Money Is Not Paper, It Is Electronic

The most common argument people have about cryptocurrency is that it has no intrinsic value, unlike fiat currency. You will hear people say that real money is “paper”. Cryptocurrency is virtual and therefore does not exist. However, there is so much more wrong than right to these statements. The truth is money is only paper as a medium of exchange. The fact is that not all money can be backed by paper. Is it possible for everybody to have a valuation of their money in paper when they suddenly decide to withdraw their funds from the bank. It is impossible since not every bank has enough supply to dispense.

During the recent financial crises that affected parts of Europe, like Greece for example, banks controlled the money supply limiting their citizens to how much they can withdraw. This is an example of not having enough cash or paper money to dispense, but also of how little control individuals have of their own funds. In Venezuela the government just keeps printing money which leads to hyperinflation and therefore a devaluation of the local currency. Suddenly you see the price of basic commodities go up by 1,000% or more and having a million amounts to no value whatsoever.

Money’s real value is not in paper. Paper is cheap, but also not sustainable you can argue. Imagine how many trees need to be cut down to make enough paper money to back up everybody’s valuation in their bank accounts.It is a physical object which people have associated with their funds. However when it comes to storage there is simply not enough for banks to hold and distribute. That is why banks will collapse if suddenly everybody decides to withdraw their funds. Not only will they not have enough paper currency but they also cannot allow that since it will deplete their supply. Thus banks implement limit and restrictions on how much withdrawals can be made. During times of financial crisis, people are at a disadvantage. What if that money was needed to buy food and medicine, basic things for survival.

The truth is, most money is just electrons now. They are digitally stored as bits in a computer when accessed. It is just the value of someones balances that is recorded in a database. According to the Economic Times, 92% of the world’s money is now digital. We use our debit cards and credit cards to make payments. It is now even easier with Apple Pay, Android Pay and other electronic payment services. We are just adding or subtracting balances to our bank statements but there is no actual transfer of physical paper currency during transactions.

So what about cryptocurrency? It is not paper money either. It is also digitally recorded, but in a cryptographically secured immutable and transparent database called a blockchain. Today banks and other financial institutions have also gone digital, but they don’t have the main feature of cryptocurrency which is decentralization. This is what prevents banks from restricting how much money you can withdraw and how you want to use it. Banks can even freeze your account, which is part of their policy, and there is not much you can do about it.

An important lesson from cryptocurrency is the benefits of decentralization. Money should be personal and totally under ones own control. That is option of course, because there are still people who prefer to trust their finances to a third party. However if you want to be your own bank, then you have that option too when using cryptocurrency. No limits, no minimum balances and certainly no hidden fees or charges.

Most of what we do with money is now done electronically since it is digital. You can pay online as well, when it comes to car payments, mortgage, rent and even retail. Many are already using Alibaba and Amazon to purchase items online and they don’t use cash. They use their credit card as the form of payment which is all electronic. Cryptocurrency is the same but is much better and more up to date in handling electronic payment systems.

Cryptocurrency is direct P2P (Peer to Peer) meaning there is no middle man. A customer can pay directly to the merchant without clearing and settlements with other parties like banks and credit card companies. This allows instant transfer of value. This feature also makes cryptocurrency ideal for remittances from overseas foreign workers sending money back to their home countries. Banks do feel threatened since they are slow in adopting these technologies. It can actually benefit them too once they integrate it with their systems.

The road to mass adoption is dependent on its utility and regulation. The SEC in the US is trying to regulate for the most part, but the system is decentralized. There is no actual company that makes cryptocurrency, these are all projects that were meant to be distributed to a large group of users. Cryptocurrency like Bitcoin and Ethereum have no owners. They are under a core development community and foundation that support it, but the SEC cannot really go after them. There is a grey area which regulators still need to address.

So cryptocurrency is just like any other currency. It has value that is determined by the market for its demand. Bitcoin is a store of value commodity which is exchanged not with physical cash but thru electronic digital exchanges. There are no Bitcoin paper currency, it exists on the blockchain. There are many benefits for the finance industry to adopt cryptocurrency. When the time comes for the world to go paperless and cashless, when all payments will be electronic, the features of cryptocurrency are a model to follow. When the time comes that you can pay for a cup of coffee easily with cryptocurrency, we can really say that adoption is finally here.

Note: Things are evolving fast in fintech and the world of cryptocurrency. We may see more adoption come when big business allow for payments and when government’s recognize it as a medium of exchange for all or most transactions.

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