Currency to Crypto-Currency

Cryptocurrency, which has been a great buzz in recent times.

Crypto-currency became a multi-bagger investment opportunity for many, speculated by a tech giant with his tweet, banned in few countries, made Governments think about forming a regulation for it, etc…

Before digging deep into crypto-currency, let’s discuss what is currency, shall we?

Money is a universal medium of exchange that enables people to convert almost everything into anything else. It doesn’t need to be a coin or note. It is simply people's belief in using something to value other things for the purpose of exchange of goods and services and also for storing the wealth conveniently.

We use notes and coins as currency now. But, money existed long before the invention of coinage in the form of cattle, salt, grain, beads, cloth, etc… Moreover, Shells were used as money for 4000 years all over Africa, South Asia, East Asia, and Oceania. In movies, we can often see cigarettes are used as currency, yet this is real in many modern prisons and POW camps. Even non-smokers use it to trade.

But what are the basic quality that a currency should possess?

1 — Availability and Mutual Trust

Assume a situation where you have 2 kgs of apple cultivated fresh from your farm and you need a haircut. You can sell this apple and use that money to avail the service from the hairstylist. This is possible only when you, the one who bought an apple from you and a hairstylist believe in a certain currency as a medium of exchange. If you sold the apple in exchange for shells and use it with a hairstylist who is using rupees for transactions, then it is not possible.

A currency should be available readily for goods and services, and also it should be trusted by all players.

2 -Authority behind currency

Why do we give away tons of paddy which got cultivated in the field for a few colored notes (money)? It is because it was authorized by the RBI governor that this bill is worthy so and so rupees.

Let’s take a peep into history, Since TRUST is the raw material with which all types of money is minted, that trust is backed by a king who was in power. For instance, the Denarius coin was first introduced in the Roman empire and spread across the world. Their reach is in such a way that the name ‘denarius’ became generic for coins. The term “DINARs” which is the currency used in middle-east came from the word denarius.

Denarius Silver Coin
Denarius Silver Coin

In today’s world, the currency is backed by respective Governments and regularized by their own central bank. In another way, this gives power to Government. Take this pandemic as an example, when there is less cash flow, the central bank starts to print money and let it float in the market under the least interest rate. These tactics can be done only when the Authority has the power and only when people trust the Authority.

3 -Easy Transportation

This was the major reason why commodity-based currency failed. Barley was once used as currency where common measurements called sila were manufactured on a huge scale which is equivalent to roughly one litre. Every trade in the place happened using sila of barley. For instance, a maintenance person will earn around 1200 to 5000 silas. But, this system couldn’t last long since transportation was difficult.

But nowadays this problem is solved by online banking. In 2006, the sum of total money in the world was $60 trillion. But the actual currency in circulation was less than $6 trillion dollars. With options like UPI, net banking, IMPS, NEFT — online transactions became simple.

4 -Stability

Currency, law, and tax systems are something that should be maintained with the least volatility so that the economy will grow without much disturbance.

For instance — In 1947, One dollar is equal to one rupee. After 75 years, now one dollar is equal to approximately 75 rupees. I am not going into a debate on why this change happened, but the point is, the value of one currency should be maintained without much volatility.

Assume if the value of one currency is depreciating rapidly, inflation will skyrocket eventually, the economy will collapse. In contrast, if the value of a currency is increasing spontaneously, then people will not spend it, rather they will start accumulating it, like Gold. Gold was once used as a coin, but now it is an investment option. The conclusion here is, the value should not vary rapidly.

The evolution of currency left us to Crypto-currency. On Jan-2021, there are around 4000 crypto-currencies around the world. There is a number of trading apps available where they allow easy trade among crypto-currency.

Crypto-currency is born out of brilliant technology, but the downside is — it’s not backed by any supreme power like Government. Though if people start using crypto’s as currency, Government will pitch in immediately to regulate it or rather ban it. For instance, In April 2021, Turkey put a ban on Bitcoin to use as currency to buy any commodity. This happened when an automotive company announced they will accept bitcoin for transactions.

There is no wonder in this, No Government will be in a position to give away their power to unknown currency backed by brilliant technologies and several Engineers. Despite all this, there was a sudden surge in some crypto-currency which was started for fun. This shows how much free money is floating around the market. Without any intrinsic value, without any big power behind them, without any typical use as currency — these currencies have been mined and floated in the market only with the hope that there will be someone to buy this for a higher price.

‘We can know the reality only when the music stops.’ Likewise, when this free cash flow stops, when interest rates starting going up again, then the cloud will be clear with sunshine. It may give warmth to certain people and it may hurt a few.

Nevertheless, the technology behind cryptocurrency is brilliant because of which the Government is forming a regulation committee to adopt this technology into the existing system. For instance, Panama is coming up with a crpto-currency bill in July-2021, India formed a committee to understand the practical challenges of rolling out this currency and many other countries are working on this.

With the rapid improvement in technology, the evolution of currency is inevitable. But whatever be the case, the history and basic properties of the currency remain the same.

Brain behind Future Vehicle🚗 |Software Developer👨‍💻 |Fitness Coach🏋️ |Adventurer🧗| Retail Investor