Is Cryptocurrency Real Money? Brief Discussion on Major Issues Surrounding Debate

A Brief History of Cryptocurrency

In the caveman era, people used the barter system to trade goods and services. For example, someone might trade seven apples for seven oranges. The barter system fell out of popular use because it had some glaring flaws:

• People’s requirements have to coincide—if you have something to trade, someone else has to want it, and you have to want what the other person is offering.
• There’s no common measure of value—you have to decide how many of your items you are willing to trade for other items, and not all items can be divided. For example, you cannot divide a live animal into smaller units.
• The goods cannot be transported easily, unlike our modern currency, which fits in a wallet or is stored on a mobile phone.

610, coins were introduced in China; and in 1375, paper cash was used in China After people realized the barter system wasn’t working well, different currencies were tried: In 110 B.C., an official currency was minted; in A.D. 610, coins were introduced in China; and in 1375, paper cash was used in China. In 1250, gold-plated florins were introduced and used across Europe; and from 1600 to 1900, paper currency gained widespread popularity and ended up being used around the world. This is how modern currency came to be.

Modern currency can be in the form of paper currency, coins, credit cards, or digital wallets like Apple Pay, Amazon Pay, Paytm, and PayPal. The entire financial system is overseen by banks and government agencies, which puts restrictions on how paper currency and credit cards can be used.

Traditional Currencies vs. Cryptocurrencies

If you wanted to repay a friend who bought you lunch by sending money online, you would go to their account and send the money to them. There are several ways in which this could go wrong, including:

• The financial institution could have a technical issue, such as its systems are down or the machines aren’t working properly.
• Your or your friend’s account could have been hacked—for example, there could be a denial-of-service attack or identity theft.
• The transfer limits for your or your friend’s account could have been exceeded.

There is a central point of failure: the bank.

Since cryptocurrency is not subject to government regulation, it has the potential to become the future of currency. If two people wanted to use bitcoin to make a transaction, they would use the bitcoin app. A notification asking if you are sure you want to transfer bitcoins appears. If the user chooses to proceed with the transaction, the system will authenticate the user’s identity and check to see if the user has enough money to complete the transaction. This process is completed when the payment is transferred and the money arrives in the other person’s account. All of this happens in a matter of minutes.

Cryptocurrency offers a solution to the problems associated with modern banking, such as limits on fund transfers, hacking, and central points of failure. Bitcoin, Litecoin, Ethereum, and Zcash are some of the more popular cryptocurrencies that are available as of 2018. There are more than 1,600 cryptocurrencies available in total. And a new cryptocurrency crops up every single day. They are experiencing a lot of growth right now, so it’s likely that there will be more to come.

Moving forward, let us discuss what is cryptocurrency.

What is Cryptocurrency?

Cryptography is used to code the data, making it virtually impossible to counterfeit. 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. Peer-to-peer networks that use blockchains keep track of cryptocurrency transactions, like buying, selling, and transferring, as well as act as secure records of those transactions. Cryptocurrencies can be used as a currency and an accounting system by using encryption technology.

A cryptocurrency is a type of digital or virtual currency that is created to be a medium of exchange. It is crypto-currency which is just like regular currency, but it doesn’t have a physical form and it uses encryption.

Cryptocurrencies are not regulated by a central authority, so new units can only be created after certain conditions are met. The only way new bitcoins can be generated is by miners being rewarded for adding blocks to the blockchain. The maximum amount of bitcoins that can be produced is 21 million; once this number is reached, no more bitcoins can be created.

Pre-question first

In order to determine if cryptocurrency is real money, we must first establish a definition for the term “money”.

What is money?

An item or record that is accepted as payment for goods and services or debts is money.

The invention of money allowed humans to progress further as a civilization. The barter system was made obsolete by this, causing a huge increase in cross-border trade. The profound effect that this has on society as a whole is normally not understood by most people.

Let’s face it. Many people don’t think about where money comes from, what it is supposed to do, or what makes it different from other things. Many people are blissfully unaware of the different types of digital currencies that are now being used as a global currency. This currency is called cryptocurrency.

What seems to be most appealing to the general public about cryptocurrency is its decentralization.

Decentralization in cryptocurrency gives individuals more control and security over their digital money. There is much less influence by middle men – intermediary third parties like the World Banking System, stock brokers, clearing houses – and the geopolitical requirements and limitations imposed by each nation’s government.

Money holds a personal meaning for each of us. For some people, it is a convenient way to get or experience things they want.

Some people use money to buy their way out of unpleasant tasks or to save time. In other words, money is a convenient way to store economic power to be used in the future. This is why the phrase “time is money” is used.

Some people see money as a way to get power, security, and love. This can be seen in things like special treatment in private and public settings, loans to friends and relatives, and dowries.

The topic of how money affects behavior on both a large and small scale is very interesting.

Despite distractions, we must remain focused on our goal: being able to assess whether cryptocurrency is actual money or not.

I thought money was simply the coins or paper bills with designs that I could use to buy things. I spent my first money from the United States. I was struck by how similar this was to the stamps for mailing letters – most other countries require their own coins and paper money for making local purchases.

In most cases, I would not be able to use my money in other countries and would have to go to a money exchanger to get the local currency that I could spend.

Of course, the transformation process is not free. If you want to get paid in the local currency, you have to pay a “conversion fee,” which will result in you having less money than the people getting paid in the local currency. If you lived in a foreign country and had a job, you would most likely be paid in the local currency, and would not have to convert it and pay associated fees.

When you exchange unspent foreign money back into your homeland’s currency, the amount of money is decreased. What else could you do while being temporarily abroad?

Middlemen have been taking a cut of the profits since the beginning and continue to do so today.

An increasing number of people are choosing to not carry coins or dollar bills. Debit and credit cards are used to pay for items in stores, online, and at restaurants. People still have a sense that they are spending actual money when using a credit or debit card, even though they are not using physical cash. Additionally, they only think of money in terms of their native currency.

The use of electronic payment systems has made it much easier to buy goods and services in foreign countries. It reduces the need to visit the Money Exchanger. But make no mistake. Even if you use your debit or credit card abroad, you are still paying more for the local currency. You will be charged a “foreign currency fee” or “international charge” by your bank or credit card company in addition to the usual monthly interest on your account balances.

Criterion for money

No matter what it is–barley, spices, jewels, livestock, ancient Mesopotamian clay tablets, seashells from pre-colonized island nations, precious metal coins from the Roman Empire era, or the paper currency of today–all forms of money have to meet some criterion for money.

The first five criteria of money are objective, and therefore, there is a broad agreement on them. The last two what are very subjective? and the primary cause for the ongoing battle between traditional, conventional, and progressive financio-economic mindsets what is?

First, we’ll list the objective criteria. We will then discuss the two subjective measures that are the most important for the controversy over the characteristics of real money.

The following five objective criteria are easy to understand, almost self-explanatory.

Medium of exchange

One of the most important uses of money is that it can be exchanged for goods and services. It became the standard solution for comparing the values of items that are not the same. In the barter system, traders negotiated over how many chickens were equivalent to a goat or a cow, how many loaves of bread were equivalent to a bottle of wine, or how many kilograms of grain were equivalent to a blacksmith’s anvil.

The “coincidence of wants” is a major problem with the barter system that money solves.

The trade dilemma was receiving what you wanted in a trade, and not being limited to what another person had. This type of trade scenario where both parties have something that the other wants and are willing to trade is inconvenient and often hard to find.

If they could not find anyone who wanted or needed the same thing they did, they were out of luck. They were so desperate that they had to go through a lot of trouble to get what they wanted in the first place.

Portability

Money must be portable. -Instead of bringing livestock to the market to exchange for something else, people could now exchange money as a proxy for the value of the exchanged items. This is a no-brainer. Wouldn’t it be crazy to have to carry your cows around with you or lug sacks of wheat around as currency?

Unit of account

One unit of measure has the same value as another unit of the same measure. This value per unit enables efficient accounting and is vital for effective trade.

This is why the US Secret Service dedicates a lot of time and resources to fighting counterfeiters. In March 2015, the US Secret Service estimated that $850 million – $1.36 trillion circulating around the globe were most likely counterfeit.

Counterfeiting money is not new. A “coiner” was what a counterfeiter was called in England in the 1700’s. Counterfeiting was considered high treason. A woman who was convicted of counterfeiting money was hanged in 1798. The Treason Act of 1790 abolished burning at the stake, which was fortunate for her.

Counterfeited British currency from WWII was found in an Alpine Lake near Austria. A man from New York named Edward Mueller spent over 10 years using counterfeit dollar bills around the city before the Secret Service caught him in the late 1930s. He was portrayed in the 1950 movie “Mister 880.”

Two men were caught by the US Secret Service in 2015 after counterfeiting over $86 million of “close to perfect $100 bills.”

Since money needs to be a fair unit of account for commerce to work properly, and there is always a risk of counterfeiting, the fight against counterfeiting is a very important and ongoing battle.

Durability

Any form of money needs to be durable enough to withstand being exchanged many times, carried in bags or pockets, and being exposed to the elements. It would be abandoned quickly for a more durable iteration if it was not otherwise. Coins were appealing because they were more durable than other forms of money.

In desperate times, people are willing to use anything that will help, even if it is not built to last.

After WWII, the German government wanted to increase the money supply, but they soon ran out of the paper needed to print more currency. Printers used whatever they had available at the time, which included thin, flimsy paper that was similar to toilet tissue, as well as scrap wood. Paper currency today use a combination of paper and fabric to make it more long lasting.

Fungiblility

The word “fungible” is related to the Latin verb “fungi”, meaning “to perform or serve in place of”. It has nothing to do with the word “fungus” or its plural form, “fungi”. The word “fungible” is used often in the legal and commodity worlds.

To say something is “fungible” means that it can be replaced with another item of the same kind. This means that if you have one US dollar, you can exchange it for another US dollar without any loss or gain.

Unit of account is a measure of value, while fungibility is the interchangeability of a good or asset. Unit of account refers to the standard unit of measurement and value equality, while fungibility is concerned with the ability to replace one unit with another.

A counterfeit dollar is not similar enough to an authentic dollar to be used interchangeably, and therefore does not pass the fungibility criterion. A legal tender, taped-together, aged dollar bill can be spent wherever a freshly minted, crisp legal tender dollar bill can.

The key to fungibility is whether a particular form of money is used within its operating environment or not. A currency is not fungible if it is not accepted for purchases in the country where it is being used. To make something fungible, you need to convert it into a third-party currency that is accepted by all parties. This effectively makes the third party’s money the unit of account, and the other two currencies semi-fungible.

The Medici family became wealthy during the Renaissance by exchanging currency. They discovered a workaround for the usury laws.

What is “usury”?

The practice of charging interest on “Christian to Christian” loans was known as usury and was punishable by law. The Catholic Church considered it a major sin. Dante Alighieri, an Italian poet, reserved a special place in the seventh circle of Hell, which is the lowest level of Hell, for usurers in his book “Dante’s Inferno”.

The charging of interest on loans was restricted to Jews, and could only be done on loans to Christians. Why?

They used a Biblical “loophole” in Deuteronomy. Chapter 23:20 of the bible states that you can charge interest on a loan to a foreigner, but not to someone from your own community.

The Medici family, who were once a group of criminals, created FOREX, which is now a major financial institution. By appearing to charge commissions on foreign currency conversions, transactions, and “advances” – which is another word for “loan” – the Medici became legitimate and amassed enormous wealth and power. Many of the Medici became royalty and Popes. Some historians believe that the Medici were playing a big role in financing the Renaissance.

Perhaps an example of a unit of account which is qualified, but not fungible, would be something like a vintage car.

Imagine you are a collector of different currencies as a hobby – much like stamp collectors. You decide that the only specimens in your collection will be the best examples. Even though you may think that both brand new and old, used examples of real money are equal when you spend them, you don’t consider them to be interchangeable. A new dollar bill would be preferable to an old, damaged one in your collection.

Intrinsic value

The intrinsic value of a company, stock, currency or product is the value determined by fundamental analysis, without reference to market value.

The subjectivity of this criteria makes it difficult to rely on, as there are many different ways it can be interpreted.

To purists, gold and silver are the only true forms of money. This is especially true for gold and silver bugs – investors who put their money into these metals. The reason they give for this viewpoint is that all money is just a representation of something with value, like a claim ticket for your car from a valet. It’s not the actual car, just a piece of paper that says you own the car.

This group argues that the Constitution supports the idea that money should be made of gold or silver coin, specifically citing Article I, Section 10. Many states are in the process of following the example of Louisiana, Texas, and Utah by passing laws to use gold and silver as money.

Some people disagree with this philosophy, saying that the Constitution does not define “money” and that the Article I, section 10 only prevents individual states from creating money that can be used as payment. The Coinage Act of 1792 provided for the minting of coins out of copper, gold and silver, making it clear that materials other than gold or silver could be legally coined as money by Congress.

Since the American Revolution, the US currency has been made up of gold and silver coins, or certificates and currency that are typically backed by gold or silver.

Americans were assured that their currency was backed by gold or silver at any bank. This meant that if Americans had paper money, they could go to any bank and redeem it for its value in gold or silver. However, the amount of gold behind each dollar slowly dwindled through the years and was further exacerbated by the Bretton Woods Agreement of 1944 – where the current US dollar was backed by only a fraction of the gold than the original US dollar; and the rest of the world’s currency was pegged to the dollar. This established a new global monetary system.

President Nixon took the dollar off the gold standard in 1971. This was in response to a plummeting dollar, rising gold values, and more countries wanting their gold repatriated instead of holding US dollars. Sudden, all of the other countries did the same thing.

This currency became “fiat” money, which is money that is not backed by gold, but by the authority and trust of each sovereign nation’s government. This has led to the development of many groups that are opposed to the use of fiat currency, including those who were early adopters of cryptocurrency.

A fact that cannot be disputed is that no fiat currency has ever lasted throughout history.

Every fiat currency had a beginning, middle, and end. In other words, no currency that is not backed by a physical commodity has ever lasted forever. Each of the following had a time when it was adopted, popular, declined, and eventually died.

Now let’s return to the question of intrinsic value.

If you think that currency has to be backed by something valuable, you probably don’t think much of any currency as actual money.

If you think that value is based on perception, then any currency could be considered real money, especially if it is backed by a nation’s military or economic power.

This is the most common way that people measure a currency’s value.

Store of value

This is the final criterion for money and is also a subjective issue.

Store of value refers to the ability of an asset to maintain its value over time. Undoubtedly, gold ranks number one. Gold has always been a valuable item and was used as a form of currency in ancient times. No fiat currency has matched this record.

The US dollar has outperformed gold as a store of value over the past century. Since the Federal Reserve was created in 1913, the value of the US dollar has decreased by 96%. This was created at a secret meeting on Jeckyll Island and signed into law by President Woodrow Wilson.

How long does a period of time have to be to be considered long? To a hummingbird with a lifespan of 3-5 years, six years is a very long time. This question may sound glib to some, but it does bring up another question. “Who decides what a long period of time is?” Is it over 5,000 years – gold’s rising store of value reign?

Is it possible that the time period in which Germany’s currency was considered a store of value is coming to an end? This time period spans from WWII until present day, and post-war Germans had to transport wheelbarrows full of currency to the market just to buy a loaf of bread.

In other words, measuring the store of value is not a good way to determine the lifespan of money because there are so many other factors that can affect it.

Gold and silver are the only two metals that have a track record of retaining their value over time. Most people would be pleased if their saved money would be worth the same or more in three generations.