Researchers have defined currency as a medium of
exchange, a store of value and unit of account. Starting from antiquity, money
has changed its form from one to another. In antiquity the only function that
money carried was as a medium of exchange. People used to exchange with each
other commodities with the same value and having a “double coincidence of wants” (Mankiw, 1999). Oresme (1956), based
on Aristotel discussion about economy, stated that money existed to make the
process of exchange easier. Later, in the ancient Greece the gold and silver
coins were presented and used as a medium of exchange (Menger, 1892). The most important stage in the evolution of money was
the usage of money in the form that is commonly known today.
Among all the types of money presented during
centuries, lately, a unique type of money, called cryptocurrency, was presented
to the public. This type of currency, differently from printed currencies and
coins, is not considered to be fiat money, meaning that, they are not issued
and regulated by central bank, but by a software algorithm (EBA, 2014).
Differently from fiat money, that has a physical representation and can be
stored in a person’s wallet, a cryptocurrency can be stored only in electronic
Cryptocurrencies as a medium of
of the first and most important function that make the cryptocurrency a medium
of exchange are transaction costs. Although, these features differ from
traditional currencies. For example, transaction cost for cryptocurrencies are
lower than the transaction cost of currencies issued by central banks. When a
payment using traditional currencies occurs (like credit card or bank
transfers) a third party is included in this process, making the costs of
transaction high. When using cryptocurrencies, the only cost is the cost for
feature that is not applied in traditional currency is anonymity. In dark web,
cryptocurrencies are used a lot by criminals when performing illegal
transactions, in order to not let their identity be discovered. If traditional money was used in such
transactions, the money would flow from a banking account to another, discovering
easily their identity.
Cryptocurrencies as unit of account
Researchers have suggested some of the main
characteristics that somehow make the cryptocurrencies different from any
traditional currency. Two of the most important ones pointed out by Yermack (2013)
are volatility and divisibility.
Regarding the high volatility in short run, i.e. the
frequent change in the price of cryptocurrencies, Yermack (2013) argues that
these feature does not make cryptocurrencies an effective unit of account.
Because of this characteristic, businesses using and accepting a cryptocurrency
should adapt their prices with market changes.
The other feature that makes cryptocurrencies differ
from traditional currency is divisibility.
Divisibility for cryptocurrencies is infinite, meaning that the
quotation for prices can go up to 4, or more, decimal places. Yermack (2013)
compares cryptocurrencies with traditional one, saying that most of the
currencies operating in different countries use at most two decimal places.
Cryptocurrencies as store of value
The store of value function is related with the
currency keeping a stable value over time. Traditional currencies are known to
have a decrease in value over the years, making them inflationary,
and less effective in the function of storing the value. On the other hand,
cryptocurrencies are adjusted from inflation and are considered safe haven (Magro,