Can Cryptocurrencies replace money?

Aug 8, 2018 by

Issuance of the money, setting the monetary policies and interest rates in a country is handled by the centralized body called “the central bank”. Uncontrolled issuance of money by these centralized bodies (central banks) and the banks has been the root cause of the financial crisis in 2008. The policy decisions taken by the banks are set in the non-democratic way which best serves the interests of the private banks and the investors. There is need to limit the money creation and to decentralize the banking system. Cryptocurrencies offer the answer in limiting the money circulation and in decentralizing the banking system.

Bitcoin, Etherum, Ripple, Eos etc. are few Cryptocurrencies developed in the recent time. Bitcoin has been the most circulated and has high value in economic terms of all the Cryptocurrencies. Bitcoin can be obtained with exchange of dollar or Euro and  with mining (validation of the Bitcoin transactions). When a transaction is initiated by the individual, the transaction will be successful once it is verified by the miner. Each transaction is stored in a decentralized system called blockchain. Blockchain is considered as ledger of the Bitcoin transaction. The total number of Bitcoins is limited to 21 million; hence the money creation can be limited.

Money is served as a medium of exchange, store of value over time and unit of account. As prices are not fixed in the Cryptocurrencies, values of the Cryptocurrencies are too unstable and Cryptocurrencies are not accepted everywhere, currently it is not able to serve the functions of the money. Even though Bitcoin provides security and doesn’t need any central authority, it requires lot of energy in mining process.

Although through Cryptocurrencies circulation of the money is limited, banks can be decentralized and can provide secure transactions; correcting measures, safety of the access is not guaranteed in using of the Cryptocurrencies which can be provided by the central banks in using the money.

Written by: Varun chowdary Ponnam and Jonas Pereira

Based on the lecture by: Beat Weber (“Cryptocurrencies”)