For something to be considered as money, it has to be:
Store of value
If the ‘value’ of money changes drastically from one day to the next, as explained previously in the Weimar Republic example, people will stop using paper money and turn to other types of stores of value.
It is essential for any currency to be stable so people can consider it as a store of value.
Unit of account
You need to be able to relate the “value” of money to the value of something else, say 10 cowry shells for a bowl of noodles or one gold ingot for a horse.
Medium of exchange
You cannot be the only one trading in cowry shells.
Everyone else must be ready to accept them as a means of payment.
If you go from the landlocked areas where cowry shells are rare to the seaside towns where cowry shells are plentiful, it may not be recognized.
The same thing happens when you travel to a different country today.
Characteristics of money:
Crypto isn’t even physical!
It’s definitely durable compared to a physical product.
But wait, isn’t it just data?
Can’t it be destroyed like hard disks and thumb drives?
Technically it could, but the blockchain which record every individual fraction of crypto is distributed across millions of nodes.
You can’t destroy 1 node to wipe that record, you would need to destroy all of them.
Destroying millions of nodes is practically almost impossible because it would be equal to hacking millions of computers at the same time.
Due to its electronic nature, crypto is stored “in the cloud” similar to dollars in your bank account.
All you need is a phone application and wifi or a mobile data connection to send the request to the blockchain.
While you can break dollars into cents and think that’s very divisible, crypto goes up to 18 decimal places.
Not only that, every time you break a dollar into cents, you actually decrease the portability of money per person as weight and space go up but the value of money goes down.
Fortunately, we will never have this issue with non-physical cryptocurrencies and be able to divide as much as we choose.
Each unit of cryptocurrency is indistinguishable from the next.
While even some notes have serial numbers to indicate authenticity or minting order, if you transfer 1 Bitcoin to a wallet with 9 bitcoins, even the owner is not able to recognize which of the Bitcoins he received; they are perfectly identical and fungible.
Limited supply (or rarity)
As we mentioned before, governments are printing more and more money and the total supply is growing endlessly.
It is going to increase supply while the demand is not growing.
All that is going to decrease the value of money.
Cryptocurrencies like Bitcoin, however, have a hard limit as determined by software: no one can ever create more Bitcoins.
It misdefined by protocol and every single day less and fewer Bitcoins are going to be printed until hardtop is reached.
Once it happens, there will be no new coins created.
It will cause the supply to stop growing and if we see an increase in demand, it is going to cause an increase in the price of Bitcoin.
Probably the only aspect the crypto currently loses out to fiat from is in its acceptability as a medium of exchange.
However, the situation is quickly changing and the more cryptocurrencies get exposure, the greater the rate of public adoption of crypto as payments and transactions.
It is just a matter of time when we are going to see a product that will allow companies to accept crypto and convert to fiat instantly if they want.
That is going to cause an increase in the number of customers and it is going to be the first step to mainstream adoption.
Milos is an independent trader, with a background in journalism and publishing. Nomadic by nature, he’s lived in four different countries this decade. He’s fascinated by Blockchain technologies’ potential to reshape all aspects of our lives. Milos got into Bitcoin while completing his degree and hasn’t looked back since, writing about anything crypto-related. He is the co-founder of the Cryptoaims and he has a strong passion to educate people about this revolutionary technology.