Lesson 9: Let's learn about the challenges facing cryptocurrencies.

The three necessary roles of a currency

In the first place, fiat currencies such as the dollar and the euro work as currencies because they fulfill three roles: a means of value exchange, a measure of value, and a store of value.

If any one of these functions is lacking, the currency ceases to exist as a currency.

Can cryptocurrency be established as a currency?

Let's check one by one whether cryptocurrencies have the three roles of a currency: "means of value exchange," "measure of value," and "storage of value.

Exchange method of value

As we learned in Lesson 4, "What can I do with cryptocurrency?", cryptocurrency can be used to buy home appliances and eat at restaurants.

Therefore, we can say that the "means of value exchange" has been established.

Measure of value

The ability to purchase goods with cryptocurrency means that the value of the goods can be expressed in units of cryptocurrency.

For example, if you can buy a refrigerator for 1.5 BTC (a unit of bitcoin) with bitcoin, you can say that the refrigerator is worth 1.5 BTC.

Store of Value

There is a great deal of speculative and investment demand being generated for cryptocurrencies.

As a result, the volatility of the value of cryptocurrencies themselves is extremely high, and they are unable to fulfill the third role of value preservation.

Therefore, it is difficult to define cryptocurrency as a currency at this point.

Why does cryptocurrency have value in the first place?

Fiat currencies such as the dollar and the euro are established as currencies based on trust in the issuing entity.

In short, the dollar and the euro are established as currencies because their issuers, the central banks, are solid organizations.

So how is trust established in cryptocurrencies, which have no issuing body?

The trust in cryptocurrencies is based on a variety of factors, including the fact that they cannot be counterfeited or altered, that they cannot be controlled by anyone, and that they have a limited amount of issuance.

The "blockchain" supports the mechanism to make cryptocurrencies trustworthy.