Can Cryptocurrencies Fulfill the Functions of Money?
Yes, cryptocurrencies fulfill the functions of money in most cases. They are used in place of money, to do the same things that money can do.
Money has four functions: it is a medium of exchange, it has a unit of account, can be used as a store of value, and it is a standard of deferred payment.
Cryptocurrencies fulfill them all.
Cryptocurrencies Fulfill the Function of Money while Serving as a Medium of Exchange
Cryptocurrencies are used in the exchange of goods and services every day.
It has created a new ecosystem referred to as “the cryptospace”.
The great thing is like fiat money, cryptocurrencies are a generally accepted standard of exchange.
This quality alone makes it worth the effort for those who want to dip their toes in the cryptospace.
It is why people within the cryptospace feel comfortable spending cryptocurrencies.
They understand that cryptocurrencies are a new digital form of money.
The exchange of cryptocurrency tokens can occur without the fear of hacking or other nefarious activities. It is because of the security features that govern the workings of cryptocurrencies.
If you take the right steps, your cryptocurrency tokens will be secure.
As public blockchains improve on their security, it makes it easier for the cryptocurrency adoption rate to increase.
Distributed Ledger Technology Allows Cryptocurrencies Allows Cryptocurrencies to be Exchanged Across Borders
The existence of triple-entry accounting has allowed for the creation of distributed ledgers.
In his 1989 monograph, Professor Yuji Ijiri explained his triple-entry accounting system as a different method to the widely accepted double-entry accounting system.
The principles behind triple entry accounting are the foundational accounting concepts that drive Distributed Ledgers.
In cryptocurrencies, everyone who has access to the distributed ledger can access records of transactions (that is for those whose information is public).
It has given rise to an independently verified source of transactions that users can depend on.
The rise of the distributed ledger is what gives cryptocurrencies their wide acceptability.
It has also birthed the rise of the trustless economy. In this ecosystem, trust doesn’t exist between individuals but rather the mathematical bridge across individuals.
Cryptocurrencies fulfill the functions of money by relying on trustlessness.
It is what makes cryptocurrency ecosystems to thrive and succeed.
Cryptocurrencies have Units of Accounts
Cryptocurrency tokens serve as the units of account for distributed ledger systems. They serve as a form of measurement of activities and transactions that occur on such systems.
It has led to the rise of so many different systems within the cryptospace. Each of them has their units of accounts.
It is because of this that people can gauge the value of goods and services as opposed to the current prices of cryptocurrencies in different global currencies.
Cryptocurrencies hold values against major global cryptocurrencies.
The rise in financial technology and increased understanding of the cryptocurrency space has enabled this to occur.
So, if people know the fiat currency value of what cryptocurrency they are using in a transaction, they can compare the nominal value of what they want to purchase.
It has also created another kind of paradigm for electronic commerce. A paradigm where anyone can become someone based on the core principles behind trade and economy.
Value now moves across borders internationally without any need for intermediaries.
With the rise of regulations because of consumer safety, cryptocurrencies shall have other use-case scenarios.
It is one more scenario where cryptocurrencies fulfill the functions of money.
Cryptocurrencies Can be used as a Store of Value
Another way that cryptocurrencies fulfill the functions of money is in the way that they are a store of value.
One cryptocurrency token has a value as against another store of value: money.
So much so that many people now prefer cryptocurrencies as opposed to holding other assets that have similar value.
It may not be unconnected to the fact that the cryptospace is still emerging.
There are new industries that will emerge from the existence of cryptocurrencies and their underlying technologies.
So many find a way to hold unto the promise of future value. One such example of those who are doing this rather successfully is the HODLers.
HODLers refer to those groups of individuals that keep possession of cryptocurrencies for future value.
Mathematically and economically, these people are correct. It occurs within a timeframe, of course.
As more people transact using cryptocurrencies, their values go up. Demand always rises with cryptocurrencies due to their limited supply.
As long as they can hold value against other forms of purchasing power, cryptocurrencies can also be said to have a store of value.
The reason for this is that instruments don’t hold value against themselves.
They derive their values against other instruments that have value.
Money, for instance, is always measured in terms of what it can buy.
The same thing happens with cryptocurrencies. It is why people say that cryptocurrencies fulfill the functions of money.
It leads us to the last function of money.
Cryptocurrencies Are a Standard of Deferred Payment
Can you use cryptocurrencies as collateral for loans? The shocking answer is a resounding Yes!
So many new services have been springing up selling lending services against cryptocurrencies.
It then means that cryptocurrencies can exist as a deferred form of payment.
When something is said to be a deferred form of payment, it means that that thing can is used to obtain credit for the purchase of goods and services.
So when a person borrows, the instrument borrowed is often referred to as a form of money.
People use cryptocurrencies to borrow fiat money or sometimes other cryptocurrencies.
The instruments borrowed can buy goods and services. It means then that cryptocurrencies have similar and equivalent values with the assets that they are borrowed against.
We now have the rise of stablecoin digital currencies where the value of a single stablecoin unit is equivalent to one unit of fiat currency units in cash.
The rise of stablecoins gives further credence to the fact that cryptocurrencies fulfill the functions of money.
They also give further insight into how cryptocurrencies could work in other use-case scenarios.
As humanity continues into the next decade, new ways, means, and methods where cryptocurrencies solve problems shall evolve.
It is how these new means function that will ultimately determine if cryptocurrencies will replace money in human economic interaction.