Photo by Grace Stroke Rarely, in the history of mankind do we as a people fundamentally rethink money. Over the last 10,000 years cattle, cowrie shells, metal coins, and gold were all used as units of exchange. Just over 80 years ago the US was on the gold standard. And while paper-based fiat currencies have existed for some time, this type of legal tender, issued by decree, has continued to reign supreme. government The Value Behind Fiat Money We should take a step back and ask ourselves what gives any of today’s fiat currency value? Why is it that on every US bill the upper left-hand corner says “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE?” More importantly, why do people believe in this form of money and continue to transact in it? Short of getting deep into macroeconomic theory, a US dollar or any fiat currency is essentially a government . Believe it or not, tax liabilities give paper money value. The US government levies trillions of dollars in tax liabilities annually, and accepts US dollars as the method of payment. The confidence in the US monetary system as well as the ability to accurately and effectively enforce the tax system upon layers of transactions that occur domestically and internationally, effectively give the US dollar its value. Additional factors such as the overall monetary supply, inflation and interest rates also, play a role, but for the purposes of this article we will not go deep in this subject matter. tax credit Electronic Transactions Now that we can accept that fiat money holds value, the larger story of modern money is that we as a people are often banking electronically and relying on the balances of our accounts to be accurately maintained. Many of us make electronic transactions every day. We don’t give it a second thought. We are often paid by our employers via ACH transfer. We commonly use debit and credit cards to pay for goods and services as well as use our ATM cards to withdraw cash from our checking accounts. If we need to send money from our banks immediately, we can execute an electronic wire transfer. And popular payment applications such as such as PayPal, Venmo, and Square Cash are commonly used to make peer-to-peer transfers. Regardless of which electronic transfer service we use, we are putting our faith in the underlying financial processing systems to accurately and efficiently credit and debit our accounts, ultimately reflecting the correct account balances. And by doing so, we have been conditioned to accept that electronic payments are money. The Cryptocurrency Connection What does this have to do with cryptocurrencies — , Ethereum or any other digital currency that transacts like them? Put succinctly, it has to do with them. While they may not be great at being stable stores of value, I will demonstrate here that they are valuable in and of themselves. Bitcoin everything For just one moment believe that if you pay someone with something called , the transaction will be processed and cleared, and your recipient will receive the payment that you are sending. Upon successfully accepting this belief, you have already passed the first major hurdle of believing in the value of cryptocurrency. Bitcoin Photo by rawpixel.com Not surprisingly, this might not be that much of a conceptual stretch, as many of us can’t explain how current day financial transactions are processed and cleared at any technical level today. Similarly, other than being unfamiliar with cryptocurrency as a whole, do you really need to know how the underlying transaction processing system works to trust it? I would argue not. You just have to know that it works. Qualities of Money The next logical consideration is to further examine the qualities of money as they relate to cryptocurrency. According to J. Singh the top are general acceptability, portability, indestructibility or durability, homogeneity, divisibility, malleability, congizability, and stability of value. In addition to these qualities, we will also consider the qualities of rarity, counterfeit-proof, transferability, and uncontrollability by authority. 8 qualities of money Photo by Aaron Burden . These currencies may not currently be an acceptable form of payment for a cup of coffee or a house, but they have highly liquid markets whereby cryptocurrencies can be exchanged with real-world fiat money such as US dollars. Acceptability . Bitcoin and others can be easily and economically transported from one place to another. You actually don’t have to carry anything with you, but 64 characters that range from the number 0 through 9 and the letters A through F. You must guard these 64 characters with the highest levels of security, but that piece of data is the only thing that is required for you to be able to transact with your cryptocurrency holdings. Portability . Cryptocurrency is highly durable. So much so that it can be programmed to operate in nearly any fashion thereby optimizing its utility in the environments where it is used. Generally speaking, cryptocurrencies do not deteriorate as a result of wear and tear. For example, one Bitcoin will always be one Bitcoin. A single Bitcoin or any other denomination thereof cannot be worn down and no longer be used as a unit of transaction. Durability . Cryptocurrencies are completely homogenous and thereby fungible instruments. There is no difference in the exchangeable value of any two equal quantities of the same cryptocurrency. Homogeneity . Most cryptocurrencies are more divisible than conventional fiat money. One is the smallest fraction of a Bitcoin that can be sent. This is a hundredth of a millionth of 1 Bitcoin, or the number 1 with 7 zeros that preceding it. Assuming a Bitcoin value of $4,000, one Satoshi represents $0.000040. That seems like an unreasonably small amount of money to send to anyone, but yet it is still possible to do so. Divisibility Satoshi . While this term dates back to the notion of money being able to be made into convenient shapes for maximum exchangeability, how does invisible sound? What could be more malleable than something you cannot touch or hold in any physical sense, but still maintains most of the properties of money. Malleability . Are cryptocurrencies easily recognized? This is not simply answered due to their newness, but the branding associated with cryptocurrencies is growing and more and more people can identify the symbols for Bitcoin and Ethereum. More specifically, if someone were to send you any denomination of a Bitcoin, would you be able to recognize it. Assuming you had a Bitcoin wallet it would be to fail to see that your Bitcoin wallet account was credited by the amount received. Cognizability impossible . Bitcoin and many other cryptocurrencies have not done a good job as a stable store of value. There have been tremendous volatility swings in the exchangeable value numerous cryptocurrencies. And while Bitcoin and Ethereum are touted as being two of the most stable, they too have undergone significant spikes in value. If they were to lose half of their value in a few days or even a few hours, this would not be considered to be outside the realm of possibility. To further the risk profile of cryptocurrency, in the event of technological failure at scale, it is possible for the currency to go to $0, and effectively have no exchangeable value. Stability It is important to note that for many cryptocurrencies this is considered to be a very unlikely, if not statistically improbably occurrence, short of a malicious attack that overtakes the supporting technology infrastructure and prevents it from coming back online. Furthermore, the threat of quantum computing attacks are on the horizon. If these attacks do manifest into reality, they have the potential to disrupt or even destroy our current financial system let alone the financial system created by cryptocurrency. . Are cryptocurrencies rare? One might argue that they are becoming ubiquitous, and to some degree that is correct. This past year has proven to be one of the highest growth years for cryptocurrency with over 850 active cryptocurrency listings on , a well-known cryptocurrency real-time tracking platform. And while taking a quick look at , it is easy to see that there are hundreds more due to come out over the next few months alone. The actual number of cryptocurrencies is not all that important right now, what matters is the specific cryptocurrency that we are examining. Rarity CoinMarketCap ICO Alerts Cryptocurrencies can be considered to be programmable money, as in they take on the rulesets and characteristics of those who have designed the system which they transact in. And in each particular case, one must assess rarity and determine if the digital asset in question passes the test. Some score higher than others. In the case of Bitcoin, it is very rare as in the maximum number of Bitcoin that will ever exist is just under 21 million. Considering that there are over 320 million people in the United States, and approximately 7.3 billion people in the world altogether, it becomes immediately evident that not everyone in the world will ever own 1 Bitcoin. . Is it possible to make counterfeit cryptocurrency? This is an interesting question. Under normal circumstances, the short answer is “no.” One cannot make counterfeit cryptocurrency, but it is possible to disrupt the overall technology that supports the underlying cryptocurrency. Counterfeit proof And in the case of a currency where the underlying units of value are regularly created and destroyed, it is possible that a malicious actor could gain control of the technological capabilities to create and possibly destroy the units of value at their own discretion. Surprisingly, if this were to occur, it would be a “real creation” of the underlying cryptocurrency. Unfortunately, this “real creation” of the digital assets would have been done maliciously, thereby failing to adhere to the principles and governance model set forth by the presiding organization. . This is one of the greatest value propositions for cryptocurrencies. They are highly transferable. While every cryptocurrency operates somewhat differently, Bitcoin transactions typically clear in less than 1 hour and have been as low as within 10 minutes over the past year. There are exceptions to these processing times, but generally speaking, this is not a matter of days. Transferability . Are you free to spend your cryptocurrency as you see fit? Given that you maintain the custody of your cryptocurrency, you have absolute control over when and where to send your cryptocurrency. No authority can execute a transaction with your cryptocurrency. In order to do so they must have your private 64-character string. Admittedly this does become challenging especially in the case of IT security compromises. This character string needs to be protected, otherwise an actor other than yourself can gain access to your cryptocurrency. Voluntary and Uncontrollable by Authority Poor Unit of Exchange, Still Valuable Now that we have given some attention to the above qualities of money, two of the biggest concerns mentioned above are and . It is no surprise, as these are highly correlated qualities. As one can reason, it does not seem logical to voluntarily send or receive payment in a currency that is not likely to be a stable store of value. stable store of value acceptability Photo by Aaron Blanco Tejedor While some entities may be willing to take the risk associated with accepting payments of this nature, this is risky, and not aligned with sustainable accounting methods and successful business operations. While Bitcoin and others continue to have exchangeable value, their lack of stability has made them poor instruments for the exchange of goods and services. So if cryptocurrency does not generally act as a stable store of value, and it is not readily accepted for goods and services, does it hold real-world value? . Yes, they do hold real-world value Otherwise, cryptocurrency as a financial category would fail. We may not be doing well on the unit of exchange test, but we will be seeing more cryptocurrency-based payment methods in the years to come. A number of them are at your disposal today, and even better systems are in the works. Disrupting Fiat As we reflect on why fiat money holds its value, one might have observed that cryptocurrency is not legal tender and not governed by the debts and underlying tax system of any sovereign nation to date. Consequently, in a plethora of cases, it is also not accepted today as a method of payment. Photo by Igor Ovsyannykov The cryptocurrency experiment then begs the question, is it possible to have a valuable digital asset that is not backed by a sovereign nation, decoupled from the notion of being considered a tax credit, and fails at being a universally accepted method of payment? The past 8 years have proven to us that the answer to this question is a resounding “Yes,” and I see no reason for that to change. The underlying technological systems, governance, and controls in place have given cryptocurrency enough of the qualities of money to validate as a secure and controlled system for exchanging value amongst its participants. While the number of cryptocurrency users today remains small when compared to the users of money around the world, the users of cryptocurrency are growing in their numbers. We have traversed quite a history of money when we consider cattle, gold, fiat, and now cryptocurrency. The crypto markets are still in their early stages, and we will have growing pains along the way. Ultimately, I’m confident that the future of money does include cryptocurrency. They are uniquely valuable, and I will argue that they will continue to be so, for many years to come.

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