How to buy Bitcoin? Will Bitcoin fall more or rise increase? THE MONEY IN THE NEW ERA - 2 -

 3.Definition and Functions of Money

After defining and understanding what a cryptocurrency is and how it works, we should analyse it with conventional money. Money has a lot of definition and it has been defined diversely from different points of view. However, it could be said briefly that money is a tool which is based on public trust and provide us to buy our needs and making our transactions. Moreover, money is “a stock of assets that can be readily used to make transactions “.

 

Due to fact that money has three main functions, if we want to predict or understand future of the money and cryptocurrency, we must consider and analyse firstly these three functions in terms of usage of cryptocurrency also. It should not be forgotten that our real main target in analysing functions of money is to understand if cryptocurrency can obtain the role of money in the future in terms of functions of money.

 

It has been widely accepted that main and primary function of money is the medium of exchange function. If you can't transfer or exchange goods and services via money easily clearly the usage of money will not mean anything to you anymore. In this aspect if we consider "Bitcoin" as the most accepted and used cryptocurrency, it is not impossible to buy or exchange some goods or services via bitcoin but it is very clear that bitcoin has a limited ability in the sense of the medium of exchange function. Bitcoin has a very limited space for buying or transferring goods or services all around the world in comparison with fiat or modern money.

There are some limited number of online shopping websites and retailers operate all around the world and they accept cryptocurrencies especially bitcoin as an exchange or buying tool if you have a crypto-bitcoin wallet. However, it could be readily said that these kind of limited and selected numbers of retailers or websites are not enough to be widely accepted as money.

 

One another important aspect and function of money is to serve as store of value for its owner. In this aspect having stability and predictability are very crucial for any commodity or any currency. Because via money people want to have some value which will not change in the short term. In this scope volatility emerge as a very significant term for the currency.  When we look at the volatility issue in terms of most known cryptocurrency-bitcoin it is very obvious that value of bitcoin has been so volatile during the recent years.

According to Kuikka (2019: 16) Shortly after the invention, the value of the new digital currency “bitcoin” when compared to the US dollar was measured in only about a cent. However, during the following year, bitcoin saw a rapid rise in value reaching a total of 27 US dollars by end of 2009. In the early 2010s, bitcoin began to gain more mainstream adaptation, and in 2014 Microsoft was one of the first major corporations which declared it will begin accepting payment transactions by bitcoin (Smith, 2014) and by the end of 2017, bitcoin had reached its highest value of 19,783.21 US dollars. The rapid development of bitcoin created a lot of speculation and interest in the area of cryptocurrency. It seems that solving volatility issue seems one of the most important and difficult problems for cryptocurrency.

 

As the third important function of money: "a unit of account" represents a useful function. When we think that sometimes how important even buying a little slice of cake, this function of money emerges as a very important issue. If you have a sole and inseparable currency and while you cannot buy even a little slice cake from a retail store with it, it is very obvious that you start to think again if it is a real currency or not.

to be continued..

THE MONEY IN THE NEW ERA - 1 - Can Cryptocurrencies Acquire the Role of Money? -

 

1.Money and the Future

Humankind has used a lot of materials as money throughout history from barter economy until the modern economic system. It is known that from the start of civilization until today we have used precious metals, objects, paper and even sea shells as money. 

Along with technological developments and evolution of globalism there has been new inventions, discoveries and terms come into our daily routine life. Naturally, It is inevitable that these changes has emerged in economic system also. Especially after 1990's, technology and evolution of globalism bring to our life a new sort of money called cryptocurrency during the recent years.

In order to know or predict if any other object or system like cryptocurrency could be replaced with the fiat or paper money system or used as money in the future, first of all, we have to understand the role and usage of the money throughout the history. At this stage it is very crucial that we have to consider functions of money.

On the other hand, discussing future role of the fiat money system and cryptocurrency is a very complicated issue. The way of understanding these phenomena are related to consider closely and together globalism and technological developments. After considering these issues, it is very clear that trust must be regard as an important topic to analyse. It must be said that even you have a powerful concept and system for cryptocurrency, you have to make people and the community believe and trust it. Because there is no chance for a currency to live long unless trust and belief for it.

 

2.Most-Known Cryptocurrency -Bitcoin-

Even though idea of electronic money dates back to 1980s, Bitcoin just started in 2009 by its creator Satoshi Nakamoto. 

According to Douma (2016: 9) Despite the fact that the European Central Bank doesn’t take Bitcoin as a currency, it still insists that European Central Bank is responsible for the impacts of Bitcoin and its usage especially in Europe economic zone. “Virtual currency schemes do indeed fall within central banks’ responsibility as a result of characteristics s1453297 10 shared with payment systems, which give rise to the need for at least an examination of developments and the provision of an initial assessment” (European Central Bank, 2012).

At the same time with European Central Bank. the European Banking Authority also says, “the usage of the term ‘currency’ is misleading for several reasons, including the insinuation that it is therefore exchangeable against other currencies, which may not necessarily be the case” (European Banking Authority, 2014). From this we understand that the European Central Bank holds central banks responsible for transactions made by using Bitcoins (to protect people).