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Monday, September 13, 2021

Cryptocurrencies and Future of Money

Based on the needs of the economy and the society, money has evolved over centuries. If we look at the history of money, we observe that the changes have taken place because the former forms were inflexible for the demographics. Regardless of the type of money, whether it is commodity money (e.g. gold) or intangible IOU (e.g. banknotes), three criteria were always fulfilled: (1) store of value, (2) medium of exchange and (3) unit of account [1].

It is estimated that the cumulative market cap of cryptocurrencies went up from 0.21 million USD to 1.78 trillion USD between July-2010 and May-2021 [2]. This huge growth can be attributed to people’s positive opinion about cryptocurrencies being the next big financial innovation that would disrupt the financial system and the current form of money. To me it is a highly speculative idea. The fact that bitcoin and other similar cryptocurrencies are attractive to many young first-time investors, who believe that they can sell it for a higher price at a later point in time, demonstrates a sign of bubble.

Estimate of overall cryptocurrency market cap per week from July-2010 to June-2021 in million U.S. dollars [2]