Why do we need Cryptocurrency?

In ancient times, people followed barter system in which goods were exchanged for goods. They started facing difficulties in the barter trade and thus gold coins were introduced to facilitate trade. As time passed, difficulty was faced in transporting coins which led to issuance of currency notes by the government backed by precious metals. Various reasons like countries wanting to print more currencies during wars to pay war cost, led to use of fiat money. Today these currencies are not pegged; rather their demand and supply determine the variable exchange rates. 

You must be then wondering why the world felt the need for cryptocurrency after the introduction of fiat money! The reason is that the fiat money faces two major issues. These are centralization of power of issue of currency and no capping on amount of issue of currency. This leads to high inflation in cases when proper regulation is not there. Hence, to tackle this issue cryptocurrency came into the picture. Not only is it capped at a fixed amount which results in no risk of excessive supply, but also instead of being regulated by any monetary authority, it is regulated by a peer-to-peer community computer network made up of users’ machines or “nodes”. The most common types of cryptocurrencies are: Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ripple, Stellar, NEO, Cardano, and IOTA. If you want to know more about them, let us know below in the comment section.

Now, we will analyze whether cryptocurrency qualifies as a successful currency based on the key attributes of an ideal currency.

1. Scarcity: a cryptocurrency’s maximum supply is capped.

2. Divisibility: these are divisible up to 8 decimal points.

3. Fungibility: most cryptocurrencies are fungible.

4. Transportability: cryptocurrency can be transferred from one wallet to another without the help of a bank

5. Durability: cryptocurrency is a digital asset, it can neither be burnt nor be torn. Hence, it is a durable form of currency.

6. Counterfeitability: it is extremely difficult to introduce fake cryptocurrencies

As cryptocurrency possesses all these key characteristics, it is proving to be a successful currency. There has been a steep increment in market capitalization of cryptos in recent years after a steady growth giving a huge yield to investors.  The below graph depicts the recent increment in market capitalization in the year 2021

Cryptocurrency has shown a major shift in how we look at money, buy it and spend it. Although it is not a completely perfect currency, but one should decide whether to buy it or not based on proper facts and not just hearsay.

Sources:

1. https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/
2. https://www.conyers.com/publications/view/why-is-crypto-so-important-and-should-i-care/#:~:text=But%20cryptocurrency%20is%20important%20and,Fraud%20is%2C%20actually%2C%20minimized.