Welcome everyone.
I think it's a good time to reflect on the monetization processes of cryptocurrencies, especially BTC AND BCH, and understand the logic that may be behind these moves, which are quite hopeful for those of us who are confident that Bitcoin Cash will eventually become a global payment system and a worldwide store of value.
What is money?
In any introductory economics textbook we studied in college, it is said that the functions of money are 3:
1º) General medium of exchange (buying and selling products and services in exchange for money).
2º) Store of value (Accumulation of wealth)
3º) Unit of account (Means to calculate our monetary capacity).
In these economics books which they make us study, it is usually suggested that, somehow, these three functions are always present at the same time in any kind of money.
Although to some extent, the ideal money fulfills these 3 functions at the same time, not all money, historically, has fulfilled these 3 functions simultaneously and since its origin.
Cryptocurrency monetization process: How does Bitcoin/Cash become money?
2 Theories:
1) Modern Monetary Theory.
According to this current of economic thought, it is the states that create money and therefore money becomes first of all the "unit of account", i.e. the unit in which the tax burdens and official payments of a country are denominated.
In this way, people are forced to use it, becoming a means of exchange and, finally, it ends up becoming a store of value in an imposed way.
But this theory is invalidated with the emergence of Bitcoin, since the process has been completely different.
2) Carl Menger's theory
Carl Menger is Austrian economist who contributed to the development of the marginal utility theory and to the formulation of a subjective theory of value and, according to this theory, an asset that is not originally money, ends up becoming money if it possesses a fundamental quality: relative stability of value, i.e. if the value of BTC OR BCH is stable, people will want to obtain that asset to use it as a medium of exchange.
If Bitcoin Cash is able to have market value stability, being bullish, the desire to acquire and store it will be greatly increased.
According to Menguer, the store of value is a quality by which an asset has the potential to be transformed into money. In fact, Meguer indicates that this is the original quality of money, as a generalized direct medium of exchange.
Finally, when an asset has a stable value, many more economic agents will accept it as a means of payment, as we are currently seeing with announcements of big companies aiming to accept cryptocurrencies as a means of payment (Amazon, Tesla, etc).
This is a crucial and very important step for the triumph of cryptocurrencies and… It is happening!
BTC problems
While it is true that BTC can fulfill these 3 qualities, in one of them it is very weak. Specifically as a general medium of exchange.
This is due to technical problems such as high fees per transfer and its slow speed:
Bitcoin transaction processing is limited by two factors:
1. The block creation time (10 minutes on average).
2. The maximum size of the created blocks (around 1 MB and theoretically 4 MB in case of blocks filled with SegWit transactions).
If people cannot send and receive money quickly and cheaply, they will not use it for payments.
BCH, on the other hand, if it is able to make up for those shortcomings and be used as a fast and low fee p2p payment method.
That is why I am here and believe in the future of Bitcoin Cash!
Why does the value stabilize the more acceptable BCH becomes?
For 2 reasons:
1st) The more people are willing to sell their assets through a cryptocurrency, the higher the demand for that asset. That is, the fact that more and more companies accept cryptocurrencies as a means of payment, makes it become a more stable asset and demanded by people.
2nd) The demand for money for transaction purposes. That is, holding cryptocurrencies to make purchases in the market. As crypto payment becomes more popular, its demand will increase and so will its stability.
This is known as positive feedback and is the process we are beginning to observe today.
The final step
The final step will be when BCH becomes a unit of account. This process will be much longer. This is simple to understand, when people express their monetary capacity in this cryptocurrency, that is, when we will start to hear people and institutions quantifying their money in Cryptocurrencies or the price of products will be expressed in BCH.
(It will stop saying: -That person has a fortune of 10 million dollars, and they will say: - That person has a fortune of 10 BCH).
When this happens, the economy becomes totally linked and monetized to that cryptocurrency.
Conclusion
We now know a bit more about how a crypto becomes money and Bitcoin Cash has the ability to do so with solvency.
This is the decentralized monetization process that a cryptocurrency must undergo:
1º Store of value
2º Medium of exchange
3º Generalized unit of account
Does this path sound familiar? It is the path that Bitcoin Cash is following.
Time will reveal what the currency of the future will be, until then we can only analyze the past and the present.
Thanks!
read.cash: falcon-node
noise.cash: flymetothemoon
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