A report by the prestigious university Imperial College London has said that cryptocurrencies like bitcoin and ether have already fulfilled one of three primary criteria of money and the former has the potential to upend the nature of financial systems.
Digital Assets are Already a Store of Value
According to professor Knottenbelt, for an asset to be considered as money, it needs to be able to operate as a store of value, medium of exchange, and unit of account simultaneously. Currently, significant digital assets are widely recognized as a robust store of value and investors in the global finance sector have invested billions of dollars in bitcoin, ether, and other significant cryptocurrencies as long-term investments.
It can also be argued that significant cryptocurrencies have become an efficient medium of exchange, considering that users can purchase goods and services with cryptocurrencies at merchants that accept digital assets, and easily convert cryptocurrencies to fiat money. But, significant progress will have to be made in the medium of exchange aspect, especially in respect to merchant adoption, for digital assets to be considered as money.
The report claimed that for cryptocurrencies to meet the last two criteria, drastic improvements in their scalability, design, and regulation are necessary. In the long-term, with increases in both layer one and layer two networks, and when fees no longer become an issue for merchants, then cryptocurrencies would be able to qualify as money, said the researchers at Imperial College.
While the majority of individuals in the traditional finance sector remain skeptical towards cryptocurrencies, Knottenbelt stated that digital assets are rapidly fulfilling the criteria for becoming a widely acknowledged payment method and a new standard of money.
Evolution of Money
Similar to the point addressed by $83 billion investment bank Goldman Sachs CEO Lloyd Blankfein, who previously said that there exists a strong chance for consensus currencies like cryptocurrencies to evolve into a significant asset class and replace fiat currencies as the new form of money, Imperial College research associate Dr. Zeynep Gurguc explained that over time, cryptocurrencies could evolve into the next generation of funds.
“New payment systems (or asset classes) do not emerge overnight, but it is worth noting that the concept of money has evolved – even in our lifetime – from cash to digital or contactless payments. The wider use of cryptocurrencies and crypto-assets is the next natural step if they successfully overcome the six challenges we set out in our report.”
In the late 1900s, fiat money was considered a new form of payment which the majority did not approve of, because of the sudden abolishment of the gold standard. The difference between the birth of fiat in 1971 and the emergence of cryptocurrencies in 2009 is that the former was forced by a central authority while the latter would be recognized in the future as a voluntary and natural progression from an old standard of money to a new standard.