The financial investment community is all abuzz about cryptocurrurencies. We haven’t seen this kind of an investment frenzy since the Internet IPO market around the turn of the century. With people outside the investment community reading reports about the great wealth Bitcoin and other cryptocurrencies have been creating, there’s a lot of questions being asked. The most frequently asked question being tossed about is, “Are Cryptocurrencies Considered Real Currency?”
In order to accurately answer this question, we must have an understanding of exactly what it takes for a financial instrument to qualify as a legitimate currency. As defined by the Merriam-Webster Dictionary, currency is “something (such as coins, treasury notes, and banknotes) that is in circulation as a medium of exchange.” The definition goes on to clarify that this could include paper money in circulation, goods that can be used in a bartering system and a medium of verbal or intellectual expression.
Are Cryptocurrencies Considered Real Currency?
Now let’s define cryptocurrency. According to Wikipedia, cryptocurrency is “a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets.”
We should note that both definitions contain the phrase “medium of exchange.” Based on that concept alone, most cryptocurrencies should be classified as real currencies. We say most because there are a few cryptocurency offerings out there that are being sold as a concept or part of a scam. In its infancy, the cryptocurrency market is still a buyer beware proposition.
With that said, leading cryptocurrencies such as Litecoin, Ethereum and Bitcoin certainly qualify as legitimate currencies. All three coins are currently being accepted as payment for good and services in some parts of the world. The current valuation of these coins is being driven by market conditions, which make them look more like commodities than money. Of course, we can also trade the US dollar and gold as commodities, so why not cryptocurrencies?
Settling the Debate
If we still have any doubters, we can settle this debate by discussing properties. In order to qualify as a legitimate currency, a coin or item of exchange needs to have certain properties. Some of these properties include portability, scarcity, non-consumable, interchangeable, durable, divisible, durable and easily transactable.
Looking at each property separately, there can be little doubt that cryptocurreny coins such as Bitcoin, Dash and Litecoin qualify on all counts. In fact, cryptocurrency coins exceed the qualifications set forth by paper currencies and precious metals. In the eyes of most experts, cryptocurrencies may well be the purest form of currency we have yet to see.
The Future of Cryptocurrencies
Slowly but surely, Bitcoin and other cryptocurrencies are gaining credibility all across the world. Someday, Bitcoin may realize its initial goal of replacing many of the paper currencies used in major economic countries and for businesses like online lenders. For now, investors are enjoying a wild ride by investing in this new market. For a little perspective, Bitcoin was valued at approximately $750 per coin in August of 2016. Late in December of 2017, the coin cracked the $20,000 level. That’s 2400% appreciation in just 17 months. While volatility is sure to reign in the coming months, some experts are predicting a $500,000 Bitcoin within the next two years. WOW.