ARE CRYPTOCURRENCIES THE FUTURE OF MONEY?

If cryptocurrencies can be used as a medium of exchange, a unit of account and a store of value, they should be known as money because these are the three basic terms that define money. And although cryptocurrencies are already used in these three ways, their adoption is still minimal, there’s only approximately $2trillion in the world compared to approximately $37trillion narrow money in circulation.

Cryptocurrency is also currently unstable; it was only yesterday — as I write — that an announcement by Elon Musk led to a dump in BitCoin leading many to wonder if it should really be considered decentralized since opinions of a celebrity seem to affect the value of the coins.

Perhaps we should consider cryptocurrency as a commodity instead of money? Then I guess calling it a commodity means it is valuable and this even propels it towards money. Because in ancient times, commodities were the initial means of exchange before they got replaced by representative money which was backed by the value of these commodities and then by fiat money which obtained its value from a central authority. It’s interesting to note the reason these commodities were considered valuable; because of the shared belief that it was valuable. The reason cowries in those days, which is now worthless, was used as a unit of account was because everyone believed it was valuable enough to replace trade by barter.

And maybe the reason Elon could affect the change of BitCoin’s value is that he is the CEO of the only major multinational company, Tesla — although Microsoft also accepts but it is conditional — that bought bitcoin with a billion dollars and accepted bitcoin as payment for their cars that encouraged holding the coin only for the same company, Tesla that is to change their mind. Perhaps Elon wouldn’t have that much of an effect if more industries had accepted cryptocurrencies as a medium of exchange. Adoption can indeed be a killer of innovation. But I believe cryptocurrency is getting adopted, its market cap is less than the UK with approximately $500billion.

Cryptocurrency is getting widely accepted at least by citizens of developing countries, countries with high inflation and countries under economic sanctions as it helps protect their cash from depreciating conditions such as inflation and devaluation. And while these people’s contribution might seem insignificant because they’re not from developed countries, I believe they’re essential drivers of innovation as we need more of the masses rather than a few of the higher class.

Recent innovation which includes cryptography, the technology that led to cryptocurrency, and the internet has been the adaption of military technology for citizens or adaption of luxury services like affordable smartphone for economic classes that are other than the upper class. Until an innovation can successfully be replaced, it would remain valuable and cryptocurrency is just taking its baby steps and so definitely still has a long way to go before it can be replaced.