What Makes a Currency Valuable — Crypto
This article is an examination of this BusinessInsider post:
Some terms used
Fiat Currency: fiat money, in a broad sense, all kinds of money that are made legal tender by a government decree or fiat. The term is, however, usually reserved for legal-tender paper money or coins that have face values far exceeding their commodity values and are not redeemable in gold or silver.
Cryptocurrency: sometimes called crypto-currency or crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Cryptocurrencies don’t have a central issuing or regulating authority, instead of using a decentralized system to record transactions and issue new units.
For most people, cryptocurrencies are tools that allow them to earn more. Then they convert those earnings to fiat currencies like dollars, euros, etc.
“At some point for most crypto, you’re converting it back to a fiat currency,” Dr. Aleksandar (Sasha) Tomic
So first fact: people don’t use crypto as a currency(at least for now).
On the other side, some people have already acknowledged cryptocurrencies for common use. The article shows inflation as a reason for this.
Because decentralized systems don’t get(less) affected by inflation, so it makes more desirable than fiat currencies.
What makes currencies currencies
- Acceptability: It must be accepted by a high range of people. Think of a currency that only is accepted from you. You couldn’t buy anything with it. It would be like children that try to buy something with the paper money they painted.
- Divisibility: Currencies must be divisible into smaller units. Like 1 dollar is equal to two 50 cents.
- Durability: Currency must be reusable so it can be useful in future situations. Paper money is not the best fit for durability but people mostly use credit cards for transactions. So money doesn’t get perished easily.
- Fungibility: Fungibility means there is a widely accepted value of an item and two of those items can be exchanged without either party losing value. Factors like the size or shape of the currency mustn’t be a factor for a currency — look at dollars and euros they are just a piece of paper.
- Limited supply: If there is an infinite amount of something that thing is worthless. For that, most cryptocurrencies have a limited supply. For example, Bitcoin’s supply limit has always stood at 21 million coins. When the elusive Satoshi Nakamoto initially developed Bitcoin in 2009, they designed the source code to specifically cut off its supply at 21 million.
- Portability: A currency could be transferred easily. Also, it mustn’t take too much space. And cryptos just take digital spaces so it’s perfect.
- Stability: The value of the currency must be stable and mustn't lose value over time. As an example, 100TL must be always equal to 100TL(but in TL it doesn’t work like that😉).
