A Cryptocurrency Issue: Money Or Not
In a volatile world we live in, everyone looks for stability and protection. For anyone at any time money was an indicator of prosperity and possibilities. What we consider as money appeared on the dawn of humankind and this commodity has been changed its form and functions significantly during centuries until it came to a modern look.
Money as a multifunctional tool
Money was always the measure of what we have and what we can. As we all are different, we all have different desires and possibilities, and values. It is only may be compared to be measured one to another. So as the value of money, which was always a debatable issue. However, there is no possibility of ever having a measure of value. Values are mental concepts incapable of being measured. They can only be compared. There is no standard, or constant, by which values can be measured. What is appropriate to be claimed as money? Which money functions can satisfy the economy as well as the government or a person? There must be some features applied to what we consider as money to prove its necessity for society.
Therefore the money is referred to as:
- a measure of value
- a mean of immediate exchange
- a mean of accumulation
- a mean of payment (as a mean of interaction between people in long-terms)
- world currencies (accepted globally)
Any item or verifiable record that fulfills these functions can be considered as money. Otherwise, it is not money. However, as the world goes digital, we have a new candidate to be considered as money — the digital currency. It happened with an introduction of Bitcoin in 2009.
The first of its kind
Bitcoin, first released as open-source software in 2009, is considered the first decentralized cryptocurrency. Since the release of bitcoin, over 4,000 altcoins (alternative variants of bitcoin, or other cryptocurrencies) have been created. It’s a matter of fact that lots of institutions identified bitcoins and similar virtual assets as economic speculative bubbles, also appealing to the natural possibility of theft and fraud, illegal money laundering, the complicity of transactions in the darknet, and corruption.
Generally speaking, a cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets, according to Wikipedia article.
Online payments and digital currency
While most of the life aspects went digital, one of the reasons for the need in cryptocurrency to arise was to meet new age demands: electronic banking, stock exchanges, e-commerce, gaming, gambling, online wallets, etc. In our point of view, decentralized technologies and its products appeared in the right time just because they could be invented as the global network and its techniques were developed enough for this.
Another reason for the digital currency to be invented was the Internet itself. Regular convertible world currencies and fiat money we use every day we can keep on banks accounts, withdraw them in ATMs, and even if they meet all the stated money functions, they cannot be called as digital currency because they have real printed equivalents with serial number printed on each banknote or coin, but no digital sign, telling its cryptography. This is a fundamental difference between fiat and digital money.
Previously all social institutes worked without the Internet, and the ordinary fiat money was enough. As the Internet and e-commerce spread worldwide, it required an online payments system. The online fees were made with regular money (albeit in non-cash form), but the place of the real currency for the Internet was empty. Bitcoin took it to fulfill the money functions for the web.
Banking system and digital currency
Harvard Business Review has shared the opinion that (1)cryptocurrencies oppose traditional banking system as they use the decentralized control which (2)works through distributed nodes of a blockchain, that serves as a public financial transaction (3)database. We at NODR have to make some comments on this statement. Firstly, we are against the idea that blockchain technology will destroy the original banking system, contrariwise we firmly believe that cryptocurrencies organically complement the traditional banking system.
Secondly, the technology at the heart of all virtual currencies is an open distributed ledger (and blockchain is one of its forms) that can record transactions between two parties efficiently and verifiably and permanently. Once the information of a particular transaction or a contract is in the blockchain, it cannot be removed or changed unless the majority of the network will refute it. We also believe that many businesses and institutions soon will benefit from blockchain technologies. We will speak about it more in our next articles.
Thirdly, nodes do not serve as a database. Nodes store and update the blockchain which is the database. Nodes are like a “door” to the database. So since there are a lot of such “doors”, they are difficult to knock down with boards and or break. There are many nodes in the blockchain, but the database is only one. Cryptocurrency owners are not identifiable, but all transactions are publicly available in the blockchain.
How to combine the blockchain’s openness with the traditional requirements of the banking system (which is a consequence of security concerns primary concerning anti-money laundering problem) is the critical question. We will also share our vision on this issue in future articles.
Blockchain Revolution
This leads to the issue of “free money”, which are free from additional charge for transactions, fiat currencies exchange rates, governmental restrictions, and any control or limitations. Sounds a bit anarchic. In fact, this “freedom” is not about uncontrollability; this is about a new way to control the movement of money.
If we look closer at an easy-to-use, secure, and separated from traditional banking system a new candidate to be claimed as money — a digital currency — which is provided through the blockchain-driven projects’ ecosystems, we will understand how immense is the range of possibilities for business, governments, and individuals with revolutionary blockchain-led technologies.
We at NODR believe that they are not made to tread on traditional systems and institutions but to make them evolve, and crypto assets as one of the possible products of many improved systems are to be accepted worldwide in the foreseeable future.
Money or not
So if digital currencies appeared to serve the same needs as fiat money (as well as become a mean of immediate transactions freely transferred between people all over the world, without control or limitations imposed by conventional payments through banks or government authorities) but on the web, they have to be possessed with the same functions and meets several essential conditions in order to answer the core question — is cryptocurrency money or not.
At NODR we admit cryptocurrencies to have 100% potential to become generally accepted money in every sense of the word. Like, if you look at the functions of money, all of them cryptocurrency can obtain. However, there is one big but … (and this is not what the state is supposedly fighting with cryptocurrency because it wants a monopoly).
High volatility prevents cryptocurrency from becoming money. When Bitcoin increases by 2000% per year and then falls by 90% per year, no one in a sound mind will enter into long-term deals with Bitcoin. We will not see loans in Bitcoin, deposits in Bitcoin. It is too risky to conclude transactions in bitcoin even with transactions with a delayed delivery for several days. At any time the price will change by 20%. A “normal” volatility rate for all strong world currencies is 0.1–0.3% per day, 1–2% per year! It is a thousand times less than Bitcoin.
On the way to becoming money
Bitcoin marked a whole era of debates and disputes which have divided the online community into two parties on a question of digital currency to be considered as money or not. During the last ten years, this new candidate for web money has become the reason for the enrichment of some and sudden bankruptcy of others. The brilliant idea of a group of brilliant minds in the decentralized system began to acquire new forms, grow stronger, and give rise to new types of cryptocurrency. From the one point of view, spreading among crypto enthusiasts, they began to frighten governments, officials, threaten the banking system, but from another point of view, for those who understand the potential of a blockchain, the cryptocurrencies are a tool, an investment, payments on marketplaces, transactions in the gaming industry, and many more opportunities due to revolutionary blockchain-led foundational technologies.
The digital currency as a candidate for a new form of money must pass the tests for compliance with all institutional levels and functions, and ideally introduce a new feature as the web money to be widely accepted. However, no one knows what exactly a cryptocurrency is in comparing to fiat money because it has so many opinions on this issue. Also, no one can distinguish a specific property, which only cryptocurrencies may have, and ordinary money does not and cannot have it, as it happened before with all the other “previous” candidates to be considered as money. The web and the world are ready for digital currencies, and it is just a matter of time when we get all the answers and find out the way to stabilize the crypto volatility by introducing new stable digital currencies applied for web goods and services.
