Ukraine’s government has set up official wallets that can accept and make payments in nine cryptocurrencies including Bitcoin and Ethereum. Ukrainian law now permits crypto exchanges to operate regulated by the National Bank of Ukraine (the country’s central bank) to protect against fraud.—Financial Times
What is a cryptocurrency?
A cryptocurrency is a digital currency that serves as a means of payment using encrypted records on a computer network called a distributed ledger using a technology called blockchain.
A distributed ledger works like a paper record of transactions—a ledger—but with the records distributed across a network of computers rather than stored in a central location. And blockchain is a technology that stores digital information securely on all the computers in a network and enables ownership of a unit of a cryptocurrency to be transferred from one person to another.
If the seller and the buyer agree, a cryptocurrency can be used to pay for goods and services.
How many cryptocurrencies are there?
In March 2022, there were around 20,000 cryptocurrencies, and this number is growing at 1,000 cryptocurrencies a month.
By market share, the three largest cryptocurrencies are Bitcoin, Ethereum, and Tether. On March 21, 2022, Bitcoin had a 48 percent share and Ethereum had a 21 percent share—but these market shares fluctuate as their prices fluctuate.
Some cryptocurrencies have a fixed price equal to 1 U.S. dollar. Two of these cryptocurrencies, Tether and USD Coin, share a growing 8 percent of the market.
What is fiat money? Is it money?
Today’s fiat money consists of coins and notes and deposits at banks and other financial institutions. In the United States, fiat money is denominated in U.S. dollars and cents. In Ukraine, it is denominated in Ukrainian hryvnia and kopiyoks. On March 21, 2022, 30 hryvnia traded for 1 U.S. dollar.
Fiat money is money because the law decrees it to be so; the objects used as money have value only because of their legal status as money.
Is a cryptocurrency really money?
A means of payment is a method of settling a debt. When a payment has been made, there is no remaining obligation between the parties to a transaction.
Money is defined as any commodity or token that is generally acceptable as a means of payment. Coins and notes and deposits at banks and other financial institutions are money.
Bitcoin, Ethereum, Tether, USD Coin, and other cryptocurrencies are increasingly accepted as means of payment, so they are money.
Money also serves three other functions: a medium of exchange, a unit of account, and a store of value. A country’s fiat money serves as a unit of account. Cryptocurrencies like Tether and USD Coin function well as a store of value like fiat money, but cryptocurrencies with large swings in value, like Bitcoin, do not. Cryptocurrencies, like all forms of money, fail as a store of value when there is rapid inflation.
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