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Should Crypto Currencies Be Treated As Money?

If you follow along my articles, you probably noticed by now that I always refer to things like Bitcoin and Litecoin as being crypto currencies. More or less as a form of money. But should this be how they are treated, or are they really different?

Well, to me they should be treated very different. For example, fiat is backed up in some way or another by governments. Gold is backed by its physical presence. Other minerals are as well. With Bitcoins and other similar currencies, however, they are backed solely by their perceived value. Really, we could argue that the USD is the same way; it is worth a dollar because everyone has agreed that it is worth a dollar. But they just seem to be very different in how they work, how they are being transferred and utilized between one person to another, etc.

Everyone should already know that Bitcoin is being declared as a form of money by the government. After all, we are using it as one, to a point, right? It is used for buying and selling items, it is used for gambling (in an attempt to win more coins) and it is used as a transfer of wealth. So, in essence, we are using it in the same exact way as we do our cash; from this stance, there is no difference.

But here is where my issue stems from. We could start using rocks in the same way. Small rocks could be worth $5, medium could be $10 and big ones could be $20. We could start using these to trade for work and items we want. Would that magically turn all rocks in to a form of real money, or does that just make them a trading utility? I would venture out and go with the latter. The only way I can see it as being a real form of money is if everyone starts to accept them in return for work and goods. Until this happened, only people within the small niche would be able to take part in this trading, therefore while it is a trading utility, it would not be a universal monetary instrument. The only way to progress would be to get others on board. Much like I could accept the rocks in return for a car, I would have to buy that car from someone else. If that person did not also accept the rocks in return for it, we would be very limited. At some point we hit the end of our circle, where money has to be brought in to the ecosystem to make everything work.

I really feel that crypto currencies are in the same boat. I can buy and sell things all day long for Bitcoins. The problem comes down the line. Even if my supplier accepts Bitcoins, do their manufacturer? If they do, do their researchers? What about their workers? No matter how many people we have on board at this point, we are going to hit the end of the road where you either throw USD in to the mix or you can not continue on with the business. Because of this, I do not see Bitcoins or other cryptos as being a true form of money. Were we able to get the majority of the world to adopt them, or at least to accept them and utilize them, this opinion could definitely change. But that is many years down the road and may or may not ever actually happen.

While I am not going to go against the court's ruling on Bitcoins and the other currencies, I do think that they are flawed in this manner. I think their decision was based on the fact that they can be traded for USD, but so can the rocks mentioned earlier. So can leafs. It in no way means that rocks and leafs are now a form of money and should be treated as such. Instead, we should just treat them as a tradable instrument.

Finance | Opinions


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