Cryptocurrencies and E-Wallets

According to (), cryptocurrency is defined as encrypted digital currency that is capable of being transferred and authenticated through a particular process that is universally known as mining. The purpose of this essay is to determine whether cryptocurrencies, such as Bitcoin, are money, and to predict the implications for economic policy should these cryptocurrencies become widely used. The focus of this essay will be on defining cryptocurrencies, exploring the implications for economic activity, monetary policy, inflation, exchange rate and also exploring why the value of these cryptocurrencies have deteriorated extremely how the past few months.

Below is an overview of what cryptocurrency is and its important facts. Firstly, the identity of the individual making use of cryptocurrency is confidential through the use of public ledgers (). The balance of the user is also calculated correctly, and it is guaranteed that the user of the digital wallet makes use of the coins that he/she has ownership over.

Secondly, a transaction, in terms of cryptocurrency, is the conversion of money between two e-wallets. Th transactions are placed in the public ledgers and wait for confirmation, which then leads to the term “mining’. Mining is the process of accepting the transaction and transferring it to the public ledger. Cryptocurrency is cryptographic, this meaning that it makes use of distinguished encryption that grants the controlling and generating of coins and approving the transaction. Cryptocurrency is completely electronic and does not need tangible objects because digital money is stored in distinctive wallets and transmitted electronically to other wallets.  This is one of the differences between cryptocurrency and other conventional financial systems.  

There are different factors that make this monetary system contrast from that of the past. One of these factors is adaptive scaling, meaning the cryptocurrencies are able to work efficiently in different scales, and one of these can be found in the ever so popular- Bitcoin. Bitcoin is a form of cryptocurrency in which special encryption methods are used to govern the units of currency and to authenticate the transfers. Is a network-stationed virtual currency that is traded and exchanged into currencies online, Bitcoin also gives the user the liberty of being able to mine, sell, buy and/or accept bitcoins from all over the world. Transactions take place with no bank interferences, thus there aren’t any transaction fees.

Furthermore, can cryptocurrencies such as Bitcon be classified as money or currency? The International Monetary Fund defines money as a “store of value,” this meaning that individuals can save it and make use of it at a later stage. Other definitions of money include medium of exchange and unit of account. Most definitions of money are based on the concept of a purchasing unit, that is often labelled as bills and coins that may be used to purchase goods and/or services. The main characteristic is that money makes provision for transactions that move far beyond trade goods and services. Therefore, when analysing definitions, money does not have to be tied to a government issuer. It must just be dispersed and used for exchange. In addition, currency seems to be linked to a certain country. Currency is defined as a system of money in common use in a certain country, or simply put, money used by a country. There is a tie to a certain country, however, the phrase does not demand that it be a government-issued currency, just extensively used as the medium of exchange by a certain country.

Thus, Bitcoin qualifies as currency and/or money as it has no tie to a particular government and it is a medium of exchange and a unit of account. The true question would be whether Bitcoin, and other cryptocurrencies, are accepted as money under the legal definitions of money. United States Magistrate Judge, Amos Mazzant, ruled that Bitcoin can be used as money as it can be used to purchase goods and services such as paying for living expenses. Hover, he stated that the disadvantage of it was that it is limited to places that accept it as a form of currency. But, it can be exchanged for traditional currencies such as the US Dollar, Yen. Yuan and Euro.

With the above stated, it is also crucial to consider the implications for economic policy if cryptocurrency became the official currency, hypothetically speaking. Although these digital currencies will not take the place of dominant currencies, the do have the ability to play a compelling role in the payment system because they facilitate electronic payments without depending on third parties, such as banks. Extensive use of these currencies will decrease the demand for central bank money, therefore decreasing the size of balance sheets of central banks. Profits of central banks will not vanish, but will rather diminish. The impact of digital money use in retail payments would assume a switch from cash purchases to credit card purchases. This basically means that households decrease their cash holding and increase their bank deposits, with credit card bills debited into their deposit accounts. This will result in less banknotes being circulated, and central bank profits decreasing.