Jump to content
  • 0
Jovan

Do cryptocurrencies fulfill the properties of cash?

Question

Hello, I have been interested in cryptocurrencies. I may invest in Bitcoin and Etherium very soon. I know that cryptocurrencies like Bitcoin, Etherium, and many others are accepted as payment methods. One can purchase online using these cryptocurrencies and also can be sent from one person to another as long as the people involved in the transaction own a crypto wallet. However, I'm wondering if cryptocurrencies really fulfill the properties of cash. Explain to me, please.

Share this post


Link to post
Share on other sites

3 answers to this question

Recommended Posts

  • 0

Hello Jovan, 
Even though cryptocurrencies can act as a medium of exchange and is allowed in most if not all states, they can not be fully accepted as a valid currency, this is because they are less liquid and their demand usually fall so often making them unstable. These cryptocurrencies' supply is also not flexible.
Apart from Bitcoin, which can act as a storage of value due to its stern dedication to little growth and good network distribution, other cryptocurrencies whose control is centralized make them impossible to attain the money functions.
Bitcoin also is easily accepted as a medium of exchange; even it is in a few places. 
The whole function of money is usually to act as a unit of account, storage of value, and to serve as a medium of exchange. Cryptocurrencies are so scarce and highly volatile, and therefore it can be hard for them to fully take up the functions which the money does.
 

Share this post


Link to post
Share on other sites
  • 0

Hi Jovan,

Although blockchain’s decentralized structure reduces government interference, economists remain unconvinced of crypto’s staying power because of its disparities with cash. 
The absence of a body to regulate supply and maintain its value renders crypto an unsuitable unit of account. While numerous stores allow cryptocurrency payments, it’s not an accepted medium of exchange because of its high transaction fees, especially during network congestion. That’s why most users change it to cash before use. What’s more, volatility prevents virtual coins from storing value. 
For example, the amount you use to buy bread today could get you a car years later. Even if these issues are addressed, most digital coins are limited in supply. Bitcoin, for instance, has 21 million units that cannot be shared in a growing economy. This would mean frequent pay cuts for workers and slashing of commodity prices to match the coin’s dwindling supply.

Share this post


Link to post
Share on other sites
  • 0

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.

 

 

 

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×
×
  • Create New...