Is Crypto Fake Money?

In spite of the fact that the term "currency" can be understood in a variety of ways, most of the time it is meant to refer to actual money, such as coins or paper bills. Having said that, in light of the development of cryptocurrencies, this explanation needs to be expanded right now. When the total money supply is taken into consideration, however, currency makes up a relatively insignificant portion of the monetary economy.

In point of fact, the vast majority of the money that is currently in circulation is either credit money or electronic data that is stored in databases at banks or other financial institutions. Despite this, currency continues to be the most common form used in day-to-day dealings. But, do every currency meets the criteria to be called a currency? Let's conduct some analysis of cryptocurrencies.

Value in Traditional Money Form

In contrast to early coins made of precious metals, the majority of today's coins have very little value in and of themselves. However, despite the absence of an obvious intrinsic value, currencies still hold significant value. To begin, the use of "representative money" enables one coin or note to be traded in for a predetermined quantity of a particular good. The United States dollar and a number of other currencies, including many that we are familiar with, evolved into what is now known as fiat currency after they were decoupled from gold. To put it another way, it has value simply due to the fact that people believe it will be acknowledged by other parties. This concept accurately describes the vast majority of the world's most important currencies, including the euro, the pound, and the yen, among many others. In addition, the value of fiat money is based on the public's confidence in the state's ability to levy and collect taxes, which gives the currency its purchasing power.

What about Cryptocurrencies? Learning from Bitcoin!

Cryptocurrencies does display some of the characteristics that are typical of a fiat currency system. It cannot be duplicated and is extremely difficult to acquire (scarcity). The scarcity of bitcoins is the primary factor that contributes to their value. The argument for the value of bitcoin is analogous to the case for the value of gold, which is a commodity with qualities that are analogous to those of the cryptocurrency. There can never be more than 21 million of any given cryptocurrency unit.

Another school of thought contends that the marginal cost of producing one bitcoin hints that bitcoin does, in fact, have some sort of inherent value. The mining of bitcoins is an expensive endeavor for miners because significant amounts of electricity are required. In a market in which producers of the same good are competing against one another, the price at which that good is sold should converge to its production's marginal cost. There is a correlation between the cost of producing a bitcoin and its price, as indicated by the empirical data.

The Final Words

It is said that a useful currency possesses the following six essential qualities: rarity, divisibility, high acceptability, portability, durability, and resistance to counterfeiting and double-spending (uniformity). Because stability is not a factor in what makes a currency useful, we can all agree that cryptocurrencies meet the criteria for real money, and the future will belong to cryptocurrencies because of this.