Can Bitcoin or any other cryptocurrency actually work as money?

in #money6 years ago

ost buyers of cryptocurrency are betting that the price of whichever “coin” they buy will increase in value dramatically. However, the ultimate aim of many digital currencies is not to remain a highly volatile asset for speculative investors but to offer a viable decentralised alternative to the current system of money.

Most will not reach this goal. Some lack the technical ability to process enough transactions, all remain highly volatile, and there are then both legislative and psychological barriers in their way. There is also a huge amount of competition.

Garrick Hileman, who holds positions at the London School of Economics and University of Cambridge and specialises in monetary systems, said there was a significant difference between currency and money.

“Many things in blockchain land meet the definition of currency,” he said. "Cryptocurrencies such as Bitcoin and Litecoin do function as a medium of exchange, as you can buy things with them [although relatively few retailers accept them]. They do store value from day to day, although they are very volatile and the fact that they can lose value so rapidly is a major question mark."

For something to become money, he argued, requires it to take over as “the unit of account”, in addition to functioning as a medium of exchange and storing value. The unit of account is the unit in which goods and services are priced in a certain country, such as the pound in Britain.

Mr Hileman said this was where cryptocurrencies “really fall down”.

“The unit of account sets how we think about money – most people don’t like to think in more than one currency,” he said.

“Some argue that this makes it very difficult for new currencies to become money, putting aside all the technical issues and volatility. There are then institutions such as central banks that are very keen to keep control of the unit of account, to maintain monetary policy.”

However, he added that in the future “the dominant user of currency may not be people”.3948.jpg

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A crypto will be the new money.

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