Acceptance

Among the three primary functions of money, the Store of value overshadows the rest. For a currency to have a good Store of value, it is required to have stability. The question is, Do cryptocurrencies have balance?

Lack of a central bank to regulate money supply makes cryptocurrencies to lack stability. Although there is a predictable supply, it is not a guarantee that demand will be the same because of the volatility of demand. These currencies have been fluctuating since their existence.

To gain stability, it requires the whole world to abandon all other types of currencies and exclusively adopt cryptos as the accepted currency. To honest, this action is highly unlikely to take place. This means that cryptocurrencies cannot be used as a unit of account.

Analysts agree that cryptos have a long way to go for them to fulfill the functions of cash. However, it is worth noting that of all the cryptos, only Bitcoin has shown to get demand as a store of value because it has credibility, and its supply is predictable.