Bitcoin value is sky rocketing every day, but how far are they from becoming real money? Answer is too far. Cryptocurrencies were the highest in the March 2021; cryptocurrencies market value exceeded more than $1 trillion in a value, with Bitcoin accounting for more than two-thirds of that value. There are no physical Bitcoins, Bitcoin is only kept in public ledger. Bitcoin is not backed by any government or bank; although some companies such as Tesla accepts Bitcoin as a payment.
With $1 trillion in a value for cryptocurrencies, everyone is tempted to call Bitcoin and cryptocurrencies the future money; but in order to call it a real money, it has to meet following three properties.
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Actual Value of Bitcoin
There needs to be the actual value; goods and service bought today need to have to same value tomorrow or somewhat same value. Current cryptocurrencies fluctuate on every day basis. As of writing this article, Bitcoin value is $57,632.90 USD, where as on March 13th, 2021, Bitcoin was the highest on $61,283.80 USD; that is $ 3,650.9 (7%) difference in little over 2 week period. You can’t buy your groceries with Bitcoin when price fluctuate by almost $4,000 in 2 weeks. Imagine if your savings account plunged by 7% within matter of couple weeks. It would be devastating to see either savings or personal account plunges by 7% in matter of weeks.
Medium of Exchange
There has to be a medium of exchange for the Bitcoin; in another word it has to be a monetary value to buy or sell goods. Different countries around the world has different monetary value to buy and sell. In the US, people and businesses use US Dollars, in India they use Rupee, cryptocurrency is not how people buy anything. Some countries such as China, Russia Vietnam, Bolivia, Columbia and Ecuador has banned the Bitcoin in their countries.
Yet some countries want to regulate Bitcoin services. Tesla’s CEO, Elon Musk, did announce that it will take Bitcoin to pay for EV; yet the price of Tesla vehicle is still noted in dollars and not in Bitcoins.
Unit of Account
The final attribute that money must have is it must be the unit of account. It is how we measure wealth, value, and debts. As far as I can see, no one is preparing their business or personal accounts using cryptocurrency as the units. And No bank in the world currently offering account in cryptocurrencies. Instead, banks around the world offer to open account in US dollars and other major currencies. For example, Tesla may start accepting Bitcoin but their Unit of Account is still in dollar.
If money loses anyone of these three attributes then the other two will likely disappear as well. That likely would have happened in the 1983 Hong Kong currency crisis without the swift introduction of a peg to the U.S. dollar and the help of the U.S. Federal Reserve.
Currently, Bitcoin and cryptos have none of the three necessary money attributes. They need all three, and it will likely be a while before that happens.