Definition of Money and How Cryptocurrencies Fit in
Money is anything that can be traded for different goods, services, and other needs. Of course, the definition of central banks’ official money can be more complex, but the notion of trade is very important; therefore, common currencies, credit cards, and bills are all considered money.
What is money? In general, money is anything that can be traded for different goods, services, and other needs. Of course, the definition of central banks’ official money can be more complex, but the notion of trade is very important; therefore, common currencies, credit cards, and bills are all considered money. Though most of your payments might be done via credit cards, but can gold be considered money as well? Probably not! In order to make a purchase with gold, you need, and this contradicts with the definition of money because money needs to be tradable with goods and services with the least amount of endeavor. Plus, you do not know how much that gold (or any other good you want to buy with the gold) is exactly worth now when the value of money is always given, and money should have the least possible amount of loss.
Money from the Perspective of the Economy
First, you should know that economists consider anything that has these three following features as currency or money: medium of exchange, unit of account, and stock value. Especially in countries where the government is corrupt (like Venezuela), people tend more toward keeping Bitcoin and other cryptocurrencies because they want to sustain the least amount of loss in the current inflation and be safe from the damages of the economic crises. Even though you can purchase specific products with cryptocurrencies, but in the view of economists, cryptocurrencies are not considered money “just yet.”
Cryptocurrencies have an intrinsic value, and even though they cannot be considered money based on the definitions given above, many people have heard about Bitcoin and cryptocurrency in the past decade, and we have seen the development of some other cryptocurrencies in these ten years as well.
The Difference Between Cryptocurrency and Common Currency
The common currency of countries is, in fact, a legal tender that is supported by the central government. This money can be in the form of physical money (like a paper bill) or in the form of credit cards and the like. The government controls this money, and you can pay taxes with it. Cryptocurrency is not legal tender, and the government does not have any role in it, and it actually is decentralized and global. An algorithm controls this process, and you cannot pay taxes with this money, and in fact, you should pay taxes for it.
Traditional money is stable, while digital money is outside the legal boundaries and is constantly changing. In order to transfer traditional money, banks get more fees from you, but cryptocurrencies are transferred on the infrastructure of the internet and thus usually require a little transfer fee.
Cryptocurrencies from the Perspective of Law
If the law defines cryptocurrencies, then they can be considered money. For example, we can name Germany that introduced Bitcoin as legal tender and thus Bitcoin can be considered from the perspective of law as the common currency.
Is Cryptocurrency the Same as Digital Money?
Cryptocurrencies are a type of digital money and should not be mistaken for electronic money (like credit cards). Digital money is referred to money that is used on the internet. This money does not have any physical form in the real world. Yet it has all the features of real money. For example, you can transfer money with it or buy stuff with it. Digital money is not limited to any geographical and political boundaries. Cryptocurrency is a new type of digital money that has given a more important meaning to digital money. Even though cryptocurrency is a type of digital money, it has differences as well. Digital money is centralized. This means that a group of people and computers set its regulations and status of its transactions. Cryptocurrencies are decentralized, and regulations and transaction are set by the majority of the people in this community (like the Bitcoin holders). Digital money requires users’ authentication, and you need first to verify a picture of yourself and ID documents, while many of the cryptocurrency transactions do not need authentication at all. Yet cryptocurrencies are not anonymous completely, but their addresses do not include identity information. There are also companies that track transactions and identify fraud and prevent it. Digital money does not have the transparency of cryptocurrencies. Unlike cryptocurrencies, whose transactions are transparent to everyone, you cannot see the transactions of digital money, and its data are private. Digital money has a central authority that resolves its issues. This authority can stop or reject transactions by the order of judicial authorities and to prevent money laundering and fraud.
Can Cryptocurrency Be Considered Money?
With all the definitions given above, we get to this question that can cryptocurrency be considered money or will cryptocurrency change the definition of money for us? Cryptocurrencies are not controlled by any country; then how will their value be determined? In fact, cryptocurrencies have created a new currency. We talked about the features of money above; now we want to define some of these features on the infrastructure of cryptocurrency:
Medium of Exchange
Can cryptocurrency be used to trade or buy stuff? Yes, currently in many countries you can use cryptocurrencies to buy your desired goods and services.
Unit of Account
In the crypto world, a unit of a specific cryptocurrency (like one Bitcoin) will always be equal to a certain amount of another specific cryptocurrency. Therefore, you can exchange different units of cryptocurrency to each other.
Cryptocurrencies exist online and thus cannot be owned in the physical form. However, durability does not mean missing out. For example, many of the new users of cryptocurrencies can forget their key and not be able to access their wallet. However, no need to worry, because you can back-up your wallet. Of course, creating this back-up and the needed steps to prevent the theft of information is up to the users and is irreversible.
The features mentioned above are only a number of factors involved in cryptocurrencies. With all these explanations, it is better to say that cryptocurrencies have given a new definition to the concept of money.
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