Question

Define and explain cryptocurrency. Evaluate cryptocurrency in terms of the functions of money and explain if it is money or not.  

Answer 1

Answer

A cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a digital ledger or computerized database using strong cryptography to secure transaction record entries, to control the creation of additional digital coin records, and to verify the transfer of coin ownership. It typically does not exist in physical form (like paper money) and is typically not issued by a central authority.

Functions of money are:

• A means of exchange
• A store of wealth
• A unit of account

Although cryptocurrency meets the criteria as a medium of exchange, it fails as a store of value and a unit of account. Unlike fiat currencies such as the U.S. dollar, cryptocurrency has proven to be too volatile to make it a reliable vehicle in which to store value over long periods of time. Thus, cryptocurrency cannot be considered as real money.