Crypto Perspective 7: Is It A Currency?
Arguably the biggest criticism Cryptocurrencies get is that they aren’t actually, well, “currencies”. At least, they aren’t “currencies” in the mainstream’s perception; which, of course, begs the question, what is a currency, and where do Cryptos fit?
5. Is it a currency?
Standard (that is, mainstream) definitions of “currency” will include some reference to it being a store of value, medium of exchange, and a unit of account.
Because paper money has been so ubiquitous throughout the memory of humans alive today, the majority of people immediately associate the term “currency” with paper money and everything to do with it.
This means a wallet to store paper money in, bank vaults to hold large piles of cash in, and ATMs from which we can retrieve them from bank accounts. Also, the banking system through which we write and deposit checks (also paper based), and of course other mundane objects like cash registers to symbolize transactions.
However, in lumping all of these things together as “money”, or “currency”, people fail to realize that each of these different parts run on different types of currencies.
For example, while consumers may use cash to transact for groceries, banks process payments between themselves (like if a customer deposits a check) with bank reserves, which is the currency banks use to settle interbank transfers.
As the world became more digitized and debit and credit cards proliferated, “currency” has become even more digital, with more people transacting with each other, and merchants, via direct transfers of some kind.
Whatever form this may take, or what app it may use to facilitate it, the point is that cash is increasingly obsolete, and currency has increasingly changed hands digitally.
In this sense, we are already living in an era of digital currencies and assets, with payment systems set up internationally to facilitate it.
So why can’t Cryptocurrencies be considered as currencies?
Instead of the credit/debit card network linked with banks who then settle transfers between accounts using bank reserves, we have blockchains and tokens.
Which means that the payment system exists. All that is left is for people to use it – which is the biggest problem Cryptos face, the current lack of mass adoption.
But, does the lack of mass adoption make a “currency” less of a currency?
Here is where a little change in perspective will help. A currency exists to serve the needs of those who choose to use it. By extension, this means that as long as people are using it to transact, then the “currency” can be considered a currency since it is a valid medium of exchange.
Humans have used various kinds of objects as currencies throughout history, including, but not limited to, goats, gold, cigarettes, and paper.
As a matter of fact, in some parts of the world, some of these objects are still used as mediums of exchange.
So why not Crypto?
To be continued…
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