4 | The value of crypto

Money is necessary in financial transactions and is an accepted representation of value worldwide. Fiat money — government-issued legal tender — represents the most dominant form of money, oftentimes the only form of money that most people have ever known.

Through history, money has evolved, and the next evolution of currency has arrived. The development of blockchain technology with its associated cryptocurrencies has created a foundational breakthrough for the global system of money and value. Built on decentralized blockchain networks, cryptocurrencies like Bitcoin ($BTC), Ether ($ETH), and Cherry coin ($CHER) are not controlled by a single governmental institution and offer significant opportunities to redefine the global financial system.

What determines whether cryptocurrency is money? It all comes down to satisfying three key criteria: money must act as a store of value, a medium of exchange, and a unit of account.

  1. Store of value: All forms of money must act as a store of value. As such, there must be widespread confidence that money will retain its value. Without value stability, there is no incentive to use something as money, as the risk of devaluation is too high.
  2. Medium of exchange: Money must be a widely accepted form of payment. Both sides in a transaction must share the perception of value.
  3. Unit of account: Money must be able to price financial transactions by effectively denominating the value of different products and services throughout the economy in relation to each other.

Beyond these requirements, money must also be durable, portable, uniform, limited in supply, and widely accepted. It is apparent that the fiat currencies we use today meets all of these criteria, hence its universal use.

A major criticism of fiat currency, however, is that it lacks intrinsic value, instead deriving perceivable worth from its status as legal tender. Cryptocurrency derives intrinsic value from its native blockchain, where monetary policies are transparent and written into the protocol’s codebase. Most blockchain networks today rely on consensus mechanisms known as proof-of-work (PoW) or proof-of-stake (PoS) to mint new coins and many, but not all, have a finite supply of coins programmed into the protocol. Once minted or printed, both cryptocurrency and fiat currency can be purchased on exchanges and held as an investment, traded for other assets, or exchanged and spent in return for goods and services.

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