💵

Functions of Money

💵

The functions of money is a theoretical concept relevant for understanding the adoption of cryptocurrencies as a means of payment.

3️⃣

A widely held view is that money serves three primary functions: medium of exchange, unit of account, and store of value (Levulytė & Šapkauskienė, 2021; Peters et al., 2015).

To be generally accepted as a medium of exchange, the number of settlement points should be high enough that a market participant would accept the cryptocurrency payment (Levulytė & Šapkauskienė, 2021). This ensures that the market participant can use the received cryptocurrency for payment purposes himself. Levulytė and Šapkauskienė (2021) state that BTC and ETH can be considered a medium of exchange not only because they are accepted in exchange for goods and services but also because of the lower transaction costs.

ℹ️

BTC and

ETH also score the most points for 🛒Accepting Venues, while the cryptocurrencies

EOS,

FTM, and

SOL have the lowest transaction costs.

Next to low costs, Peters et al. (2015) also relate the qualities for online payments of Drehmann et al. (2002), security, and a degree of privacy, to cryptocurrencies.

ℹ️

All examined cryptocurrencies are inherently secure and naturally offer a degree of privacy as only the wallet addresses need to be used for transactions.

Cryptocurrencies also partially meet the function of a unit of account as they can be counted and divided (Levulytė & Šapkauskienė, 2021). However, the price fluctuations of cryptocurrencies hinder the other part: comparing costs for goods and services over time.

Ammous (2018) also asserts that price volatility negatively impacts the unit of account function and the storage of value function. Levulytė and Šapkauskienė (2021) share this view though they also add that the fluctuations of BTC tend to stabilize and are similar to currencies of developing countries.

💵

Titov et al. (2021) stress the importance of fulfilling the functions of money, as this is the minimum requirement to become an adequate means of payment.

Peters et al. (2015) argue that it might be possible that cryptocurrencies will satisfy all three functions in the future.

🥇

As stablecoins like