Cryptocurrency: Fulfilling The Traditional Functions Of Money
A cryptocurrency is a form of digital currency that is built on blockchain technology and is encrypted with cryptography which makes it impossible to double-spend or counterfeit. Blockchain is a distributed ledger technology that enables transparency and so every detail of transactions using any cryptocurrency is visible to all who are on the network. It was created to eliminate fraud and manipulation mostly associated with centralization.
There have been arguments for and against the existence of cryptocurrency. Most people believe that it is a facade that is bound to crumble and it is only a matter of time before that happens and therefore should not be considered as a legit form of money or means of exchange but bitcoin and other cryptocurrencies beg to differ on this argument.
So far, since the birth of the first cryptocurrency; Bitcoin in 2009, all cryptocurrencies have proven themselves to be nothing but money.
Generally, we know that what makes a thing, object or being is its qualities and functions. The quality of money is that which makes it useful to the public. These qualities are known to be durability, portability, divisibility, uniformity, limited supply, and acceptability. Digital currencies meet the quality requirements and even surpass them in comparison with fiat currencies.
Cryptocurrency has proven its legitimacy by possessing the qualities of money and its functions.
How? As a medium of exchange, store of value, and unit of account.
Cryptocurrency’s function as a Medium of exchange:
Cryptocurrency was created to be a medium of exchange. It does justice to this function because it has been adopted by citizens in various countries around the world. Statistica.com recorded that ‘Interest in Bitcoin and cryptocurrencies in 2020 was seemingly higher in Africa and Latin America than some of the World's Developed Economies.’ This shows after analyzing Bitcoin trading volume against domestic currencies used for the transaction of the digital coin.
It was also found that during the pandemic in 2020, more people had owned bitcoins and cryptocurrency than the years before that which brought about a decrease in foreign remittances in some countries of the world. This was so because it was impossible to carry out transactions with people abroad when all banks were closed. Then people realized that they could send money without any protocol of verification through third parties such as commercial banks and all they had to do was purchase some crypto on an exchange and transfer it to the recipient’s wallet.
Although, the global pandemic proved the usefulness of cryptocurrencies, other reasons prove this point.
Bitcoin, Ethereum, and other crypto do not have their values based on the well-being of a country’s economy like every fiat currency.
Like the US dollar, fiat currencies are dependent on the value of the economy and how well it is doing. The US dollar is considered a global base currency, used to value other economies and their respective currencies because the country is one of the best-performing in the world in terms of foreign trade and GDP.
Cryptocurrency does not depend on the growth and value of a country, its value is solely based on market conditions like demand and supply and the actions of major market players (the large holders of the currency).
This factor arguably makes cryptocurrency stand out to be a global medium of exchange. There would be no need for central financial institutions to be involved in transaction processes between people around the world.
Cryptocurrency’s Function as a Store of Value:
Also, the value remains the same regardless of where you are. Meaning that the amount of crypto held by one party in Europe is the same value as the amount held by another party in Africa or other nations. This factor qualifies it as an excellent store of value. One of the most emphasized functions of money is the store of value.
Analyzing the growth of a country by its GDP, for example, Nigeria, in the past year, has appreciated about 5% which means its Naira(NGN) has valued only about 5%. If you held 1000 naira last year, it will be worth 1005 naira today which is less than 5 US dollars in value.
The value of any cryptocurrency has risen over 100% in only the past year. If you held any coin last year, It is worth over 100% of the amount.
Most times, the citizens are not a party to whether the economy of a country is performing well because of the decisions made by the leaders and those in positions of power and so when the country ends up performing terribly, they suffer for it when they hold on to a devaluing currency.
This issue points out the need for countries to consider how to embrace the technology that their people are embracing.
Cryptocurrency performs functions more as money than any other money instrument. It should be widely accepted for its clear benefits.
written by Joy Abia