Possessing cryptocurrencies is as good as possessing money because it possesses the salient properties of money ascribed by economists. It serves as a unit of accounting, a medium of exchange, and a store of value. You can use cryptocurrencies to quote prices, buy and sell goods and services, and save it for use later. Money has always acquired some physical form, as evident from the history of its evolution that began in a commoditized form of salt, stones, tobacco, rice, cloth, dried fish, etc. It then became a tokenized form like paper money and coin and then moved further to take an abstract form in the latest version of digital money, explains Eric Dalius, who has been an investor in cryptocurrencies.
Eric J Dalius explains why cryptocurrencies are not usable as everyday money
Cryptocurrencies represent the latest stage in the evolution of money that is gaining full global recognition and popularity. It does not come under the control or governance of a central authority. You become the sole owner of cryptocurrencies earned by a process known as mining. Despite gaining recognition and popularity, the use of cryptocurrencies remains limited due to its relatively low throughput. For example, the bitcoin network can process 5-7 transactions every second. This is no match to the thousands of transactions processed in seconds by Mastercard or Visa. This has been a big impediment in Bitcoin becoming an everyday currency, although it enjoys a decentralized status.
The limitation explained
You may wonder why there are no efforts to improve the transaction time. Improvement in the transaction time can only happen at the expense of decentralization. Some of the second-generation cryptocurrencies like Stellar and Ripple have incorporated this in their networks. They can match the transaction time with that of Mastercard or Visa, but as they are not much decentralized, its security is not as good as bitcoin.
Cryptocurrencies, in its current form, lack perfection that everyone is aware of, and since there is room for improvement to achieve more perfection, efforts are on in the crypto space to find workable solutions.
Improvements are happening
Cardano, the third-generation cryptocurrency, attempts to combine the tenets of game theory with formal scientific methods in cryptography. It aims to build a cryptocurrency platform capable of offering high throughput levels. Interoperability with traditional financial systems and compliance. The cryptocurrency proposes to accomplish the improvements without compromising customer privacy, network security, or energy resources.
The economic significance of cryptocurrency
The decentralized nature of cryptocurrency allows its increased global economic participation while protecting against government overreach. As cryptocurrencies do not have any requirement for bank accounts, it remains accessible to two billion people who do not have bank accounts. It means that anyone without a bank account can now participate in the global economy by acquiring cryptocurrencies, which are equivalent to a bank account that they can access by only having a phone and internet connection.
Cryptocurrencies could create synergies across the economy and generate additional tax revenues by helping to integrate the people without bank accounts into the financial system.